19 April 2014

Betting on the Blockchain: Sports Gambling and Bitcoin

Sports gambling in America is big business. It is also, largely, illegal. According to the National Gambling Impact Study Commission, nearly $400 billion is wagered on sports by United States citizens during a given year, with only $3.5 billion of those bets being placed at legal books in Nevada.

With only one state offering legal sports betting, how is it that U.S. citizens are able to gamble so much on games?

While a significant portion of illegal gambling is still done in person, the internet has allowed the popularity of the pastime to soar. Widely used sites such as Bovada and 5Dimes that are based outside of U.S. jurisdiction (Canada and Costa Rica, respectively) offer gamblers a way to get in on the action without driving to the desert. But they also come with risks.

In 2011, the online gambling world was hit by one of its worst scandals to date. In an event known as “Black Friday”, the U.S. Department of Justice shut down Full Tilt Poker and PokerStars, two huge online poker sites, and seized over $500 million in player deposits. Customers had to wait a year and four months before a settlement was reached to repay their losses, with the stipulation that they had to contact the Justice Department to claim reparations.

With such a huge bust only a few years ago, sports gamblers are wary of keeping too much money online, lest history repeat itself. So far the U.S. has been lax in their enforcement of anti-sports gambling laws, but there is nothing to stop them from cracking down like they did on poker sites. Nonetheless players continue to use the services because they are widely regarded as the only option around.

Bitcoin’s Potential

Bender is a gambler. He’s also a Bitcoiner:

“I was a semi-professional online poker player during the pre-ban days, and always dabbled a bit in sportsbetting. The minute I understood bitcoin, I saw that it could, just maybe, be the answer for all of online gaming – sportsbetting, casinos, poker…”

Online gambling is nothing new in the world of Bitcoin. It is well known that at times the activity of SatoshiDice has made up over 50% of blockchain transactions. The speed and anonymity Bitcoin offers has made the cryptocurrency ideal for people looking to wager safely and has given sports gamblers like Bender an alternative to traditional online books.

Usually United States players have to go through a tedious process sending and receiving their money from gambling sites. Depositing money requires using Western Union or a credit card. Western Union is convenient, but requires fees unless players meet a minimum deposit. Credit cards are a cheaper option, but require you to upload a copy of your card.

Withdrawals are a bit more difficult. From a Gizmodo article on the topic:

“Each site has different hurdles to jump through. Legends’ best option seems to be getting a cashier’s check sent to you. The site offers one free cashier’s check every 30 days ($55 for additional withdrawals), so put yourself on a monthly withdrawal schedule to take advantage of the freebies. 5Dimes also sends a free check or money order every 30 days, but comes with the stipulation that you request your withdrawal on Monday between 9:00 am Eastern and 1:00 pm Eastern. Mark it in your calendar.”

So…there’s room for improvement. This is where Bitcoin shines as a gambling option. As Bender explains:

“The speed of bitcoin transactions makes using bitcoin sportsbooks a much safer option to me than traditional sportsbooks. I can deposit, wager, withdraw, and have my money back in my immediate control.”

This is made possible by the blockchain. Since the network handles transactions at such low cost, Bitbook operators are saved the headache of managing players’ cash.

James, a representative for the Bitbook NitrogenSports.eu, told Bitcoin Magazine:

“Traditional payment methods are expensive for operators…(t)he operator costs are usually a % of the amount + a flat fee per transaction. By comparison, Bitcoin transactions might cost an operator a flat 10 cents.”

These advantages have Bitbook operations like Nitrogen thinking optimistically: “Once someone experiences the benefits of Bitcoin: Instant and unlimited low-cost (free) transfers, anonymity and personal control of your coins; it would be hard to move back to a traditional book that offers none of these things.”

The Need For Stability

Despite these strengths, there’s a problem holding back Bitcoin from being widely used for online sports gambling.

“The main, possibly fatal, drawback is price instability” Bender explains, “if you figure you have a 10% edge on a wager, and you make that bet, you could win the bet and still lose money if the market falls more than 10% before you cash back into dollars.”

Bender is not alone with this complaint. UmeJack is a moderator of the /r/sportsbook forum on Reddit and, while knowledgeable of Bitcoin books, does not use them. He offered his thoughts on the issue:

“…Bitcoin currently doesn’t allow for adequate bankroll management. Any long term profitable gambler will tell you that keeping careful control of how much you’re risking is key to long term success. If I place a bet for a certain amount of money, I picked that amount for a reason. The current volatility of the bitcoin market, price down 10% over the last 24 hours as I’m writing this, means that the amount I’m betting isn’t entirely under my control.”

Here we run into a problem that has plagued the technology since its inception. A currency should be a stable store of value. And Bitcoin isn’t that. Every time you bet with Bitcoin you are taking on two risks. Bitbooks like Nitrogen can try to persuade gamblers by pointing towards the long-term upward trend of the coin, but for UmeJack that isn’t enough, and in some cases could be a deterrent:

“If I was in a casino, put 100$ on blackjack, won the hand, and the dealer only paid me 90$ because the value of the dollar had fallen while my bet was in play, I’d never go back to that casino. The opposite is also true. If I put down a big bet, and the market spikes up, I might now be uncomfortable having that much money in play. Obviously this isn’t a hold up for the more casual bettors, but it does matter to me.”

There is a solution to this problem. UmeJack suggested that Bitbooks guarantee the bettor’s payout in fiat:

“If I was promised that if I bet 100$ worth of bitcoins(however many that might be when I place the bet) I would be given 100$ worth of bitcoins on a win (no matter how many bitcoins that is at the time of the payout)….I might consider using bitcoin.”

This, of course, leaves Bitbooks on the hook for the currency’s fluctuations. And as we have seen recently with Neo and Bee, this may not be a very good business strategy. Nonetheless, if a businesses is willing to take on the risk (and has the capital to stay afloat), they could be rewarded handsomely.

Taking It Slow

While volatility should keep online Bitbooks from taking over traditional sports gambling options anytime soon, sites like Nitrogen are not in a rush. They recognize that even though there has been tremendous growth in the past year, Bitcoin “represents a small portion of the overall online gaming space” and that their success is directly tied to the “stability, adoption, and growth” of the entire digital currency economy.

Still, it is paramount to recognize the importance that Bitbooks might play in the overall adoption of Bitcoin. In developed countries like the United States, it is hard to make the case that using BTC is more convenient or secure than traditional electronic payment methods. Nearly every store takes debit and credit cards and banks will gladly return your funds if they are stolen. There is almost no obvious consumer incentive.

This is not the case with sports betting in the U.S. Bitcoin offers distinct advantages for consumers. Instant, anonymous, deposits and withdrawals are immense improvements over Western Union deposits and the once-every-30-days withdrawal rules of today’s most popular online sports books.

