4 October 2014

Why Travel Could Be Bitcoin’s Killer App


Though undeniably popular with its ardent supporters, bitcoin is arguably still searching for a practical application that makes it indispensable to mainstream users.

That doesn’t mean there aren’t real use cases for bitcoin that could bring the kind of payments revolution many in the industry are hoping to achieve, though.

Being both digital and decentralized, bitcoin is already a globalized electronic currency that operates across international borders. These traits are a key reason why many believe the first true killer application for bitcoin will be travel, and mainstream businesses like CheapAir and Expedia seem to agree.

All over the globe countries use different currencies, with banks and currency exchangers taking profits from each transaction. While small, these add up to real costs for everyday travellers and the travel industry itself – costs that bitcoin could help alleviate.

Alan Safahi, CEO of payments company ZipZap, allows his company’s consumers to convert cash into bitcoin.

A seasoned traveler, Safahi told CoinDesk he believes in the potential bitcoin has for globetrotters:

“You can plan your travel all around bitcoin. It’s a really good use case for travel.”

Market in need of solutions

Of course, while bitcoin may have real benefits, it’s important to try to quantify just how big of an impact it could have on the travel industry, and how specifically the technology might be able to lead to improvements.

Research firm IBISWorld has found the global tourism market brings in more than $1tn in revenue for over 1.6 million travel-related businesses.

Further, travel is also a growing global industry that has not neared its peak.

The market for travel in Asia will be huge in the coming decades. Source: Market Realist The market for travel in Asia will be huge in the coming decades. Source: Market Realist

Still, currency is a constant issue for those who travel internationally, and thus travel companies that provide solutions could win customer loyalty by improving the experience for users.

“I travel all over the world, and every time I go somewhere the first thing I do is go to an ATM and get some cash. And one out of 10 maybe works,” said Safahi.

The byzantine banking network around the world is another part of the problem. With so many payment processors and networks, it’s almost impossible for ATM networks to cater to every single consumer card, and as a consequence, just as difficult for travel businesses to serve these customers at a low cost.

Bitcoin ATMs provide essential infrastructure

Bitcoin ATMs may be able to alleviate this issue by allowing travelers to go across borders with just one currency – bitcoin – before withdrawing local fiat at a low cost wherever they need it.

Safahi sees the potential for bitcoin ATMs in international locations, such as airports, train stations and other hotspots for travelers.

He said that if bitcoin ATMs were ubiquitous, this would be the likely scenario for a traveler:

“Go to a bitcoin ATM, scan [a] phone. Then have a map on their phone that shows every business that accepts bitcoin.”

Though it is becoming more convenient, it’s not exactly simple to live off of just bitcoin, which is what makes traveling with only the digital currency problematic.

Roger Ver, a digital currency evangelist well-known for living on bitcoin, told CoinDesk:

“With more and more bitcoin ATMs popping up around the world, I think it is just a matter of time until we see companies like Travelex or other money changing business adding bitcoin to the list of currencies they exchange.”

Bitcoin ATMs are popping up all over the world. Source; CoinDesk Bitcoin ATM Map Bitcoin ATMs are popping up all over the world. Source; CoinDesk Bitcoin ATM Map

Alternative to unstable fiat currencies

Another problem for the travel industry is the diversity of currencies used around the globe. Wikipedia lists roughly 180 circulating currencies in 193 of the countries recognized by the United Nations.

Here, bitcoin could offer stability where local currencies fall short.

ZipZap’s Safahi told CoinDesk there are a number of countries that are far behind in regard to digital commerce and payments, and bitcoin may have an opportunity to become widely used in those markets.

For example, Safahi says in places like Iran, people still book travel through a travel agency, paying cash.

Credit cards are not widely used in many places. Source: University of British Columbia Credit cards are not widely used in many places. Source: University of British Columbia

Another example is Argentina, where the Argentine peso has been so problematic that a growing number of citizens believe bitcoin might be a better alternative.

That’s why Sebastian Serrano of BitPagos, which allows hotels and restaurants to convert local fiat payments into bitcoin, is already doing business in Latin American countries like Argentina.

“In countries with high capital controls like Argentina or Venezuela, the exchange rate difference would be substantial and once you convert to the local currency is not possible to convert it back to the foreign currency,” Serrano said.

