The People’s Vault: Armory Client

After nine months of almost-full-time development, the first official release of Armory has arrived: a full-featured, open-source bitcoin client built from the ground up.  Showcasing a first-of-its-kind interface to enable regular users to use offline wallets (aka: “cold-storage”). Keeping their funds on a computer that never touches the internet, but still manage them online using a “watching-only wallet” that is useless to an attacker.

This functionality was previously only available to knowledgeable programmers who could write their own bitcoin scripts. Armory brings it to everyone else.

Other innovative features include:

Multiple Wallets: Segregate your funds into different walletsDeterministic wallets: Requires only one backup, everPrint Paper Backups:  Never worry about a digital backup becoming corruptedWallet Encryption: Uses AES-256 and GPU-resistant passphrase-strengtheningUsermodes: Choose between “Standard”, “Advanced” and “Developer”Import & Sweep: Import VanityGen addresses, redeem (sweep) Casascius Physical Bitcoins

While others are pioneering lite-clients and smartphone apps, Armory is pushing the boundaries of secure wallet management on the desktop, to be used as a personal bank vault.

You manage your own bitcoins, removing the need to trust third parties. Most bitcoin losses to date were due to external services being robbed, going out of business, or incompetence. Armory  addresses all these issues with an intuitive interface that regular users can handle. Bitcoin was designed to remove third-parties from the equation, and Armory lets users keep it that way.

Also developed with business users in mind, its adoption by this group is going to be a serious driver for bitcoin’s success.  Using bitcoin introduces a lot of risks and responsibilities for employers, including wallet management and security.  The same “watching-only wallets” that bring cold-storage to regular users, can be given to employees to collect payments for the business without risk of employees or customers stealing funds. The owner can hold the full wallets offline at home, no security staff needed. Just like emptying the cash register at the end of the night (only easier, with no annoying change).

The current state of development is “alpha,” which is code for “proof-of-concept.” and “use at your own risk”.  To take advantage of all features a pretty powerful computer is needed (4GB of RAM or more is required and it must be running the regular bitcoin client). For power users this is no hurdle, with a serious push being made to bring it to more reasonable levels.

Top priority for the next release(beta) is to bring down memory usage and integrate native networking allowing it to be used as a standalone desktop application.

Up coming features:

Address booksOptions & settingsURI-handlingJSON-RPC interface

Work has also begun on multi-signature transactions, allowing:

Two-factor authentication scheme with your smartphone, not requiring a third-party.Buyer-Seller interface enabling trust-free online exchange with or without a third-party arbitrator.

Under-the-hood most of the functionality is already there, with the real work being the interface.

The Armory project is being financed by a crowdfunding campaign, find out more or contribute.




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Algorithmic money: Bitcoin needs a buzzword and own lexicon

Disruptive technologies seem to develop a rhetorical byword that becomes a descriptive synonym for the technology. When describing BitTorrent, we talk of peer-to-peer file-sharing, and with Facebook, of social media.

Whatever the merits of these terms, they act as homogenous words for the particular technology, but in a neutral form that appears unbiased towards any brand.

The BitTorrent brand is a tool to perform p2p file-sharing. p2p file-sharing is still possible with alternative brands. BitTorrent is not a prerequisite – there are other file-sharing networks.

When I think of p2p, I imagine personal relationships and empowerment. The word has strong graphical imagery. Imagery of linking with other people, helping one another and handing back power to individuals. Of the inter-personal sharing of wealth and knowledge on local levels.

BitTorrent to me is just a protocol – no special feelings. Even worse, when in Brazil, the minister of culture spoke about BitTorrent: the company (referring to BitTorrent Inc. of course). Corporations are not cool. They are anti-cool.

Five times during the last two months, I was asked if I work for Bitcoin. Well… yes… in a sense I do… But not in the sense they are thinking, and I have to explain that Bitcoin is not a company but a community with many participatory groups involved in building its infrastructure.

Foot in the door

Algorithmic money are systems which make use of mathematics and cryptography, not laws and legislation like legal money. Algorithmic money is therefore incorruptible as the laws of mathematics are universal across borders, and are not subject to human flaws and fragilities.

People are bombarded everyday with corporate propaganda. Advertisements very blatantly try to subvert people’s natural rational choices using overt psychological trickery. The tools are often very malign and potent, able to wield considerable influence turning bright people into manipulated cattle herded around the supermarket. How many of us have gone to the supermarket to buy milk that is inconveniently at the rear of the supermarket, and had to cross dozens of ON SALE signs, only to emerge with milk and a dozen other items?

This chronic conflict against our minds has caused people to erect mental firewalls against the cacophony of advertisement and products. Who among us does not become guarded or skeptical? And rightfully so!

It is a biological reflex against an attack on our values. In response, advertisers have moved to using the guerilla tactics of viral marketing.

Instead if we explain some technical concept, nobody can reject the idea with common misconceptions of “the money got stolen” or “bitcoin is dead in the water”. A person will be more receptive to an idea than a product. The descriptive euphemism becomes a trendy word that instantly conveys bitcoin’s core values and concepts without needing the technical diatribe.