When I asked UmeJack what he would improve about his current book he said, “The biggest thing I would look for is faster payouts. A payout from Bovada generally takes 10 business days to arrive at my home.” This is especially important to Jack because he was “one of the people who got stung by the Full Tilt poker scandal a couple years back.”

These are the types of concrete advantages that Bitcoin needs to gain a foothold in developed countries. Most bettors don’t know about their services, but as media attention and customer reviews put a spotlight on the benefits of Bitbooks, more users will begin to use them. This increases overall adoption. Which increases stability. Which increases users. Established books might even adopt BTC transactions. There are already rumors.

This is the “virtuous circle” many Bitcoiners speak of. And it might work. As long as negative media attention and instability don’t scare potential users away.

But that only matters for the long term. Right now, U.S. sports gamblers can know that they have an online betting option offering them complete control over their money.

Whether or not they ride the Bitcoin roller-coaster is their prerogative.

April 19, 2014 at 02:47AM

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Mt. Gox To Be Liquidated

A Japanese bankruptcy court declared this week that collapsed Bitcoin exchange Mt. Gox will not be permitted to reorganize and therefore must enter liquidation. The court rejected Mt. Gox’s petition (similar to a Chapter 7 filing in the United States) on the grounds that the plan of reorganization submitted by Mt. Gox is unlikely to be successful. Moreover, the court claimed that CEO Mark Karpeles has lost the confidence of creditors and customers whose cooperation would be necessary to carry out the reorganization under Japanese law.

Liquidation comes as unwelcome news to Mt. Gox’s customers, many of whom have held on to the possibility of a full recovery of lost funds. Since liquidation involves selling or otherwise distributing all of the identifiable assets of the company, a partial recovery may still occur. However, Mt. Gox customers will likely be grouped with other creditors and subjected to whatever debt subordination agreements or statutes are applicable to Mt. Gox’s situation rather than being treated as “depositors.”

For US taxpayers, complete liquidation will be necessary before a loss can be claimed for tax purposes. Though the process is expected to be lengthy, movement from reorganization to liquidation is a step that indicates that it is moving forward, at least in Japan.

One key question is whether the bankruptcy trustee will treat bitcoins remaining in Mt. Gox’s possession as liquid assets that can be distributed as such or will require that they first be converted to cash by selling them on another exchange. Sale of a large horde of bitcoins is likely to put significant downward pressure on the price, at least for a short time, which will negatively impact the amount that customers could receive. A bulk sale of the entire lot by another exchange or investors is also a possibility.

Another question which is likely to interest Bitcoiners, whether or not they lost money with Mt. Gox, is whether any investigations into possible wrongdoing by the company’s management will continue after bankruptcy liquidation. The question of what, exactly, happened at Mt. Gox is important, but law enforcement interest in pursuing a case involving a foreign national and foreign company might not be sustainable past discharge of Mt. Gox’s bankruptcy.

Mt. Gox’s other assets, such as they are, will be sold at auction. Whether a buyer will be found for the intellectual property, website and trademark remains to be seen. The company’s name has become synonymous among Bitcoiners with fraud, which may hamper the future value of the name and website. This fact may have been taken into consideration by the Japanese bankruptcy court in its evaluation of the company’s reorganization plan.

Mark Karpeles, who is a French national but lives in Japan, has thus far declined to travel to the United States to provide a deposition in relation to the company’s US bankruptcy filing. The US bankruptcy judge has suggested that the company might not enjoy the protection of US bankruptcy law if its CEO fails to appear. Karpeles has also been subpoenaed by the Financial Crimes Enforcement Network (FinCEN). Mt. Gox and Mark Karpeles now face lawsuits in

April 19, 2014 at 02:38AM

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18 April 2014

LocalBitcoins Releases Investigation Report on Site Wallet Issues


Following yesterday’s statement from LocalBitcoins regarding issues with its wallet service, the website has released its follow-up investigation report.

The report focused in part on claims that the site’s two-factor authentication failed to prevent a wallet breach. LocalBitcoins also addressed the cause of withdrawal delays that took place as users tried to move their bitcoins away from the site following the posting of user concerns on reddit.

The LocalBitcoins team wrote in the report’s introduction:

“LocalBitcoins team did not found any evidence of compromised site security.”

Report walks through hack claims

LocalBitcoins presented an activity timeline of user don4of4 (who initially posted on reddit), including 17th April when the wallet intrusion took place.

The site’s team identified that unlike previous logins by the user, someone accessed the site via a Tor browser and had access to don4of4′s two-factor authentication key generator.

LocalBitcoins surmised that whoever accessed the user’s account had gained access to his mobile device, which don4of4 told the team was used to store the two-factor codes.

The report read:

“In this case if the user used this particular Android device to access LocalBitcoins and the device was compromised, the attacker gained access to user password, user session ID and two-factor codes. Furthermore, it was reported on the reddit that the credentials of this particular user have been found on known compromised user account lists spreading in the internet.”

LocalBitcoins added that it does not currently offer session fixation as a security measure. However, the development team will look into the matter as a possible future offering for users.

LocalBitcoins addresses withdrawal problems

As stated previously, concerns regarding the site’s integrity resulted in increased withdrawal traffic. Withdrawal delays led to increased anxiety among the site’s users.

LocalBitcoins said in its report:

“When the LocalBitcoins hot wallet was being emptied due to high volume of withdraws, the withdraws started to delay. LocalBitcoins choose not to top up the hot wallet until the incident is investigated.”

The site added that the majority of its bitcoins are in cold storage.

Wallet malware issues detailed

LocalBitcoin’s initial 17th April statement suggested that a malware intrusion had resulted in the loss of some users’ wallet credentials.

The investigation report elaborated on this point, saying:

“In all of these cases the user account had no two-factor authentication and had a login coming from an IP address not associated with the users prior behavior pattern. We believe this was an incident either with reused passwords or malware-infection on the use computer.”

The report also recommended that all users adopt two-factor authentication for its account, saying that the site is unable to tell the difference between a user login and one from an unauthorised source.

Tough landscape for wallet owners

Malware targeting bitcoin wallets have increased in number significantly in the past year, posing problems for users who don’t keep their bitcoins in cold storage.

A recent report by cybersecurity firm Kapersky Labs showed a sharp increase in bitcoin wallet intrusions and attempted intrusions in 2013, compared to 2012 levels.

A separate study conducted by digital security firm Dell SecureWorks found that nearly 150 strains of malware were currently circulating the internet as of February 2014.


April 18, 2014 at 06:00PM

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What Will Become of Your Bitcoins When You Die?


The Law Society is urging people to leave clear instructions for their intellectual property and digital media in case of death.