Ver pointed out how much easier traveling with bitcoin will be going forward, given the progress being made so far:

“We’ve already seen Square announce [planned] bitcoin integration. Soon, I think we will see major POS companies integrate bitcoin into their systems. Once that happens, I suspect most people would prefer to use bitcoin.”

“Bitcoin will become the world’s currency,” Ver added.

Disrupting currency spreads

There is also the matter of bitcoin’s ability to compete against existing solutions. Today, it’s common for people from the developed world to use credit cards while traveling.

While this sometimes helps a traveler avoid issues with handling local currency, it allows banks to profit from currency spreads that they dictate. These differences are spelled out in credit card agreements, and can include a ‘foreign transaction fee’ that is levied on transactions.

“With the banks playing a foreign exchange spread on either end of the transaction, if one can even use their card, they are paying a significant premium,” said Scott Robinson, who, as the lead for Plug and Play Technology Center‘s bitcoin startup program, travels to many conferences searching for new ventures to invest in.

In fact, those living and traveling just on bitcoin might be able to get a discount for paying in bitcoin depending on location. There are some global consumers, for instance, who may want bitcoin, but are struggling to gain access to it right now.

Robinson told CoinDesk:

“Bitcoin might present an environment where there is incentive to trade it for the consumer ‘exchanger’, especially in areas with low access to digital currency, which makes it much more attractive for travelers.”

The killer app question

Many claim Silk Road was the first killer app for bitcoin, and there are many who believe bitcoin gained popularity because of the illicit marketplace.

Even so, it is arguable that global travel could become the first legitimate application for bitcoin’s payment protocol. Early adopters like Roger Ver are spending bitcoin around the world, and at the same time promoting merchant acceptance.

“The technology is there, what is missing is the merchant adoption. [But] it’s always better to pay in bitcoin than have to convert your cash on each country you visit,” said BitPagos’ Serrano.

Ver dismisses merchant adoption as a problem facing bitcoin travelers. He said he has great bitcoin-accepting merchants already at his disposal, and that’s enough for him:

“Thanks to CheapAir, Expedia, LocalBitcoins, and ANXBTC’s bitcoin based credit card, it is completely possible to travel on bitcoins.”

Travel image via Shutterstock


October 04, 2014 at 04:58PM

3 October 2014

Russia Proposes Monetary Penalties for Bitcoin Use and Promotion

Russian Ministry of Finance

The Ministry of Finance of the Russian Federation has released the full version of the draft bill that, if passed in current form, would effectively ban the creation and distribution of software that allows for the use of money substitutes, including bitcoin and all digital currencies.

First announced as a proposal in August, the news marks the first time that the Ministry of Finance has made the proposed law public, as well as its definition of “money surrogates” under which bitcoin and digital currencies may be prohibited.

The two-page draft bill details a series of administrative fines to be imposed on both businesses and private citizens who issue, create or deliberately disseminate information about the release or operation of digital currencies, the language implying that the law would apply to much of the bitcoin industry, from bitcoin users to miners and service providers.

For example, individuals who are found to issue or create bitcoin or digital currencies will be penalized with fines of 30,000–50,000 rubles ($750–$1,250). Similarly, officials found to engage in such practices will be subject to fines of 60,000–100,000 rubles ($1,500–$2,500), while legal entities will be eligible for fines of 500,000–1m rubles ($12,500–$25,000).

A similar series of fines is also detailed for those found to have disseminated information that “permits the release of money substitutes”. Individuals engaging in this practice would be subject to fines 5,000–50,000 rubles ($125–$12,50); officials, 20,000–100,000 rubles ($500–$2,500); and legal entities 500,000–1m rubles ($12,500–$25,000).

At press time, much of the domestic industry was still reacting to the news. Anton Vereshchagin, founder of InterMoneyExchange, which had planned to launch in Russia but has since moved to other markets, told CoinDesk:

“If earlier Central Bank statements suggested Russia would follow the FATF and other recommendations and regulate bitcoins, now it seems that the chances are very very small.”

He added: “In fact, the restrictions and prohibitions are only getting worse.”

Amended definitions

The draft bill also calls for the amendment of the definition of money surrogates in Russia to include language that would cover new financial technologies such as digital currencies.

Under the revision, the definition would include any “monetary unit” issued as a means of payment or exchange and not allowed under federal law.

The law would also be revised so that those who promote or encourage such activities are also in violation of the law. One provision calls for the law to be amended to “prohibit the dissemination of information that permits release (emission) of money substitutes and (or) the operation with their use.”