I’ve been calling bitcoin, democratic money. Every normal person loves democracy and the word is inspecific (almost meaningless) feel-good word (when taken in the colloquial, not formal form). Satoshi used similar terms in his paper, calling mining ‘one-CPU one-vote’.

Then once your audience is caught unaware, the euphemism can be explained to be having an implementation called bitcoin.

However democratic money is not really technically descriptive. A term I propose is:

algorithmic money

vs

legal money

Algorithmic money are systems which make use of mathematics and cryptography, not laws and legislation like legal money. Algorithmic money is therefore incorruptible as the laws of mathematics are universal across borders, and are not subject to human flaws and fragilities.

“Oh, and an example of algorithmic money is bitcoin, but there are others.”

With some misdirection, you managed to evade the mental-shield against salesmen and marketeers.

Make bitcoin trendy: invent your own language and style

It is also likely that the idea was also an attempt at solidifying Hu Jintao’s status of a paramount position in China, as all other leaders before him had an ideology associated with them, namely, Mao Zedong Thought, Deng Xiaoping Theory, and Jiang’s Three Represents.

When leaders ascend to office they often introduce a new political theory as a way of cementing their views in public consciousness. To a lesser extent we see this in UK politics. Tony Blair rose through the elections on New Labour and David Cameron keeps talking about his new-fangled Big Society idea which is esoteric politburo BS to make the Eton-educated politically privileged Cameron with no life experience look in touch with general society. He went straight from private privileged education into politics.

Every politician hypes their ground-breaking innovative out-of-the-box buzzword schemes come election time (HOPE) and that often includes their own new-fangled brand of politics. Peron called his brand of fascist politics the Third Position.

Bitcoin needs to become trendy to succeed. Linux really missed the ball here, with Apple products filling that hole. Linux is ten times more cool, but the culture and language to describe it in this way does not exist.

Buzzwords make me cringe more than nails on a blackboard, but Joe Public loves his social media, the cloud and ground-breaking innovative out-of-the-box buzzwords. It’s a way for non-creative people to feel on the cutting edge (I’m not an elitist, but this is a wider societal problem to do with stagnation in education, the denigration of teachers and hence the elevated hipster status of creators – a different topic).

BlackBerry captured the business PDA market by advertising their devices as pagers capable of sending longer page texts, not as the first portable wireless e-mail devices that they actually were, because back in the 90’s, “WTF is an e-mail?”

TiVo advertised their devices as revolutionary digital video recorders with hard drives, that revolutionize the way we watch TV by recording things digitally, and allowing us to timeshift live programming. TiVo has pretty much always been near dead because, “WTF is a digital video recorder with timeshift?” Had they advertised themselves as a digital VCR you didn’t need to rewind, things may very likely have been different.

This is a marketing and development lesson that Bitcoin MUST heed if it wants any chance at addoption.
~ Rassah on bitcointalk

Start using bitcoin as a verb. We google, we tweet and we skype people. If you liked this article then please bitcoin me.

Amir Taaki (genjix) can be reached via genjix@riseup.net




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Merchant acceptance to EXPLODE

Google, Amazon, and Facebook are some of the leviathans of internet commerce. They have billions in funding, scores of lawyers, armies of programmers, logistics and support staff. Wielding huge influence, power and reach as a result. The effect of one of these accepting bitcoin as a form of payment would overnight catapult it onto the world stage as a major currency accepted almost everywhere.

We are not however going to see the adoption by any of the big powers until it’s already widely used by a significant percentage of smaller online retailers. The take-up by one of the giants will only come as a result of bitcoin’s success, not its cause or ideology. So it is small merchants we must win over first in many small battles before we can hope to win a large one.

The incentives to accept bitcoin as a method of payment, especially for smaller operators, are obvious:

No chargebacksNo need for a merchant accountNo paperworkAlmost non-existent fees

If bitcoin’s attractions are obvious, its shortfallings are painfully so:

High technical barrierDanger of stolen coins if compromised

Few mom n pop eVendors have the needed software development skills to integrate bitcoin with their store, and even fewer have the knowhow to secure those stores from bitcoin breakins.

Onto the scene steps osCommerce, and the man who is bringing it into the world of bitcoin. osCommerce, an online store managment  system, is used by well over 14,000 live websites. Among its more well-known users are the Madriva Linux Store and the Mozilla Store, the catagories of stores cover Arts and Antiques to Travel and Tours. Just the kinds of small, mom n pop operations that can get a real competitive advantage from the benefits bitcoin has to offer.

David Sterry, California based computer consultant, developer, and free software advocate began working to make bitcoin an easy payment option for osCommerce users. He started with the already existing bitcoin module and went from there. What he’s added has made this option cheap, easy, and secure.