Most of the digital legacy people leave behind when they shuttle off this mortal coil has sentimental value – it is not something that can be appraised or valued in hard cash.

Social network accounts, images, music, emails and backups of all of the above constitute the majority of our digital legacy. Families may want to access such information and preserve it for posterity. As more and more people store their data in the cloud and use their social accounts as repositories for photos and videos, digital legacy is slowly becoming as important as family photo albums or diaries.

Gary Rycroft, a member of the Law Society Wills and Equity Committee, warns people should not assume family members know where to look online and therefore need to make details of their digital life absolutely clear.

However, a lot of business is done in a purely digital form nowadays, hence an average person’s digital legacy is increasingly likely to contain some valuable information, projects, intellectual property and in some instances digital currency.

Bitcoin wallets are not bank accounts

Gaining access to a family member’s bank accounts after death is usually easy. Bankers and legislators have been dealing with the problem for decades and it is usually hassle free, as it is in nobody’s interest to antagonise grief stricken families. Every jurisdiction has a clear set of rules governing the matter and unless a dispute arises (usually between the family members), the process should be straightforward.

However, what if the deceased had a few bitcoins stashed away?

This is where it can get very complicated, especially given the basic idea behind bitcoin. Many people use it because it is pseudo-anonymous and many bitcoin operators are more than willing to cater to their needs, with multiple layers of encryption, authentication and a range of other services and security measures.

Furthermore, families usually can’t pay a visit to a bitcoin operator. The local bank branch is usually down the street, while bitcoin exchanges and wallet companies can be on a different continent.

The Law Society insists people leave clear instructions for their digital legacy. The instructions need to include a list of all frequently used online accounts that contain important personal information, or valuables. Ten years ago this wouldn’t have been much of a problem, as most people were content with an email address or two and an instant messaging account. Nowadays it is quite different.

The Law Society points out:

“Having a list of all your online accounts, such as email, banking, investments and social networking sites will make it easier for family members to piece together your digital legacy, adhere to your wishes and could save time and money.

Not making your digital legacy clear could mean important or sentimental material – such as photographs on social networks – is never recovered.”

Executing digital wills is not easy

The problem is that passwords should not be recorded, not even in wills. In some jurisdictions, including Britain, wills are considered public documents and they can be published. Even if they are not, there is always a chance that the user will change the passwords years before the will is executing, rendering the effort useless.

Having the account names is usually enough, as services like Facebook, Twitter and YouTube are used to being contacted by families of deceased users. However, in the case of bitcoin wallets, this can be a lot more difficult. Sometimes there is nobody to contact at all and sometimes bitcoin operators do not have access to login info.

In addition, simply ascertaining whether or not a person had any bitcoins or a bitcoin wallet can be a daunting task. If there is no will and no instructions, if family members did not even know about a person’s bitcoin holdings, they can easily be forgotten or destroyed. Bitcoins can be stored on all sorts of digital media, as well as physical wallets, they can be online, in the cloud, or on an inconspicuous paper wallet. They are easy to overlook.

If, on the other hand, the family realises some transactions were made to bitcoin exchanges, that might not be enough in the absence of clear instructions. Simply figuring out what happened to the money and whether there’s any bitcoin left could be a daunting task. Finding a bitcoin wallet won’t be of much help if it’s properly encrypted and no instructions are left behind.

Finding a wallet is just the first step

If the bitcoin wallet was left “open” and if the family knows about it, getting the money out is just a matter of a few clicks. However, this is only the case if the family is aware of its existence. If they are not, chances are the wallet will be overlooked.

Families may inspect smartphones or computers for valuable data, but very few people will look for bitcoin wallets if they are not specifically told to do so. What’s more, bitcoin wallets are tiny so they can be anywhere, from memory cards and USB sticks to network attached storage and cloud services, not to mention physical wallets.

Passwords that allow direct access to valuable information should not be kept in wills, but that does not mean that this cannot be done indirectly. The passwords can be stored somewhere safe, while the will can be used to pass down instructions.

People have been hiding assets for different reasons for centuries and digital currencies can be misused to that end like any other asset.

The will can lead to another document containing the passwords, it can name a person entrusted with holding useful information. Alternatively it can contain a password needed to access an encrypted document with detailed instructions, a document that can only be found by family members with access to the deceased’s personal belongings.

Back in December, we examined the possibility of using bitcoins to hide assets in case of divorce. Like any other asset, bitcoins can be hidden, although their usefulness for such shady practices could be limited due to volatility. Few people would be willing to store a substantial portion of their life savings in bitcoin.

However, legal experts caution that the number of estate issues involving bitcoins is likely to increase as more people start using digital currencies. People have been hiding assets for different reasons for centuries and digital currencies can be misused to that end like any other asset.

There are already a number of services and resources designed to handle digital legacy issues. These include digital will services like Entrustet, along with post-mortem messaging services and services that can store and encrypt data that can be released in case of death.

Needless to say, bitcoin users need to do their own research before entrusting their information with any service or drafting their digital will.

Will image via Shutterstock.

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April 18, 2014 at 02:29PM

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Texans for Greg Abbott to Accept Bitcoin Contributions


This afternoon, Texans for Greg Abbott announced acceptance of Bitcoin for campaign donations. Greg Abbott is running as the Republican candidate in the Texas Gubernatorial race. Striving to be a cutting edge candidate, Abbott stated, “I’m excited to see our campaign add another tool to our cutting-edge digital outreach, which is allowing us to reach more Texans than any previous campaign in the state.” It is great to see that Abbott as well as other policymakers note the opportunities Bitcoin has to promote free market economics and ingenuity across the board.

Abbott’s campaign will certainly not be the first to embrace Bitcoin in the 2014 election cycle.

Abbott’s campaign team published the following press release:

April 17, 2014

For Immediate Release

Contact: Avdiel Huerta

(512) 477-2002


Texans for Greg Abbott to Accept Bitcoin Contributions

AUSTIN – Texans for Greg Abbott today announced that Bitcoin will now be accepted as a form of campaign contribution through GregAbbott.com . Bitcoin, a new and decentralized digital currency, enables instant financial transactions with a new level of safety and security. Texans for Greg Abbott is one of the first major statewide campaigns to accept Bitcoin, and is excited to implement the new form of payment as an extension of the campaign’s commitment to unprecedented digital outreach.

“I’m excited to see our campaign add another tool to our cutting-edge digital outreach, which is allowing us to reach more Texans than any previous campaign in the state,” said Greg Abbott. “The spirit of Bitcoin embodies the free market principles that make Texas a leader in innovation and entrepreneurship. We welcome the Bitcoin community to join our team.”

Supporters can make secure contributions via Bitcoin through the campaign website,www.GregAbbott.com .