Confirming fears

The latest language in the draft bill confirms fears long harbored by many other Russian market observers.

Артем Толкачев, a managing partner at the law firm Толкачев и Партнеры, who has spoken publicly at Russian bitcoin conferences and who advises bitcoin startups on local regulation, told CoinDesk in September that he was pessimistic the law might only apply to those seeking to exchange fiat money for digital currencies.

In particular, Толкачев pointed to statements from the Ministry of Finance in September that suggested the bill might make this interpretation. The statement read:

“We are not going to prohibit people to play checkers and to call checkers money. What we prohibit is to exchange substitutes to money and vice versa.”

Толкачев also pointed to the gradual evolution in statements from Russian authorities as well as the milder positions of the Bank of Russia, the country’s central bank.

Image via Shutterstock


October 03, 2014 at 10:55PM

2 October 2014

Do’s and Don’ts of Bitcoin Fundraising Campaigns

So you love Bitcoin, and you wanna do something great with it to help change the world? That’s wonderful, you’re an idealist with vision, passion and the courage to reach out and DO SOMETHING meaningful and positive for the world, but are you ready to take on the challenge?

Here are a few tips from someone who’s been on the Bitcoin frontline and learned a thing or two about what, and what not to do.

  1. Don’t try and do everything yourself!

Bitcoin fundraising is all very well, and if you get a good opportunity to get some publicity, or find yourself in a position to raise some money that’s great: use it wisely.

There are lots of projects and charities out there that are already underway and have good support networks, infrastructure and networks available already. Do you want to try to do something new? or would you be more comfortable joining a larger program or organisation?

Sean’s Outpost and the Bitgive Foundation are both well established charity projects, and there are many examples of charities supported by exchanges like Ice Cubed and the Bitcoin Foundation like Alekenani’s Botswana program and BitPesa’s Donation program for projects in Kibera.

  1. Know your limits!

Bitcoin can be confusing at the best of times to the ordinary person, let alone a charity that is pushed for time, resources and/or manpower. Make sure you contact them first and let them know what it is you’re planning.

There are certain rules and procedures that you need to follow in order to make sure the Bitcoins you receive as charity donations are properly accounted for and the amount raised in fiat money is recorded faithfully once converted to fiat.

This is to protect you as a fundraiser and help those who’ve donated the money to you know that their donations are well spent and going to the right place!

Legitimate charities will have an official charity number and proof they are legitimate such as a charity certificate from their local government ministry of department, plus an accountant or responsible member who should insist on having a donation witnessed and signed for.

Another important thing to make sure is that you know what it is you’re donating for, and there’s an understanding of what you expect them to do with the donation in return: preferably in writing.

  1. Get a receipt or signed declaration that they’ve received the money from you and have agreed to spend it in the way specified by you, or your donors!

This sounds a little bit crazy, as it suggests that you know better what they need than they do. If this is the case, make sure you know what it is they need most before starting a fundraising campaign!!

A lot of charities dont know, and dont care what Bitcoin is. They just want money, so whilst this might seem obvious, don’t count on the fact that they will be able to, or want to treat it as an investment in their future development. Not only could they be sceptical about receiving ‘Internet Funny Money Donations’, since the legal status of Bitcoin is under question in many countries, but also charities may well have a hard time assessing whether or not they’re breaking the law by accepting Bitcoin donations from you.

  1. Don’t try to save the whole world!

A lot of us ‘more naive’ Bitcoiners can be accused of suffering from ‘Mary Sue’ syndrome (a throwback to a sixties’ comic about a Super-Heroine whose powers were so great she could literally do anything and everything).

Just like Mary-Sue, Bitcoin evangelists and fanatics often have a tendency to believe that Bitcoin is a Panacea for the world’s problems, and would solve all our woes if everyone was simply to adopt Bitcoin.

Sadly, this just isn’t the case. Bitcoin is a fantastically powerful tool, but it’s only a tool, and an experimental one at that. It relies on a huge amount of faith, a tiny group of core developers, and a micro-community of investors (on a global scale) who have the capacity to crash the market at will, often for their own selfish motives.

This means that you’re stepping on thin ice by putting all your faith in Bitcoin as a currency. The best advice? If you really want charities to accept Bitcoin, talk to them about it, encourage them to accept it, and then send them to BitPay, CoinBase, BitPesa, Ice3X or another exchange that will handle the funds donated for them.