It includes all the software needed to reliably run bitcoin, the only requirement being that it’s not run on shared hosting (cheap VPS however is fine). Features include:

Allows bitcoin(d/s) to be on a different machine than osCommerceUnique payment address for each orderForwards bitcoin to a safe address when threshold reachedAutomatically calculates the USD exchange rate

This is a small step that will have a growing impact on the acceptance of bitcoin for online commerce. The result of David’s efforts are that it’s as easy to get up and running with bitcoin as with osCommerce itself, and it reduces the amounts that can be stolen to no more than pocket change.

resources:

Bitcointalk thread
Github repo




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Compromised Linode & coins stolen from slush, faucet and others

Linode has cost me more than 3000 BTC (nearly 12k EUR at current rates) due to a security flaw in their platform. Linode is a cloud computing and web service providing company that is a popular hoster of web services throughout the world. Today I woke up to find my hot wallet on the backup server had all its coins stolen. As a security measure, merchant sites keep the majority of funds offline with just enough in a ‘hot wallet’ to keep operations running smoothly.

Rest assured: I am covering Linode’s mistake from my own income. That means months of my work is wasted and I’m crushed.

Especially upsetting is that I went to great pains to keep everything as secure as possible. But that was all rendered worthless when somebody hacker the upper level service provider. All that time of mine has gone down the drain for nothing.

It seems that also the user database has been compromised. Although passwords are stored using SHA1 with a salt, I strongly recommend to change your pool password immediately.

How it went down

This morning I received an emergency SMS notification that my pool’s bitcoin balance was low. I started investigating and the chain of events turned up strange anomalies. I then noticed 3094 BTC moving out of the pool wallet. I could only sit helpless as the money got confirmed by the network.

While watching the logs, it did not look like the server had been compromised at all.

Then I found that two of my Linode machines has been restarted half a hour ago, too, and the root passwords had been changed. I changed the passwords and found that there was malicious activity on the machines. Then I discover that the passwords were changed over Linode Manager (Linode web management), because there was record about the password change in the Host Job queue (last activity done over the Manager).

I reported accident to Linode staff and asked for log of recent logins to Manager. To my surprise, there were only my own log attempts and last login before the attack was on 08/02/2012! I reported to Linode that something is terribly wrong, because I had been using strong password for my Linode Manager (because I know it’s basically backdoor to my machines) and I didn’t use this password on different places.

Full log of support ticket is here.

I’m still waiting what they’ll find.

Linode is a top provider and lot of people trust them with serious business (like me until now). If they’ll see that Linode is trying to hide this issue, maybe people change their mind.

As a respected hosting provider, I hope they do the correct thing and refund me for this liability due to their error. Many people trust Linode, and they have proven themselves as a serious contender for hosting critical sensitive operations on the internet. I would hate to not see them live up to that reputation.

I am not the only person affected by this. A few hours ago another guy contacted me that his Linode machine has been attacked and his coins was moved to the same wallet, asking me if I knew what happened (because he found that the 1Mining2 address is mine). We found that our issues are the same – changed password in Manager, stolen coins & Linode staff is telling they have no security issue on their side.

It looks like attackers found some vulnerability of Linode Manager and used it to infiltrate Linodes with running bitcoind (we both had bitcoind running on the machine), to gain maximum profit for the least exposure; it does not seem many other machines were compromised, and we found no information on Twitter or anywhere else. It looks like the attackers were interested only in Bitcoins, because they left Namecoins untouched, although they had the same chance to steal them.

The Bitcoin faucet (Gavin Andresen) has also had its coins stolen.

From the attacker’s wallet it looks there were more people affected by this Linode hack, maybe they’ll know anything more?

There’s no reason to think that pool itself was hacked. I changed all passwords everywhere (mainly to database), moved coins to new wallet and everything is working fine. Backup machine didn’t contain keys for accessing pool server, so there’s no need to reinstall pool to another machine. I’m covering all financial loss from my own money, to keep pool users out of this stupid issue. It is between me and Linode.

Update:

Linode has confirmed that the error was due to a fault on their side.

Hello Marek-

We were alerted to the suspicious activity and have identified and corrected the issue. Our investigation has revealed a customer support interface was used to access your account. The compromised credentials have been restricted and we are discussing policy changes to prevent this from recurring.

We regret that this incident has occurred, and apologize for the unnecessary work this may have caused you.

We appreciate your business and certainly want to keep you as a happy and satisfied customer. If there is anything we can do to make this up to you, certainly let us know.

Regards,

Thomas Asaro
Vice President

They’ve made a security announcement on their website which also confirms the error, and alerts their customers of the risk. Linode says they are performing an in-depth audit on their Linode Manager software to confirm the risk.

Bitcoinica

Zhoutong of Bitcoinica, confirmed he has lost 43,554 BTC (~200,000 USD) from this recent Linode theft.

We lost 43,554 BTC from this incident and we will reimburse our customers for the full amount.

– Customer funds will not be affected.

Bitcoinica is committed to absorbing any loss. The thief stole from us, not you.

– Customer data is safe.

The compromised server was entirely dedicated to holding our bitcoin “hot wallet” only. Thankfully, this function is the –only- one ever hosted at Linode. No customer data has ever been hosted at Linode. Also, there is no privileged access from the affected server. This means that no passwords, account activity, or any other customer data has been exposed by this incident.