April 17, 2014 at 09:08PM

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17 April 2014

Strevus Compliance Software Adds Digital Currency Support


Compliance software developer Strevus has added support for bitcoin and other digital currencies to its existing compliance software service. The company says it will offer institutional-level compliance and support to bitcoin as well as other digital currencies.

Strevus appears to be aiming to carve out a niche for itself by offering cutting edge know your customer (KYC) and anti-money laundering (AML) features for bitcoin platforms. The company argues that regulators are likely to adopt regulatory mandates similar to those already in place in traditional banking and trading networks.

Easy to deploy on existing platforms

Strevus says its software will offer enterprise-quality regulatory coverage, scalability and security to organisations who intend to trade in bitcoin.

The software allows bitcoin operators to fully comply with existing KYC, AML and Patriot Act requirements, but it can also be updated to meet additional requirements, namely tax compliance. The company says its software can easily integrate to existing exchanges and institutions.

Strevus believes regulators are likely to enforce new tax rules as well as KYC and AML requirements for bitcoin companies. Therefore, it emphasises the fact that its solutions can be used on existing bitcoin platforms.

Ken Hoang, CEO and co-founder of Stevus said:

“With experts predicting that cryptocurrency will complement fiat currencies rather than replace them, we believe that they will become a viable and efficient value-transfer option. As a managed solution, Strevus provides exchanges and institutions with a persistent, secure and auditable compliance service to manage and track these assets. Using our technology, these organizations can achieve institutional-grade regulatory compliance for their trade network and be confident that they can meet both current and future regulations.”

Professional platforms for professional players

Founded in 2012, Strevus has raised $5.6m for its risk and compliance software. The startup is hoping to make a name for itself on the back of new compliance requirements for the banking sector. Adding bitcoin support to its software is just the icing on the cake, as a subscription to Strevus’ banking compliance service starts at $100,000.

As more institutional investors take an interest in bitcoin, the need for compliance software and industrial-strength security will become more evident. Last month Perseus Telecom launched a new service designed specifically for digital currency operators. The company provides high-bandwidth communications used by trading firms and hedge funds in several major financial hubs.

Perseus CEO Jock Percy says the ultimate goal is to facilitate bitcoin trading by large financial institutions and engage “known players” in bitcoin. He said some clients expressed demand for bitcoin services, but they also expressed concerns about regulatory compliance.

This appears to be the niche Strevus is hoping to achieve.

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April 17, 2014 at 09:15PM

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Former US Consumer Finance Watchdog Voices Support for Bitcoin

Screen Shot 2014-04-17 at 3.13.57 PM

Raj Date, the former Deputy Director of the US Consumer Financial Protection Bureau (CFPB), a consumer finance watchdog, said in an interview this week that he supports – and is now investing in – bitcoin.

During a segment of Bloomberg Television’s Street Smart ,” Date commented that, on a personal level, he sees a lot of potential in digital currencies like bitcoin.

“The thing I like about innovation in consumer finance, like bitcoin, like digital currency, is exactly the same reason I went to the CFPB. How is it that you can take new ideas and make the system work better for people?”

Pros and cons

Date currently serves on the board of directors for bitcoin stratup Circle Internet Financial. He is also the founder and managing director of Washington, D.C.-based investment firm Fenway Summer.

In the interview, Date said that bitcoin has the potential to deliver faster and more secure payments than is currently possible for most consumers, and remarked that the pace of innovation could result in a broader evolution in digital currencies.

Date said:

“It’s entirely possible that there will be variants of other digital currencies, entirely possible that the form of bitcoin will continue to be developed and improved over time.”

He continued:

“The fact of the matter is that anything that actually solves the problems of consumers and merchants is, in my mind, a good thing.”

Looking ahead

Date also pointed to the evolution of the bitcoin business ecosystem as a positive development. Date held up the example of the liquidation of Mt. Gox as a sign that companies in the space are maturing.

He said:

“The new firms in this marketplace are considerably more serious-minded, consdierably better financed and take these things seriously.”

This industry transition was on display last week at Inside Bitcoins NYC. For more on that event, read our full report.

Image via Wikipedia


April 17, 2014 at 08:25PM

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China’s Banks Close More Bitcoin Accounts Following PBOC Deadline


There is continued uncertainty for bitcoin exchanges in China tonight as some large-volume exchanges reported verbal closure notices from banking partners today.

Exchanges OKCoin and Huobi said they had bank accounts closed as of Friday afternoon China time, posting the news on their respective sites.

China has still not ‘banned bitcoin’, despite certain rumors. The implied restrictions refer only to the way bitcoin exchange accounts are funded by their users, and there is no word that withdrawals from exchanges or any other bitcoin transactions are affected.

That said, what follows is a public announcement from Chinese exchange CHBTC and a translation of its subsequent conversation about the issue with one of its banking partners.

The initial announcement read:

“With a heavy heart we are announcing this news, as of 4:15 fourteen exchanges have received communications to have part or all of their bank accounts closed, and the community including us were ecstatic that everything had passed, but as of 10am on 4/17 we officially received notification from the Bank of China Beijing Baijiazhuang branch to close our account, and after verification by our senior management in Beijing, we are carefully making this public statement.”

Phone call

The telephone conversation between CHBTC and its banking associate went as such:

CHBTC: Has the bank received specific directives in the form of documentation?

Bank: It is not convenient for us to answer that, but prior to this we did not know your company was engaged in the bitcoin business, and so since we can find and call you, you can understand that someone has been eyeing all the company accounts used to do bitcoin business, and proactively told us.

C: Must we close our account; can we just zero out our balance?

B: Well it is up to you, however you know that someone is eyeing your account, do you think that it would be appropriate [to keep it open]? since I am making this call to you today, the meaning should be very clear, and I hope that you guys won’t make it difficult for me, and I can’t be more explicit than this.

C: what happens if we do not want to close our account, and insist on waiting for a document/notice?

B: Then it is up to you. We are calling because we would like you guys to close your account. If there are new notices, we might just directly execute; in any case you guys should transfer the account’s balance to another bank card, and then engage in the process of closing down your account.

C: OK then, we will cooperate! prepare to close the account.

B: Your cooperation is much appreciated.

C: Can we know when you received the notice, was it before 4/15, or is it in the past two days?

B: It is not convenient for me to disclose the specific time, but for us we wouldn’t dawdle over such matters, so you can figure it out yourself.

C: Do we have to close down both business and personal accounts?

B: I am only in charge of personal accounts, but my colleague for the business account will also contact you immediately.

C: do we have specific account closing time?

B: As fast as possible!

One of many

CHBTC added that these messages came from just one of its banking partners, and it had not received any similar notices from other business associates. It was, however, preparing for that eventuality and would not be using personal bank accounts to fund exchange accounts in future.