  1. Interface with your local Digital Currency Association or the Bitcoin Foundation before you get started and ask for their advice.

Increasingly these advocacy organisations will have people with experience and a set of guidelines for you to follow if you want to start your own Bitcoin outreach or education project. You can find that things get tough when you’re in a foreign environment, surrounded by people who are expecting you to give them money or solve their problems for them, and having help and support from back home can be invaluable.

  1. Make sure you pick a team on whom you can rely to help you realise your vision.

All too often the Bitcoin world is made up of dreamy-eyed idealists and flaky kids with lots of vision and enthusiasm, but little idea of how to organise and execute projects from start to finish, especially if they’re complicated projects, which have multiple facets to make them work and especially if they’re likely to take a long time to execute, realise and bear fruit.

Aid work, particularly in the third world, is a full time job and it’s usually done by professional volunteers and nonprofits who are familiar with the local territory and cultures, and the challenges specific to the communities and areas. Work as closely with you can with them to try to help them achieve their goals, rather than expecting to achieve your own goals, even if you believe your goals are the most important ones!

  1. Be careful of your own motivations!!!

Are you doing it to boost the public profile or the price of Bitcoin by using the media? Or to promote your own status in the community or your business? If so, be warned: There’s always the possibility that your efforts may backfire. You may find yourself giving to a charity which has a questionable past, and if you don’t take proper precautions, there’s always the possibility you could end up being accused of trying to defraud the Bitcoin community. Remember that the people in the community rely on building trusting and lasting relationships, and maintaining and developing those relationships is crucial to developing a career in the industry. So protect your reputation at all costs by being as open, honest, not-pushy and transparent as you possibility can be, keep records of everything you do and spend on your project.


This should almost be the first AND the last rule, just to stress the point. You’re only human, and you can only achieve so much in a given time. How much time are you prepared to dedicate to changing the world with Bitcoin? If you want to dedicate your life to it, that’s great! But remember that charity work is a tough business by its very nature, and it’s very easy to get pigeon-holed as a ‘do-gooder’ who is only interested in raising money to make themselves look good. Some people will react badly to this because they think you’re trying to make yourself look better than them. You may find you find yourself being put in a box and labelled as something you’re not comfortable with.. People may only think you’re interested in talking to them because you want to get them to donate to your own individual cause or purpose. Beware of simultaneously courting business clients for the purposes of charities; you might end up confusing your motivations.

That’s why ‘Keeping it simple” and remaining objective about the project you want to get involved with is so important.

  1. Pick specific tasks or goals that you want to accomplish and set a time frame and a metric for success.

So you want to build a water well in Kenya? Or a Computer Lab in a school in a slum? Great!

Choose one project: dedicate yourself to that one thing, and set a date by which you want to have achieved your goal. I know this sounds basic, but you’re setting yourself up for failure if you don’t have a S.M.A.R.T. goal written down on paper which you know you can achieve.

(S.M.A.R.T. Goals stand for: Specific, Measurable, Attainable, Realistic and Time-based).

If your project doesn’t have a ’S.M.A.R.T.’ set of criteria by which you can measure success or failure, go back to the drawing board, put pen to paper, and make sure you know what you’re doing first, so that you can accurately assess the level of your success or failure you achieved after the event. Remember that failure isn’t necessarily a bad thing. You can always learn a lot from failure, provided you have set specific goals and know what you failed to achieve and why!!

If you don’t set a SMART goal, you may simply be setting yourself up for heartache and pain: take it from someone who knows!!!

10. Don’t be put off by people who don’t believe in you or what you’re doing.

There are always going to be people who don’t understand what it is you’re trying to do, or who think you’re doing it for your own ego or to line your own pockets. Ignore them. Hardly anyone out there actually understands Bitcoin (that even goes for a lot of other Bitcoin Enthusiasts, Venture Capitalists, and Bitcoin Journalists!) but more importantly, members of the general public, charity workers and locals may feel that you’re out to pull the wool over their eyes or have some hidden agenda in mind.

Try to keep your goals consistent and maintain your integrity; you won’t have a problem as long as you do your best to put yourself in the situation of the people you’re visiting and try to learn as much about them and their culture as you can, without assuming that Bitcoin is somehow magically going to transform their lives.