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Bitcoin Finishes February 2012 Down, YTD Up 3%

The Bitcoin exchange rate is no stranger to volatility and saw its share of it in February, 2012.  The closing price of $4.86 is down more than 11% for the month but the currency still has a gain, just about 3%, for 2012 YTD.

The volume of trading during the month was fairly heavy even considering that the second largest bitcoin exchange, TradeHill, shut down mid-month.   Some of the trading can be attributed to fund flows arriving at other exchanges following withdrawals from TradeHill.  The biggest selling pressure for the month was likely a combination of the news that Paxum would no longer serve Bitcoin exchanges followed shortly by the TradeHill news.  Those buying into the resulting selloff were rewarded when the exchange rate recovered and ramped back up — possibly as the result of developments at the fastest-growing Bitcoin business, Bitcoinica.  Their very busy February involved a pre-announcement of future plans, the introduction of interest-bearing deposit accounts, the addition of AliPay as a payment method and a translation of the site to support customers from China.

A milestone of note occurred during the month when block 168,000 was reached and thus more than 40% of the 21 million bitcoins to ever be issued have now been issued.  Later this year when the 50% threshold is reached the block reward will drop from 50 BTC to just 25.

A fundamental metric used to gauge Bitcoin’s traction as a payment network is the transactions processed daily numbers.  The numbers did spike to levels that would indicate a tremendous gain in uptake, however the timing coincided with the TradeHill closure so the sudden increase in transactions is likely related to the transfer of funds following that event.  As a reminder, this metric and others within bitcoin are easily manipulated so caution is warranted before considering using these metrics when making investment decisions.

Though there were no general availability releases this month of the “Satoshi” Bitcoin.org client, other clients such as Electrum, Armory and MultiBit advanced with new features and other improvements.  Hosted services in the Bitcoin ecosystem struggled to provide consistent, reliable availability.  Services dependent upon Block Explorer and BlockChain.info for transaction information were suffering during the month when those underlying service providers themselves underwent extended maintenance and experienced unplanned outages.

A little over 217,750 bitcoins were issued (or “generated”, or “mined”) during the month worth nearly $1.1 million using the average daily valuation of $5.12.  For the miners paying typical electric rates the current mining profitability is covering the cost of electricity but otherwise little else, especially if considering the cost to amortize typical mining hardware as well.  The difficulty did increase but only around 5% for the month.  With commercial availability of FPGA designs, miners will be likely see another squeeze on margins unless the exchange rate jumps up.

With continued attention being given Bitcoin — the latest rush coming as the result of comments from Google’s Executive Chairman, the currency continues to gain mindshare.

Though speculative investment remains the primary attraction for many, the currency continues to be poked and prodded, measured and weighed.  Yet more so than ever before, Bitcoin is not being found wanting.

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Redeemable Codes Bypass International Banking System A financial…