Chinese exchanges will no doubt find other ways to serve their customers, the most likely option being the voucher system pioneered by BTC China in which third-party code numbers are used to deposit and withdraw funds.

This article was co-authored by Jon Southurst and Rui Ma.

Shanghai image via Shutterstock


April 17, 2014 at 05:35PM

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16 April 2014

Survey Says: Bitcoin Magazine is Considering Categories


online poll by Opinion Stage

Bitcoin Magazine is currently considering breaking up the magazine into categories. The motivation for this is a desire for our readers to know what section they are in without looking at the table of contents. We also want to group similar stories near each other and possibly color code our sections to assist in automaticity while navigating through the magazine. We also want these sections to reflect our readers favorite areas of interest, and hope this poll will help us as we consider using categories/sections to group magazine content.

If you want to suggest a different category please enter it in the comments or email help@bitcoinmagazine.com.

April 16, 2014 at 07:42PM

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SecondMarket Officially Launches Institutional Bitcoin Exchange


New York-based SecondMarket is now letting investors know that it has a professional-level bitcoin exchange available for institutional traders.

The company had previously confirmed it would launch a US-regulation exchange by summer.

SecondMarket, a registered broker-dealer that has experience offering unique asset classes and alternative investments, is targeting investors interested in trading a minimum of 25 BTC per trade.

That level of bitcoin trading is in a market that has seen bitcoin exchanges struggle to fill orders, according to investors familiar with institution-level BTC trading.

25 BTC minimum

According to recent CoinDesk Bitcoin Price Index values, 25 BTC is worth more than $12,000.

SecondMarket, as a result, is targeting only investors who seek to move large amounts of bitcoin, a market that only a few companies are currently able to provide.

One week bitcoin prices. Source: CoinDesk BPI Past week bitcoin prices. Source: CoinDesk BPI

Companies such as itBit, Vaurum and most recently CoinMKT have intentions of reaching the financial world with bitcoin investment platforms.

SecondMarket made an announcement that it would get into the bitcoin exchange business earlier this year, but are now publicizing the fact to accredited investors through its website.

According to information posted on the SecondMarket site, the process to because a customer on the exchange requires a compliance application process and a conversation with one of the exchange’s representatives.

Bitcoin Investment Trust

SecondMarket also offers a product called the Bitcoin Investment Trust, which founder Barry Silbert says already holds 100,000 bitcoins. Silbert has long been bullish on the long-term prospects of bitcoin, and his connections to the financial world give SecondMarket a degree of credibility in the cryptocurrency industry.

Silbert recently told CoinDesk that 15% of institutional investors were already bitcoin believers.

Adam Draper, founder of Boost VC, which invests in bitcoin companies, told CoinDesk:

“I think that Barry Silbert is one of the lead pioneers and innovators in the Bitcoin space. He is really sticking his neck out for mass adoption of bitcoin and I love it.”

With hedge funds such as Pantera Capital going all-bitcoin, and the support of Fortress Investments and others, the interest from Wall Street seems to be on the rise.

Bankers and investment professionals are also expected to mingle with bitcoin professionals at Money2020 later on this year, a annual event expected to attract thousands in the finance industry.

Barry SilbertBitcoin Investment TrustSecondMarket

April 16, 2014 at 08:45PM

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15 April 2014

Side Chains: The How, The Challenges and the Potential

Disclosure: the author of this article is the founder and Chief Scientist of the Ethereum project

Last week, Adam Back and Austin Hill came out with an announcement on Let’s Talk Bitcoin, in which they announced their newest project: “sidechains”. The idea, they described, would allow for the existence of alternative blockchains, perhaps with different rules allowing various kinds of additional features or transaction types, but with a currency unit whose value is pegged to that of the bitcoin. The intent is to allow experimentation with different extensions to the Bitcoin protocol, using separate networks to avoid any risk to Bitcoin itself, while still using the same underlying currency unit. As soon as the idea was announced, there has been a large amount of public interest in the concept, and has brought renewed hope that the Bitcoin protocol can potentially become much more powerful than it is today.

The idea behind sidechains is not new; the concept has been around since at least last year in December, and a precursor to the idea has been around for several years before then. The precursor, a protocol known as one-way pegging, was a mechanism that would theoretically be used to manage a transition from “Bitcoin 1.0″ to “Bitcoin 2.0″, and worked as follows. Suppose that, in Bitcoin 1.0, 13 million currency units have already been issued through mining, with 8 million still left to give out. The distribution model for BTC2.0 would release 8 million units through mining, according to the exact same schedule as BTC1.0 after that point, but the other 13 million would be distributed through a mechanism known as “proof-of-burn”.

Essentially, one would take one unit of BTC1.0, send it to an unspendable address (eg. 1111111111111111111114oLvT2 ), and submit a cryptographic proof that this transaction took place, signed by the same private key that sent the transaction, as a transaction into Bitcoin 2.0. According to the Bitcoin 2.0 protocol, this would entitle the user to receive one unit of 2.0. This is called a “one-way peg” because the value of one BTC2.0 can be at most equal to one BTC1.0; otherwise, people would arbitrage the difference by converting the bitcoins over at the 1:1 rate. However, aside from selling BTC2.0 for BTC1.0 on the market, there is no way to go back, so if the experiment fails the value of BTC2.0 could drop to zero.

Bitcoin sidechains use an improved version of this system called “two-way pegging”, which works as follows. In order to receive one unit of BTC2.0, one would need to take one unit of BTC1.0 and send it into a “script” which we will call X and leave undescribed for now. A script in Bitcoin is an address that, instead of being owned by a private key, essentially acts as a lockbox that unlocks the bitcoins only when given a transaction that satisfies certain conditions. For example, one can have a script that unlocks the funds to the first person who submits a fifty-digit prime number consisting entirely of the digits 3 and 5. Making the transaction, and publishing a cryptographic proof that such a transaction was made, into the Bitcoin 2.0 blockchain entitles the user to one unit of BTC2.0.

Now, the definition of X is simple: X unlocks the funds (remember, this is one unit of BTC1.0) if given a valid cryptographic proof that the sender destroyed one unit of BTC2.0. Thus, there exists a mechanism for converting BTC 1.0 to BTC2.0, and that very mechanism creates another mechanism, limited in value to the total number of BTC2.0 created, which can be used to convert BTC2.0 back to BTC1.0.

Under the Hood

The mechanism that these “cryptographic proofs” use relies on a cryptographic construction used in Bitcoin called a Merkle tree. In a Bitcoin block, instead of simply having every transaction the block block directly, only a single 32-byte hash is actually included in the block header. This 32-byte hash is itself calculated from two other 32-byte hashes, each of which comes from two other 32-byte hashes, and so forth until finally the values at the bottom are the transactions themselves. It is precisely the point of this mechanism to allow for the existence of compact proofs that a specific transaction is in a specific block; all that one needs is the one branch of hashes going up from that transaction to the root node, or a total of 10 hashes for 1000 transactions or 20 hashes for one million transactions. This is impossible to forge; if you try to change even a single transaction in the tree, the changes propagate upward through the hashes until finally the root node ends up completely different.