Remember that money often brings its own problems, including corruption and issues of trust, feelings of unfairness within communities (i.e. How come so-and-so received a donation but I didn’t?) and remember that, particularly with community projects there will be various power structures already in place (in third world situations these will often be religious organisations vs. government organisations) who have different visions and may be competing with each other for control over local resources and finances, and publicity.

If you want to start your own Bitcoin charity donation project, feel free to get in touch with me by Twitter and pick my brains. I learned from experience that going into a third-world environment can be tougher than you expect, with culture shock and feelings of helplessness often coming as part of the deal, but don’t let that put you off. If you truly believe in what you’re doing, and you plan your project properly, you can create a valuable experience that will not only help others, but also will give you an experience of a lifetime which you’ll cherish forever.

11. Finally: This should go without saying, but I’ll say it anyway: FOCUS ON WHAT YOU LOVE DOING THE MOST.

There’s no point trying to help people who don’t want your help, don’t understand you and don’t care about your goals and motives. If you’re going to do something truly effective, pick a cause you really truly care about and you know you can stick with. I know it sounds obvious, but sometimes we have a tendency to get caught up in the media hype and follow other people’s agendas. STICK TO YOUR OWN PASSIONS AND YOU CANT GO WRONG. Not only will this stop you from mixing up your messages, but it’ll help you focus on what’s truly important in your own life too.



October 02, 2014 at 01:34PM

1 October 2014

Bitcoin’s Impact on the Online Gaming Industry

The rise of the free and open Internet since the early 1990s has led the gambling industry to expand its reach further into new markets. Despite strict and heavy regulatory policies, online gambling firms have managed to comply with a seemingly endless barrage of tighter gambling laws. Likewise, new payment systems have emerged that provide easier ways to lure people into making more bets. One such scheme is the introduction of Bitcoin, which is an open-source system using peer-to-peer technology for online payments. This type of payment system has the ability to bypass certain restrictions in online gambling all over the world, making it a potentially profitable betting tool for online casinos and gamblers.

The advantages of using Bitcoin involve its steadily growing status as a cost-efficient form of cryptocurrency. The main benefit focuses on the cost of making a Bitcoin transaction. Since it is relatively cheap to make a single transaction, more operators are exploring the idea of using them. Bitcoin’s affordable transaction prices contribute to the existence of a viable business model that offers low commissions. Although Bitcoin gambling represents a small fraction of the revenues from online gambling, the industry is pushing to make it more mainstream due to its cost-efficiency.

In 2012, the global market for online gambling recorded €21.73 billion in gross winnings, according to research firm H2 Gambling Capital. By 2015, a 9.13% compound annual growth rate is expected to occur, the company said. This projection is supported by the growing number of demands from consumers to launch new types of gambling platforms such as Bitcoin casinos. SoftSwiss CEO Ivan Montik is one of those that has felt the increase in demand. Montik’s company specialises in online casino software and bitcoin gambling solutions. “We’ve got about 400 requests for the launch of a bitcoin casino in the last six months,” he added. “We constantly have three to five casinos in the set-up phase, and could have had more if we had more resources.”

Other groups such as online sports betting site BitcoinSportsbooks.com have already expressed their confidence in the arrival of Bitcoin as an innovation in online gambling. “The smart money is on a Bitcoin gambling revolution,” according to the website. “It’s time for gamblers to cash in their chips and start mining their Bitcoins because cryptocurrency is about to make conventional money a spent force in gambling.”

Bitcoin may be receiving a lot of hype, but several challenges still face the peer-to-peer technology. As mentioned earlier, regulation will play a key role in the advancement of cryptocurrency. In the U.S., players are forbidden by the law to use bank-processed payments for their online bets. Some gambling entrepreneurs, however, have managed to establish cryptocurrency-based gambling sites such as the Seals with Clubs.

“It would be trivial to circumvent some ban. Seals is open to the world. There’s no banking

at all done on the site. It’s a pure bitcoin poker site, so this is a totally brand new thing,” said Bryan Micon, the website’s manager. ”It’s only been a few years for the legal world and there’s nothing at all that says anything about this protocol.”

October 01, 2014 at 07:21PM

A Magna Carta for Bitcoin

The Constitution is a living document. The Bible is a living document. The manifesto for the Pepsi logo is a living document and the Bitcoin white paper is breath, a breath of fresh air. Yes, this document is a representation of pure mathematical truth; however, I believe we are at fault if we are to assume “truth” is ubiquitously understood by the masses, or, that the white paper is a system of values and virtues the masses can empathize with.