Redeemable Codes Bypass International Banking System
A financial instrument that has become quite visible in the Bitcoin world is the redeemable codes system issued by several Bitcoin exchanges.  These codes essentially work like a e-gift card that can only be redeemed at the exchange that issued the code.  The payment intermediary BitInstant is now linking the exchanges so that the codes allow funds to be moved from one exchange to another.
Why Use Redeemable Codes?
These codes help with solving the problem of customers wishing to move funds into and between the exchanges.  A code is created by the customer of an exchange using the customer’s funds from their own account.  When redeemed, the exchange instantly transfers the funds associated with that code into the account of the party that redeems the code.
These codes are thus a bearer negotiable instrument that is transferable electronically making them ideal for providing the ability to transfer funds from one account with the exchange to a different account at the same exchange.
To date, none of the Bitcoin exchanges which offer redeemable code charge any transaction fee for using the code and redeem for the full 100% value of the funds associated with the code.
A code is simple to use.  The code itself is simply a set of letters and numbers, about 30 or so characters in length.  The code can be easily transferred to or from a mobile using a QR code.
Which Exchanges Issue Redeemable Codes? 
Mt. Gox was the first exchange to introduce this redeemable code system in the middle of 2011.  Currently the list of exchanges that now do issue codes includes Crypto X Change, Bitcoinica, and BitStamp.net.
Some exchanges offer codes denominated in either USD or BTC.  Both methods are offered to serve various use cases.  A BTC-denominated redeemable code allows a transaction involving bitcoin-backed funds to be completed instantly.  This contrasts with a withdraw of bitcoins using the bitcoin network because bitcoin transactions need to first confirm — a process that can typically take an hour or so.  This might explain why some merchants have started to accept redeemable codes from various exchanges as an alternative payment method as well.
Inter-exchange Transfer
BitInstant accepts USD codes from some of these exchanges, at a discount, for its service which is used by many to move USD funds between exchanges.  For instance, a trader that wishes to move USD funds from Crypto X Change to Bitcoinica might use BitInstant for making that transfer.  For most smaller transactions (e.g., under $1,000) the fee charged by BitInstant will likely be significantly less than if the transfer occurred using a bank wire.
In many instances the use of redeemable codes enables a Bitcoiner to use BitInstant to bypass the international banking network as the end result is then just domestic banking system transactions occurring with BitInstant and the exchanges simply operating as intermediaries.
BitInstant even serves as a method for acquiring these redeemable codes quickly.  Cash may be deposited at nearly a dozen of the largest banks in the U.S. for purchase of a redeemable code from any of the exchanges BitInstant works with.  BitInstant will soon be introducing additional cash deposit and online instant transfer methods as well through banks in both Europe and the U.S. 
Risks
There are risks to using these redeemable codes though.  The term “bearer instrument” means just that — the funds can be spent by any party that knows the code.
Individual traders have become accustomed to using e-mail as the method of forwarding a redeemable code as payment to trading partners, for instance.  At some point, cyber-criminals will be sniffing network traffic to snag these redeemable codes sent through e-mail and other insecure channels as once the code is known it can be redeemed at the exchange and withdrawn — all anonymously, in many instances.
Additional risks exist as well.  None of the exchanges offering these codes are registered to operate as money service businesses in the U.S.  BitInstant claims to be exempt from the requirement to register as a money service business as they do not issue nor store the value from the codes themselves.
There is also the risk that the exchange which issued the code might not truly hold the funds to back the amount of value supposedly available on demand to the bearer of the code.  At present, these codes are not generally used as a store of value by customers so the total amount of value tied to these codes is likely just those transfers in progress at any point in time — presumably just a relatively small amount of funds to an exchange.
Are Bearer Instruments Legal?
Another bearer instrument known as a bearer bond has not been issued the U.S. since the Tax Equity and Fiscal Responsibility Act of 1982 passed.
There are other forms of bearer instruments that are still widely used however.  Lottery tickets are redeemeed by the bearer in most U.S. states and jurisdictions globally, for instance.   Another example — stored value prepaid cards might employ a scratch-off that reveals the code underneath — for redemption by the bearer.
Green Dot’s MoneyPak and WalMart’s Money Card are two financial instruments that would seem to be similar to these redeemable codes however those products are for sale with the intention that the buyer loads the funds into another account controlled by the same buyer, and not for use as a cash transfer method.
Looking Ahead
Unlike how the Bitcoin digital currency employs a decentralized architecture, the Bitcoin exchanges are entities that can be shut down with a single phone call.  As a result, the exchanges appear to attempt to comply with regulations — such as the anti-money laundering restrictions imposed, for instance.  Similar to how in the U.S. stored value instruments that could be used internatioally, such as prepaid debit/ATM cards, were sold for more than a decade and a half without significant restrictions, redeemable codes may have some runway yet before becoming a target by regulators in the various jurisdictions where they operate.
In the meantime, Bitcoiners have achieved near parity with the fastest global money transfer systems available anywhere yet thanks to financial innovation are not having to foot hardly any of the large bill that those systems traditionally incur.
Previous Posts

Redeemable Codes Bypass International Banking System

A financial instrument that has become quite visible in the Bitcoin world is the redeemable codes system issued by several Bitcoin exchanges.  These codes essentially work like a e-gift card that can only be redeemed at the exchange that issued the code.  The payment intermediary BitInstant is now linking the exchanges so that the codes allow funds to be moved from one exchange to another.

Why Use Redeemable Codes?

These codes help with solving the problem of customers wishing to move funds into and between the exchanges.  A code is created by the customer of an exchange using the customer’s funds from their own account.  When redeemed, the exchange instantly transfers the funds associated with that code into the account of the party that redeems the code.

These codes are thus a bearer negotiable instrument that is transferable electronically making them ideal for providing the ability to transfer funds from one account with the exchange to a different account at the same exchange.

To date, none of the Bitcoin exchanges which offer redeemable code charge any transaction fee for using the code and redeem for the full 100% value of the funds associated with the code.

A code is simple to use.  The code itself is simply a set of letters and numbers, about 30 or so characters in length.  The code can be easily transferred to or from a mobile using a QR code.

Which Exchanges Issue Redeemable Codes? 

Mt. Gox was the first exchange to introduce this redeemable code system in the middle of 2011.  Currently the list of exchanges that now do issue codes includes Crypto X Change, Bitcoinica, and BitStamp.net.

Some exchanges offer codes denominated in either USD or BTC.  Both methods are offered to serve various use cases.  A BTC-denominated redeemable code allows a transaction involving bitcoin-backed funds to be completed instantly.  This contrasts with a withdraw of bitcoins using the bitcoin network because bitcoin transactions need to first confirm — a process that can typically take an hour or so.  This might explain why some merchants have started to accept redeemable codes from various exchanges as an alternative payment method as well.

Inter-exchange Transfer

BitInstant accepts USD codes from some of these exchanges, at a discount, for its service which is used by many to move USD funds between exchanges.  For instance, a trader that wishes to move USD funds from Crypto X Change to Bitcoinica might use BitInstant for making that transfer.  For most smaller transactions (e.g., under $1,000) the fee charged by BitInstant will likely be significantly less than if the transfer occurred using a bank wire.