However, this does not solve the problem completely; all it tells you is that some block, somewhere, contains a given transaction. It does not tell you that the transaction is in the main chain; in reality, the same bitcoins used in the transaction could have already been sent to a different source, making the transaction invalid. There are two ways to solve this. One approach is for the proof mechanism in Bitcoin 2.0 to ask not just for the Merkle tree branch, but also for the blockchain going back six blocks, much like a merchant asking for six confirmations, using mining power as a proxy for validity. For higher security, a much larger number of blocks like sixty can be required.


The above mechanism, however, as described is highly imperfect. When an ordinary merchant asks for six confirmations, pulling off a double-spend attack requires producing six blocks faster than the rest of the network combined in real time, a task which requires at least 30% of total network hashpower to work with any non-negligible success rate. With the above described two-way-pegging mechanism, however, a malicious miner with even 1% of hashpower can generate six blocks, or even sixty blocks, eventually, and then use these blocks to fraudulently claim all BTC1.0 that have been put into the BTC2.0 lockboxes (or, in the other direction, fraudulently claim an unlimited number of BTC2.0). One possible patch that may come to mind is requiring the same person who created the lockbox to open it, thereby limiting the amount of damage that can be done per person, but this will not solve the problem because the malicious miner can easily collude with anyone else. The fundamental problem, that there is no way to come up with a mechanism for validating the blockchain that does not update itself over time, is either very difficult to solve or likely cannot be solved while staying purely within Bitcoin’s “static lockbox” scripting paradigm.

Another approach, one that can solve this problem without excessive difficulty, is more intricate and intrusive. It requires essentially including what is called a “light client” for Bitcoin 1.0 into Bitcoin 2.0. The light client is most easily described as a long-running “contract”, a program on the blockchain with a large amount of internal state that runs every time a transaction gets sent to it, that would accept blocks and verify block headers in exactly the same way that a Bitcoin client on your mobile phone would. This contract would then keep a running list of all block headers in Bitcoin 1.0, and in order to receive one BTC2.0 one would need to submit a cryptographic proof that you made the required transaction in BTC1.0 into the contract, alongside a security deposit of 0.1 BTC2.0.

The contract would check that the proof is valid, ends up at a block that is in the contract’s own internal mini-blockchain, and then wait one of two things happened. First, once sixty more Bitcoin 1.0 blocks get added into the contract, it would release one unit of BTC2.0 to the sender plus the security deposit. Alternatively, if someone else submits a cryptographic proof that the transaction is invalid for whatever reason (eg. it spends bitcoins that don’t exist) within that time, then they would receive the security deposit. This would solve the security problem, but has one important flaw: it cannot be done within the Bitcoin protocol as it stands. It is fairly easy to implement in a protocol like Ethereum, because it is specifically designed for contracts, but Bitcoin’s scripting functionality does not allow for the existence of contracts that have internal state, so doing this inside of Bitcoin would require a very substantial change to the Bitcoin 1.0 protocol. Ultimately, the approach taken by Austin Hill and Adam Back may not look exactly like either of these strategies; however, the sheer complexity of the problem shows that there are still many challenges that lie ahead.


Another important question is: how will these side-chains be secured? The standard mechanism for securing a blockchain is mining, but mining requires a mechanism for rewarding miners on that chain. In a side-chain, every unit of the side-chain currency must be backed by a script-lockbox containing a unit of BTC on the Bitcoin blockchain, so there is no simple opportunity to issue side-chain currency units out of nowhere. There are two possibilities for this: demurrage (ie. a percentage-per-year tax on all BTC on the side-chain), and transaction fees. However, both of these provide a fairly low amount of revenue, and so it is not at all certain that plain old independent mining will solve the problem.

There are two approaches to get around this issue. One approach is to have the side-chain be secured by proof of stake, using the small revenue from transaction fees to compensate participating stakeholders with an interest rate. However, this approach would be very difficult to implement into a side-chain, because the computations involved in validating proof-of-stake are likely too complex to effectively implement directly on a blockchain. The other approach, and the one promoted by Adam Back and Austin Hill, is called “merge-mining”; essentially, miners include in Bitcoin blocks data from both the Bitcoin block and the Namecoin block, allowing miners to provide security for both chains at the same time using the same computational effort.

However, as argued by Bitcoin developer Peter Todd, the concept of merge-mining does have one very important security flaw: unless the majority of Bitcoin miners agree to merge-mine a particular chain, that chain is arguably not secure at all. To understand why, first consider the case of a more traditional altcoin, in our example running SHA256 for simplicity (if the altcoin uses a custom algorithm, then Litecoin miners can pull off the attack instead). If the altcoin has 5% of the hashpower of Bitcoin, then in order to attack the chain via a double-spend at least 5% of the Bitcoin network’s power would need to temporarily redirect itself to mining on the altcoin. This is potentially possible, but is a costly move: while the attack is in place, the Bitcoin miners would lose the revenue from mining on Bitcoin. In the case of a merge-mined side-chain, however, mining on the mainline of a side-chain or attacking it are both cost-free, so there would be no economic disincentive to attacking the alternative chain. This is not a mere conjecture; there have been actual examples of mining pools attacking merge-mined chains in reality.

Aside from security, this dependence on merge-mining also exposes another worrying limitation of the side-chains idea: while the spirit of cryptocurrency is arguably that of permissionless innovation, creating a side-chain requires the permission and active assistance of 50% of all Bitcoin mining pool operators. These limitations together suggest that the side-chains protocol, while great for many use cases, will certainly not be ideal for all.

The Promise

If the technical issues around side-chains can be addressed, what is the promise that they bring? Right now, cryptocurrency development can essentially be classified into four quadrants. The first quadrant consists of projects that use the Bitcoin currency and the Bitcoin blockchain – essentially, Bitcoin itself. The second quadrant is protocols that use the Bitcoin blockchain but not the Bitcoin currency; Mastercoin, colored coins and Counterparty are excellent examples of this. The third quadrant uses both an independent currency and an independent blockchain; this contains applications like (to take widely disparate examples) Ripple, Litecoin and NXT. Now, with sidechains the last quadrant has also been filled: using an independent network but using Bitcoin as the underlying currency.