The majority of the world does not look to the white paper as a guideline for anything more than rational knowledge due to the very nature of math as an emotionless concept for anyone who is not a mathematician. Distilling the logic in the Bitcoin white paper into an emotional concept is necessary to resonate with a core of human truth in order for us to progress, unified, to move the hearts of the masses toward action based on our collective understanding of good and evil. This form of intrinsic resonance is necessary to create mass human force behind any movement.

Every great declaration of thought and leadership throughout the history of humanity has had a document of reference for people aligning with the ideal. One of the largest differences between high value institutions offering education and the run of the mill solution is, other than the network, their ability to provide a framework of values for people to think about success while instructing how and why to think instead of what. Shaping the character of Bitcoin to align the people with a common set of virtues is necessary if we want to shape mass understanding concerning how and why Bitcoin and the blockchain evolve the very nature of the way the world works. Aligning universal maxims within the community amidst growing tension is absolutely fundamental if we want the “whats” being built on top of this invention to have substantial impact.

Why has Bitcoin been philosophized as the end to the deep institutional problems created by established infrastructures in an age of creativity and decentralization if the Bitcoin community at large is going to draw their lines divided instead of united to progress a common cause?

If I may make a suggestion, why not scrap the scrabbles and work together to remind everyone why, among many reasons, this invention has risen to prominence when the idea of apolitical currency has been around for over 280 years?

Many people have given critical feedback to the idea of “Bitcoin as a Brand” simply because it is not seen as a consumer good. If you take this stance, I have to fundamentally negate your understanding of branding. Advertising and marketing are mechanisms for people to communicate value, values and character to society at large.

You are a brand. That cup on your table is a brand. Traditional banks are a brand and Bitcoin is a brand. While the technology of Bitcoin is not in and of itself a company, we need to take great care to ensure the underlying philosophy of the invention is preserved throughout the evolution of the idea.


We have often labeled Bitcoin as the solution to end mechanisms of power which have abused their stronghold. However, the solution to fear based problems is not more fear. Instead of inspiring alarm concerning economic chaos and job disruption for people who are ingrained in these systems, some of whom have dedicated their lives to the success of these power institutions, we should label the invention, Bitcoin, for what it truly is: the ability to curate a modern financial equality for a global economy of abundance.

Equality means distributed, decentralized power.

This does not mean we should obviate and destroy the past to make a better future. Change takes time and to make the future we want to see into a reality peacefully, we should work together, transparently.

If global currencies who operate within the borders of a nation state implement the blockchain technology into their national mechanisms of value transfer, they would be able to help prevent the major losses from problems like rampant corruption, traffic from submerged markets and tax evasion; the global economy suffered $3.1 trillion of loss due to tax evasion in 2011 alone. Shared goals using technology as a bridge between the past and the future can create a more equal marketplace for both states and citizens.


Why should Bitcoin rise to prominence at this moment in time when the idea of digital money has been working toward perfection for approximately 40 years? After the financial crisis of 2007-2008, I believe we, as a human race, collectively decided a revolutionary solution was necessary to implement changes – changes the systems in charge were not capable of providing, to create a new form of trust through mathematical truth.

Financial institutions of the future will be heavily weighted on the amount of trust they are able to instill in consumers when dealing with their money.

We may not be able to place trust in institutions with systemic inefficiencies and darwinian principles of survival built into their culture. We may not be able to place trust in institutions who have to take advantage of their complexity by charging the unaware, uninformed and disempowered. However, one thing remains certain: I believe we can trust people, the internet, and math. No matter how hard anyone tries, 1+1 will never equal 247.

Redefining Convention

Bitcoin is not normal, but neither is anyone. Bitcoin is not hard to grasp: everyone should try it. Bitcoin, for the majority audience, is like the first time you ever saw a shooting star. You couldn’t quite describe what it was or why it happened, however, you knew there was something magical behind it. Bitcoin evolves dated maxims of past ideologies to create a new foundation for the modern open source world to build upon. The majority audience doesn’t necessarily need to understand the intricate details of how Bitcoin works, just as the majority of people will never truly understand the intricate algorithm involved each time they perform a google search. People should want know how this invention changes their lives and the lives of humans around the globe for the better of humanity. People will be interested in knowing how this invention benefits their lives personally and helps them to participate in a culture which gives them meaning and a community to align their identity with.