In many instances the use of redeemable codes enables a Bitcoiner to use BitInstant to bypass the international banking network as the end result is then just domestic banking system transactions occurring with BitInstant and the exchanges simply operating as intermediaries.

BitInstant even serves as a method for acquiring these redeemable codes quickly.  Cash may be deposited at nearly a dozen of the largest banks in the U.S. for purchase of a redeemable code from any of the exchanges BitInstant works with.  BitInstant will soon be introducing additional cash deposit and online instant transfer methods as well through banks in both Europe and the U.S. 

Risks

There are risks to using these redeemable codes though.  The term “bearer instrument” means just that — the funds can be spent by any party that knows the code.

Individual traders have become accustomed to using e-mail as the method of forwarding a redeemable code as payment to trading partners, for instance.  At some point, cyber-criminals will be sniffing network traffic to snag these redeemable codes sent through e-mail and other insecure channels as once the code is known it can be redeemed at the exchange and withdrawn — all anonymously, in many instances.

Additional risks exist as well.  None of the exchanges offering these codes are registered to operate as money service businesses in the U.S.  BitInstant claims to be exempt from the requirement to register as a money service business as they do not issue nor store the value from the codes themselves.

There is also the risk that the exchange which issued the code might not truly hold the funds to back the amount of value supposedly available on demand to the bearer of the code.  At present, these codes are not generally used as a store of value by customers so the total amount of value tied to these codes is likely just those transfers in progress at any point in time — presumably just a relatively small amount of funds to an exchange.

Are Bearer Instruments Legal?

Another bearer instrument known as a bearer bond has not been issued the U.S. since the Tax Equity and Fiscal Responsibility Act of 1982 passed.

There are other forms of bearer instruments that are still widely used however.  Lottery tickets are redeemeed by the bearer in most U.S. states and jurisdictions globally, for instance.   Another example — stored value prepaid cards might employ a scratch-off that reveals the code underneath — for redemption by the bearer.

Green Dot’s MoneyPak and WalMart’s Money Card are two financial instruments that would seem to be similar to these redeemable codes however those products are for sale with the intention that the buyer loads the funds into another account controlled by the same buyer, and not for use as a cash transfer method.

Looking Ahead

Unlike how the Bitcoin digital currency employs a decentralized architecture, the Bitcoin exchanges are entities that can be shut down with a single phone call.  As a result, the exchanges appear to attempt to comply with regulations — such as the anti-money laundering restrictions imposed, for instance.  Similar to how in the U.S. stored value instruments that could be used internatioally, such as prepaid debit/ATM cards, were sold for more than a decade and a half without significant restrictions, redeemable codes may have some runway yet before becoming a target by regulators in the various jurisdictions where they operate.

In the meantime, Bitcoiners have achieved near parity with the fastest global money transfer systems available anywhere yet thanks to financial innovation are not having to foot hardly any of the large bill that those systems traditionally incur.

Previous Posts


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Mazuma for torrents

Where are we?

Bitcoin stands at its own provincial section of the internet. Ready to do battle with a hacker-mindset mirth-attitude versus an orthodox arrant opponent. Ironically this child-like informality has allowed bitcoin and its older brethren to develop. Older brothers like BitTorrent. BitTorrent was the dynamic response of a community to creepingly tight strangulation on file-sharing services. BitTorrent was one of many competing decentralised file-sharing systems at the time. It chanced the lottery for whatever reasons and won out.

Bitcoin challenges finance. BitTorrent challenges publishing.

Both are decentralised systems. In BitTorrent, you download a movie from other peers in that network. Much like bitcoin. However, a downloader has to know which movie file he wishes to download. Much like bitcoin. In Bitcoin, you have to know who you’re sending money to before you send the money. If you could not specify recipients, bitcoin would be more exciting but not practically useful!

Geek pride

BitTorrent then has third party websites where people can upload links (which only work in the BitTorrent software) to downloadable files inside the BitTorrent mini-internet. These websites offer a searchable index which users can then come to discover which file they wish to download. They click the download-link (called a magnet-URI) and the download starts. The BitTorrent software is then able to discover other peers inside the network using its decentralised process.

There are many competing third-party services. Shut one down, and another fills its place. The Pirate Bay is one of these. Their notoriety spawned a political party. And boosted a growing subculture of people versed in the issues surrounding individual rights and access to information. A generation raised and living in cyberspace. All across the world, people are asserting themselves, reclaiming the word pirate as new epaulettes as the insignia of the geek. Homosexuals reclaimed gay. Blacks reclaimed nigger. We’re reclaiming pirate.

Originally intended as a badge of shame, the pink triangle (often inverted from its Nazi usage) has been reclaimed as an international symbol of gay pride and the gay rights movement, and is second in popularity only to the rainbow flag.

Managing complex systems

Computer systems often are designed in layers. A layered system is easier to grapple by a team. Each developer works his own turf in graduation from systems developers programming hardware, to application developers programming user software. People have diverse skills and propensities. This alignment permits coders to choose their layer and tend his turf to perfection, without concerning himself with the neighbours.