It will be interesting to see what applications that niche works best for. For entire new ecosystems, it’s likely not the right approach; it makes little sense for a completely independent network like Ripple or Ethereum to tie its main internal token to Bitcoin financially and have the two be exposed to each other’s price movements. In the case of such major efforts, it also often makes sense to experiment with different monetary policies; Ethereum’s ether has a linear issuance model that constantly releases a certain fixed number of currency units every year, whereas Ripple released all 100 billion units of XRP to the Ripple organization all at once, and the organization is releasing them over time to developers, investors and people participating in distributed computing projects. For a fork that is intended to serve as a major protocol change, like upgrading from SHA256 to SHA3 or in the case of quantum computers from ECDSA to Lamport signatures or NTRU, it definitely makes total sense. For everything in the middle, it’ll be up to a case-by-case basis to figure out.

In the case of Ethereum, there is a special consideration to keep in mind: Ethereum is a general-purpose cryptographic consensus platform, not a specific “altcoin”. Hence, one can have many different currencies coexisting on the Ethereum platform as contracts; one can have boring old fixed-supply currencies, currencies with a monetary policy managed by a decentralized autonomous organization, currencies which exist to subsidize scientific research or provide a basic income, and even currencies with a built-in two-way-exchange mechanism to act as side-chains. Thus, Ethereum cannot accurately be pigeonholed into either the side-chains quadrant or the Ripple/Litecoin/NXT quadrant; it exists in both.

Indeed, it is very likely that as soon as the Ethereum genesis block launches, there will be side-chains for Bitcoin, Litecoin and Dogecoin implemented as contracts within three months. If side chains can be successfully and securely implemented, this means that Ethereum may even become the preferred means for storing BTC, LTC or DOGE using powerful multisignature storage contracts involving features like withdrawal limits. Between contracts on a general-purpose chain, high-performance special-purpose altcoins, quasi-centralized OpenTransactions servers, side-chins and Bitcoin itself, one thing is becoming clear: cryptocurrencies are going to be able to interoperate like never before.

April 15, 2014 at 10:08PM

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14 April 2014

BTC China Launches First ‘Soft Bitcoin ATM’ Interface for International Markets


A new web-based app from BTC China called ‘Picasso ATM’ allows anyone with a smartphone to become a ‘walking bitcoin ATM’, without the need to invest thousands of dollars in hardware. Sellers can use the app to upload and sell bitcoins nearly anywhere in the world, in a range of major currencies.

It could be the first of many moves by Chinese bitcoin exchanges to appeal to international customers. BTC China is the most prominent of China’s bitcoin exchanges overseas already thanks to its English language interface and CEO Bobby Lee’s appearances at major conferences like CoinSummit. Until now, though, it has been near impossible for non-Chinese residents to deposit fiat currencies into a BTC China account.

Lee launched the Picasso ‘software ATM’ at a media event that also saw the launch of China’s first physical bitcoin ATM, at the IC Coffee Shop in Shanghai’s Pudong Zhangjiang Hi-tech Park.

Sign up and upload

After signing up for an account with BTC China, users can upload bitcoins to their Picasso Wallet, then use the interface to trade like a human teller machine. If the receiver is not a BTC China customer, the bitcoins can be sent instead to any mobile number worldwide, whereupon the receiver will be invited to sign up for BTC China wallet to receive and store them.

Lee proclaimed the Picasso ATM interface as “truly innovative” and “essentially a world first”, saying it lowered the barrier to entry for anyone thinking of investing in physical bitcoin ATM hardware.

“Now store owners, coffee shop owners, or even convenience store owners, instead of investing in a bitcoin ATM, they can just sell bitcoins at the cash register with the Picasso ATM.”

Since transactions take place within BTC China’s system there are no QR codes to scan, transfers are instant and there’s no waiting around for six confirmations to make sure everything was legitimate.

“Bitcoin has entered into a new era, where exchanges are no longer the only way to buy and sell bitcoins. With the advent of Picasso ATM, along with other physical bitcoin ATMs everywhere, people all over the world can now easily buy and sell bitcoins,” Lee continued.

“As a pioneer in the field – BTC China is now the world’s longest running bitcoin exchange – we plan to continue innovating, and lead the world into this new era.”

At first glance the process is similar to a face-to-face trade with LocalBitcoins. With Picasso ATM, BTC China says it is looking for a more spontaneous kind of transaction, the kind that takes place at a Satoshi Square event or group meetup.

Long distance reach

The company also wants Picasso ATM to work long-distance between trusted parties who may be in different countries, transferring fiat funds by bank wire or some other intermediary.

UI settings allow a seller to select the currency in which they’d like to be paid, and the percentage profit margin (if any) they’d like to add to the trade price. Available languages are English and Chinese, though there are plans to offer many more.

The Picasso ATM is a mobile web app, so does not require any downloads and is not subject to third party censorship or regulation. It features double-layered security; for bitcoin ATM transactions to complete, the app requires security confirmations from both the buyer and the seller.

BTC China’s Picasso online wallet service has been available for a few months already. It promises customers’ bitcoins are held in cold storage, with only a small percentage online at a time for daily transactions. Bitcoins can be transferred quickly in and out of Picasso wallets for use on BTC China’s main trading platform.

Image via sajangrujic / Shutterstock.com

ATMsBTC ChinaChina

April 15, 2014 at 03:30AM

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Jimmy Wales Reveals Wikimedia is ‘Cautious’ About Accepting Bitcoin

Jimmy Wales

Jimmy Wales, the co-founder of Wikipedia, said in a Twitter conversation that Wikimedia, the non-profit foundation that operates the site, was “cautious” about the Internet encyclopaedia accepting bitcoin donations.

When Twitter user ‘Mister Schief’ asked Wales for an update on Wikimedia Foundation accepting bitcoin donations, Wales responded by saying that staff were looking into a lightweight implementation:

This news comes just a month after Wales revealed that he was starting to get into bitcoin. He wrote a reddit post explaining to the community that he wanted to use bitcoin himself before pitching the idea to the board.

“I have been watching bitcoin for a long time, of course, and I thought it past due to test it as a consumer – how hard is it, how confusing is it, etc.”

Another bitcoin enthusiast on Twitter asked or Wales’ wallet address and donated 5 BTC to him. At the time, that was worth about $3,104.

Wales said that he would donate all of that to Wikipedia, thereby, making it the first bitcoin donation to the site.

Minutes from the September 24th 2013 meeting of the board of directors show that bitcoin has been on their radar for quite some time. The minutes reveal that Florian Effenberger, chairman of the board, was “researching Bitcoin options”.

Back in July 2013, the Board had already raised the question of accepting digital currencies. The minutes in that meeting read: “BitCoin (sic) should we have it.”

In his reddit post, Wales added that he was planning to re-open the conversation with the Wikimedia Foundation board of directors at their next meeting.

This meeting is due to take place on 7th June, 2014 in London: watch this space.