(humanity, peer-to-peer exchange)

While the idea may be digital, the purpose is fundamentally human. Bitcoin is Digital Money anyone can use. Bitcoin, as a human brand, is building a framework for a modern economy of universal financial inclusion, creating new reliance mechanisms for human beings who have been disempowered by the actions of their government and simultaneously developing a method for value to be exchanged, human-to-human. The underlying technology of Bitcoin may be one of the ultimate technological advancements of this age, but the perception of the brand is, should be, and should feel like a human being.

Bitcoin is mathematical truth, logical truth which needs to align with a series of universal maxims which we can all support in unity as a Bitcoin community, as a human race.

To move forward in the development of this brand, we need to work united by shared ideals to define tangible goals, strategies and tactics to progress our shared vision of evolving Bitcoin into a true revolution for the financial systems of this world.

Please let me know in the comments section if any virtue and value which is critical to evolution of Bitcoin as an emotionally resonant, human brand is not included in this article.

Follow Toni Lane Casserly on twitter and Instagram .

October 01, 2014 at 06:22PM

Georgia Tech and BitPay Announce Bitcoin Integration

ATLANTA, GA – OCTOBER 1, 2014 — Georgia Institute of Technology will be the first university in the world to integrate bitcoin payments into its stadium concession sales and student dining and shopping credit system, announced Wednesday by BitPay, the world’s leading bitcoin payment processor.

Bitcoin point of sale devices will be located in the student section of Bobby Dodd Stadium, and the Barnes & Noble store in Tech Square will be home to a bitcoin-enabled point purchase terminal for student credit BuzzCards. Students who use bitcoin will now be able to purchase food and goods at almost all locations on the Tech campus.

Georgia Tech was founded in 1885 and remains one of the most prestigious public universities in the United States. The university has contributed a great deal of research as well as many notable graduates to the field of applied technology over the years. It continues to engage itself with technological progress through its leading role in university adoption of bitcoin through an innovative deal brokered by IMG, the university’s multimedia rights partner.

As the “key to campus life” on Georgia Tech, the BuzzCard will be an important interface for student bitcoin use. Yellow Jackets fans will also be able to easily and quickly purchase snacks and drinks at Bobby Dodd Stadium with the world’s fastest payment method. These new bitcoin venues, along with bitcoin wallet provider Pheeva’s announcement of a unique “Jacketwallet” for Georgia Tech, hold promise for the role which digital currency may come to play in student life.

“We look forward to working with BitPay to make bitcoin a viable payment option for our students and fans,” Georgia Tech AD Mike Bobinski said. “At Georgia Tech, we are always looking to lead in innovative ways, and this partnership with BitPay gives us an opportunity to do so by integrating this new technology at a sports venue and in the daily lives of our students.

“Georgia Tech is one of the best sources of innovation in the country,” said Tony Gallippi, BitPay Executive Chairman and Georgia Tech alumnus. “BitPay is proud to offer its own innovative bitcoin payment processing to the university and its students.”

In July, BitPay announced a breakthrough partnership with the Georgia Tech Athletic Association. The sponsorship is designed to build awareness to bitcoin by displaying BitPay’s logo along with the bitcoin symbol in Bobby Dodd Stadium and the McCamish Pavilion through the 2014-2015 school year.

About BitPay

BitPay is the global leader in bitcoin payment acceptance with offices throughout North America, Europe, and South America. The company has raised over $32 million from top investors including Index Ventures, Founders Fund, and Sir Richard Branson.

About Georgia Tech

The Georgia Institute of Technology, also known as Georgia Tech, is one of the nation’s leading research universities, providing a focused, technologically based education to more than 21,500 undergraduate and graduate students. Georgia Tech has many nationally recognized programs, all top-ranked by peers and publications alike, and is ranked in the nation’s top 10 public universities by U.S. News and World Report. As a leading technological university, Georgia Tech has more than 100 centers focused on interdisciplinary research that consistently contribute vital research and innovation to American government, industry, and business.

October 01, 2014 at 04:15PM

30 September 2014

Bitcoin: Magic, Fraud, or Sufficiently Advanced Technology? Part II: Technical Structure

Part I introduced some of the challenges in the way of the public understanding of how Bitcoin works, and summarized the strategic roles of the open source software model, peer-to-peer networking, and digital signatures. Part II concludes by discussing hashing and the essential roles it plays in the technical structure of Bitcoin, as well how the system has been designed to be self-financing right from the beginning into the indefinite future.