Banks are layered systems. There’s an ecosystem of services and agreements that make the arrangement work without one dictator at the top. Otherwise you get a monolithic system worse than the bitcoind sourcecode.

BitTorrent is a layered system with those third-party indexing services at the top. Those services can be stomped out but more daisies will spring up. They are the weak-links of the BitTorrent world. The equivalent to bitcoin’s exchanges. The choke-point for the multi-headed decentralised hydra.

“Tribler Makes BitTorrent Impossible to Shut Down”

Discussion has started on whether a new network overlaying the BitTorrent network can resolve this weakness. Fix the issue and attain a 100% resilience stat. Could we make an overlay network?

Enter Tribler:

Tribler doesn’t require torrent sites to find or download content, as it is based on pure peer-to-peer communication. “The only way to take it down is to take the Internet down,” the lead researcher says.

“Our key scientific quest is facilitating unbounded information sharing,” Tribler leader Dr. Pouwelse tells TorrentFreak. “We simply don’t like unreliable servers. With Tribler we have achieved zero-seconds downtime over the past six years, all because we don’t rely on shaky foundations such as DNS, web servers or search portals.”

Downloading torrents through Tribler is completely decentralised. The client searches for results within the network and pulls in the metadata from other peers.

Keeping in consistent lockstep with other systems, bitcoin is layered. It has a system, protocol, clients, interfaces and services. But all of the upper levels are missing. We haven’t created them yet. It will be a long time before we develop the knowledge and live the experience that we can wield as tools to tackle these problems.

Even the mental models are not yet there. Read the early papers by Newton and Leibniz on calculus. They are almost incomprehensible. The mental abstractions and models we use now did not exist. It took centuries until calculus was ready for high-school.

Electrum and Stratum are two early attempts at creating overlay networks that are exciting and fresh. Users can interact with specialised supernodes to read the blockchain, sparing themselves the expense of running a resource hungry local node. Today everyone uses trusted mail operators. Tomorrow everyone will rely on trusted supernodes for their blockchain needs. Electrum and Stratum are the first ghostly shimmers of bitcoin’s future direction. Imperceptible and easy to overlook.

Clearing and Settlement Mechanism

The SEPA (Single Euro Payments Area) initiative for European financial infrastructure improves the efficiency of cross border payments by consolidating fragmented banking systems into a single standard. This system is implemented by all banks within the SEPA region.

The Clearing and Settlement Mechanism (CSM) underlies SEPA payments. Clearing is a contractual obligation to fulfill a trade. The bank commits to a transaction until it is ‘settled’. Clearing is necessary because the speed is much faster than the cycle time for completing the underlying transaction (settlement). If bank A sends 20 EUR to bank B, and bank B sends 10 EUR to bank A, then during the settlement process 10 EUR will be settled from bank A to bank B. In practice the volumes are much higher.

Bitcoin is a settlement system. We need clearing systems. Systems like Electrum/Stratum will allow the network to scale, while clearing systems will fill in bitcoin’s blanks. Instant anonymous small micropayments at no or low fees. Currently bitcoin transfers are fast but not instant, private not anonymous, cent-value not micro-transactional, and low fees not no-fees. A good clearing system will connect those final dots.

Bitcoin’s future clearing system has no defined spec. Quite how it will look is not known. Could it be a third party service or a Tribler-like system? Would the adopted clearing system be based on a first-mover advantage entrenched by the pull of network effects, or one that arises out of a competitive market based on its merits? Only Nostradamus knows.

Powers combined

Such a clearing system would have massive benefits for incentivising models on the internet. Reward culture at a click. Everyday videos are uploaded to community video sites like YouTube or Vimeo. Videos routinely gain audiences in the millions. Imagine one of these videos with a 100 million views. If that uploader got $0.01 for every view, he would have $1 million. Click-funded culture.

This hypothetical bitcoin-clearing system could be built into a decentralised content overlay network like that of Tribler. Funds could be aggregated towards uploaders, trickling around the network funding publishers of the media.

Tiny payments for fractional bitcoin amounts would encourage people to provide their bandwidth to help spread the love, rather than leeching and running. In school the teacher would give a chocolate bar to the good kids. In BitTorrent we would give $$$ to the good seeders. More bandwidth would be provided to the BitTorrent network, speeding up download times. Faster downloads and the natural resiliency would encourage people towards torrents. Bitcoin would benefit too, if simply from a step up in users and a richer economy.

Tit for tat is an effective strategy for encouraging uploaders. It works well to have two parties building trust by returning a favour to encourage further goodwill. Anti-social hoarders in the network are punished by being shut-off from bandwidth. Co-operative uploaders are rewarded with access to larger bandwidth and hence faster downloads.

This strategy could equally work well with one form of wealth (bandwidth) substituted for a purer form (money). It would have implications that lead to the new development of unusual technologies and enthralling ideas.

And together we reclaim culture. Culture will forever change. The read-only world is finished. Read-write culture begins now. Reconverging on the patronage system is step one.




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Bitcoin – Finally, Fair Money?