Jimmy Wales image via Wikipedia Creative Commons


April 14, 2014 at 04:21PM

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Chamath Palihapitiya Predicts 7.3 Million Bitcoin Wallet Downloads in 2014

Former Facebook and AOL executive Chamath Palihapitiya has updated his projection on wallet downloads in 2014.

In January, Palihapitiya, who is one of the largest individual owners of bitcoin, had predicted 11.5 million wallet downloads, but after the bitcoin price stabilised below $500 in the first quarter of the year, he has readjusted his forecast to 7.3 million.

He shared this information via a tweet last night:

The data is based on Coinbase, Blockchain and MultiBit wallets, all three of which passed their one-millionth-download milestone at the start of this year: Blockchain.info at the beginning of 2014, Coinbase in February and MultiBit just last month.

On March 29th, there were 3.9 million wallet downloads for the year, as per the Source+Capital graph tweeted out by Palihapitiya.

The Social+Capital Partnership is a Palo Alto-based VC fund made up of philanthropists and technologists. Palihapitiya is its founder and managing director, prior to which he was the longest tenured member of Facebook’s senior executive team and held leading roles at The Mayfield Fund, AIM and ICQ, and Winamp.

Born in Sri Lanka and raised in Canada, Palihapitiya is also the owner of Golden State Warriors NBA team, which ‘maybe’ accepting bitcoin soon.

One of the responses following Palihapitiya tweets questioned what was driving the significant slowdown in wallet growth rate.

His response was:

Vinny Lingham, CEO of Gyft, also pointed out that number of wallets is not the same as number of users. In a separate post, he argued that consumer adoption was slower than merchant adoption.

Palihapitiya responded to that saying:

BlockchainChamath PalihapitiyaMultiBit

April 14, 2014 at 10:32AM

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Chamath Palihapitiya Predicts 7.3 Million Bitcoin Wallet Downloads in 2014

Former Facebook and AOL executive Chamath Palihapitiya has updated his projection on wallet downloads in 2014.

In January, Palihapitiya, who is one of the largest individual owners of bitcoin, had predicted 11.5 million wallet downloads, but after the bitcoin price stabilised below $500 in the first quarter of the year, he has readjusted his forecast to 7.3 million.

He shared this information via a tweet last night:

The data is based on Coinbase, Blockchain and MultiBit wallets, all three of which passed their one-millionth-download milestone at the start of this year: Blockchain.info at the beginning of 2014, Coinbase in February and MultiBit just last month.

On March 29th, there were 3.9 million wallet downloads for the year, as per the Source+Capital graph tweeted out by Palihapitiya.

The Social+Capital Partnership is a Palo Alto-based VC fund made up of philanthropists and technologists. Palihapitiya is its founder and managing director, prior to which he was the longest tenured member of Facebook’s senior executive team and held leading roles at The Mayfield Fund, AIM and ICQ, and Winamp.

Born in Sri Lanka and raised in Canada, Palihapitiya is also the owner of Golden State Warriors NBA team, which ‘maybe’ accepting bitcoin soon.

One of the responses following Palihapitiya tweets questioned what was driving the significant slowdown in wallet growth rate.

His response was:

Vinny Lingham, CEO of Gyft, also pointed out that number of wallets is not the same as number of users. In a separate post, he argued that consumer adoption was slower than merchant adoption.

Palihapitiya responded to that saying:

BlockchainChamath PalihapitiyaMultiBitwallets

April 14, 2014 at 10:32AM

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13 April 2014

New Paper Explores Cooling Challenges In Bitcoin Mining Industry

Data center abstract

A new white paper from Allied Control, a technology cooling solutions provider, surveys the current large-scale bitcoin mining ecosystem and explores the implications of current and future cooling technologies.

According to author Alex Kampl, Allied’s vice president of engineering, there are significant deficiencies in how mining hardware is manufactured and deployed worldwide. As a result, investors already involved risk losing money and new ones may be dissuaded from taking part at all.

He told CoinDesk:

“I believe a lot of money is lost with unreliable mining hardware manufacturers – hardware not delivered at all, delivered late, or shipped under promised spec. We all know how miners lose money. This reputation of the mining market and the challenge of deployment, that keeps many investors away.”

The ins and outs of a billion-dollar industry

Over the course of the paper’s 30-odd pages, Kampl explores the designs of some of the world’s large-scale mining operations and the implications of their cooling efforts.

This includes KnCMiner’s 3MW facility in Sweden, which according to Kampl is in the process of expanding by another 9,000 square meters to reach a capacity of roughly 10MW.

With tens of thousands of fans running simultaneously, Kampl estimated that an airflow of 75 million cubic feet per minute (CFM) is required to adequately cool the facility.

Kampl also researched the MegaBigPower Company’s 1.4MW mining facility in the United States, the owner of which was recently interviewed by CoinDesk.

Cooling concerns prompted the MegaBigPower team to invest in bigger air conditioning infrastructure, resulting in an average air flow of 150,000 CFM.

Yet the concern of providing sufficient airflow to a mine is only one part of the greater challenge of running a bitcoin operation. Instead, cooling is a multi-faceted process that fits into the broader challenges facing mine management teams.

Kampl writes in the paper:

“Cooling system parts including heatsinks, fans, water blocks, and support hardware such as enclosures, power supplies and mechanical parts are not an essential part of the mining core, but very often take up a majority of the manufacturers’ or mine operators’ resources. This results in a large number of suppliers that must be orchestrated to deliver a working product.”

Immersion cooling as a viable option for mines

For Kampl, a key solution lies in the use of immersion cooling. This negates the need to maintain fan systems prone to malfunction or breakdowns. Kampl argued that immersion cooling is actually more beneficial for miners compared to other computing needs in the private sector.

He told CoinDesk:

“Passive 2-phase immersion cooling is extremely promising, but miners are probably the only ones with the density, flexibility and the need for rapid deployment to use it here and today.”

Addressing the argument that immersion cooling is too costly, even for investors with deeper pockets than the average miner, Kampl said:

“The point of immersion is that it saves money.”

Bitcoin mining ecosystem continues to evolve

Given the potential payoff for investing in mining operations, the environment for both large- and small-scale miners continues to grow – and complicate.

Earlier this week, KnCMiner announced that it will offer modified versions of its Jupiter line of mining products for those who don’t want to wait for deliveries of KnCMiner’s Neptune device.

DigitalBTC, an Australia-based company which was recently listed on the Australian Stock Exchange, signed a strategic supply deal this month with hardware manufacturer BitFury.

On the malware front, unsuspecting users of the Google Play Store found themselves the targets of mining software uploaders, a discovery made late last month by cybersecurity experts from Trend Micro.

Image credit: Computer server farm abstract via Shutterstock

bitcoin miningimmersion coolingminingresearchtechnology

April 13, 2014 at 02:55PM

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