A post on Mute titled Finally, Fair Money? does an excellent job of describing the concepts of money and how Bitcoin does serve as money for each particular.

Excerpts:

The key technical innovation of the Bitcoin protocol is that it solves this double spending problem without relying on a central authority. All previous attempts at digital money relied on some sort of central clearing house which would ensure that Alice cannot spend her money more than once. In the Bitcoin network this problem is addressed by making all transactions public. Thus, instead of handing the signed contract to Bob, it is published on the network by Alice’s software. Then, the software of some other participant on the network signs that they have seen this contract certifying the transfer of Bitcoin from Alice to Bob. That is, someone acts as notary and signs Alice’s signature and thereby witnesses Alice’s signature.

The fact that ‘unbreakable’ digital signatures – or law enforced by the police – are needed to secure such simple transactions as goods being transferred from the producer to the consumer implies a fundamental enmity of interest of the parties involved. If the libertarian picture of the free market as harmonious co-operation for the mutual benefit of all was true, they would not need these signatures to secure it. 

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BTC-Hospital Saves Me

3 years ago I damaged my elbow. I went to see the hospital, and the nurse being too busy to hear my full story hurried me along telling me it was sprained. I knew what a sprained elbow felt like and this wasn’t it, but I shrugged my shoulders and assumed it would get better. It’s been aching on and off over the last few years.

A physician on the bitcoin forums was offering medical advice for a bitcoin. I typed up my full story and sent it to him. He wrote me back a long response that quite literally scared the crap out of me into seeing a doctor. I took his write-up to my General Practioner and she right away knew what was wrong and referred me to all the relevant specialists.

That guy on the bitcoin forums literally saved me from crippling injury in a few years time. Had I not spoke to him, it may have been too late before I got it checked out. I always kept putting it off since I’m so busy and it didn’t seem like a big deal.

Thank you DrG. We are living the future.




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Crowdfunding gets some back

Bitcoin is revolutionising the way developers deal with online payments and transfers, as well as being an evolutionary step forward for money.  The stone has been cast, ripples have hit the shore, the effect is a tsunami of projects and innovation.

From a road trip across America surviving on bitcoins alone , starting a stock exchange(GLBSE.com), to a P2P package delivery system (coming soon), hundreds of small projects have gotten started with a call for help to the bitcoin crowd. The latest example, Bitcoin Syndicate puts a small twist on the typical crowdfunding story. They expect to be able to make a profit, and provide a return to their crowd.

Bitcoin Syndicate, headed by Paul Mumby(A.K.A. theGlassWalker), an Ottawa based IT manager and backed by several members of his syndicate began looking for funding for their project in the bitcoin community. Their venture?,bitcoin mining, and by selling shares on the GLobal Bitcoin Stock Exchange, rather than looking for a straight up donation they could pay out  profits to their shareholders.

The syndicate IPO’d Wednesday 22nd of February (one day ago at the time of publishing) and in that timeframe has raised over 700BTC for their goal, there has been a continuous stream of share purchases since that time, with less than 1000BTC needed to hit their target. When looking over all the trades on GLBSE, you can see every trade for Bitcoin Syndicate (ticker: BTCSYN).

Selling at 0.25BTC per share people can invest with as little as $1.25 (at the current exchange rate). This is a far cry from the years when you were expected to have minimum amounts of thousands to invest, otherwise broker and trade fees ate up a significant portion of your capital. Now everyone can save and invest pennies all the way up.

GLBSE itself has been around for sometime(itself a crowdfunded bitcoin project), the initial idea started in February 2011. Since then there have been two versions of the site. The first required the use of a command line client, that although flexible, was difficult to use and kept many from enjoying the system.

The second version was launched a few months later and used an ingenious system called webkeys to provide much more security than a traditional username and password. This system has proven difficult to develop and as a result GLBSE stagnated a little. Now the third version (which funnily enough is being called GLBSE2.0) is being released on Monday 27th of Feb. Where all previous versions have focussed on security, this one is aiming for usability and simplicity.

Bitcoin Syndicate(BTCSYN)is not the first mining share to be sold on GLBSE, there has been a long history of mining companies and shares, as well as non mining entities, many of which are still operating.

Bitcoin Investment Bank (BIB.goat) – bond backed by bitcoin mining

Islamic Bank of Bitcoin (IBB) – Bitcoin banking and loans

XID Alpha (XID.ALPHA) –  Investment fund

CoinConnect (CC) –  Bitcoin Social Network

JL421 Productions (JLP-BMD) – Mining Division

MergedMining (MergedMining) – Bitcoin/Namecoin mining

TyGrr Tech (TyGrr) –  Mining

FPGA mining company (FPGA.contract) –  Mining contract

Red Star Mining (RSM) –  their blog, Mining

BloclMiners.com (BMMO) –  Mining

PureMining (PureMining) – Mining

To track the latest trades on GLBSE visit twitter, for charts, the latest GLBSE announcements and the GLBSE blog.

James McCarthy(Nefario) is the founder and operator of GLBSE.

Tags: GLBSE




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