Making a hash of it

Hashing plays a role quite different from digital signatures. It proves that a message has not been altered. Running a hash of the same message always produces the same result. If a hash does not match a previous one, it is a warning that the current version of the message does not match the original.

To illustrate, here is a message from Murray Rothbard. He wrote in Man, Economy, and State that:

“It must be reiterated here that value scales do not exist in a void apart from the concrete choices of action.” —Murray Rothbard, 1962

And here is the SHA256 digest of this message and attribution (the same algorithm that Bitcoin uses):


Any message of any size can go into a hash function. The algorithm breaks it down, mixes the parts, and otherwise “digests” it, until it produces a fixed-length result called “a digest,” which for SHA256 takes the above form, but is in each case different in content.

There are some critical properties of a good hash algorithm. First, the same message always produces the same digest. Second, it only works in one direction. Nothing about the message that went in can be reconstructed from the digest that came out. Even the tiniest change produces a completely different digest, with no relationship between the change in input and the change in output. This is called “the avalanche effect.” Third, the chances of producing the same digest from an altered message are miniscule. This is called “collision resistance.” It is impossible to craft an altered message that produces the same digest as the original unaltered message.

To demonstrate, here is the same quote without the two quotation marks.

It must be reiterated here that value scales do not exist in a void apart from the concrete choices of action. —Murray Rothbard, 1962

Which produces this digest:


Compare it with the previous digest:


The tiniest change in the message, removing the two quotation marks, produced a completely different digest that has no relationship whatsoever to the previous digest. In sum, a digest gives a quick yes or no answer to a single question: Is the message still exactly the same as it was before? If the message differs, the digest cannot indicate how or by how much, only that it either has changed at all or has not.

How could such a seemingly blunt instrument be useful? Bitcoin is one application in which hashing has proven very useful indeed. In Bitcoin, hashing is used in the lynchpin role of making it impossible to alter transactions and records once they have been recorded. Once the hashes are hashed together within the blockchain, record forgery anywhere is impossible.

Transactions and how miners compete to discover blocks

Wallet software is used to create transactions. These include the amount to be sent, sending and receiving addresses, and some other information, which is all hashed together. This hash is signed with any required signing keys to create a unique digital signature valid only for this transaction and no other. All of this is broadcast to the network as unencrypted, public information. What makes this possible is that the signature and the verification key do not reveal the signing key.

To keep someone from trying to spend the same unit twice and commit a kind of fraud called double-spending, nodes check new transactions against the blockchain and against other new transactions to make sure the same units are not being referenced more than once.

Each miner collects valid new transactions and incorporates them into a candidate in the competition to publish the next recognized block on the chain. Each miner hashes all the new transactions together. This produces a single hash (“mrkl_root”) that makes the records of every other transaction in a block interdependent.

Each hash for any candidate block differs from every other candidate block, not least because the miner includes his own unique mining address so he can collect the rewards if his candidate block does happen to become recognized as next in the chain.

Whose candidate block becomes the winner?

For the competing miners to recognize a block as the next valid one, the winning miner has to generate a certain hash of his candidate block’s header that meets a stringent condition. All of the other miners can immediately check this answer and recognize it as being correct or not.

However, even though it is a correct solution, it works only for the miner who found it for his own block. No one else can just take another’s correct answer and use it to promote his own candidate block as the real winner instead. This is why the correct answer can be freely published without being misappropriated by others. This unique qualifying hash is called a “proof of work.”

The nature and uses of message digests are counter-intuitive at first, but they are indispensable elements in what makes Bitcoin possible.

An example of a mined block

Here is an example of some key data from an actual block.





The top line (“hash”) was the actual successful block header hash for this block. It starts with a large number of zeros because a winning hash has to be below the value set in the current difficulty level. The only way to find a winner is to keep trying over and over again.

This process is often described in the popular press as “solving a complex math problem,” but this is somewhat misleading. It is rather an extremely simple and brutally stupid task, one only computers could tolerate. The hash function must simply be run over and over millions and billions of times until a qualifying answer happens to finally be found somewhere on the network. The chances of a given miner finding such a hash for his own candidate block on any given try are miniscule, but somewhere in the network, one is found at a target average of about every 10 minutes. The winner collects the block reward—currently 25 new bitcoins—and any fees for included transactions.

How is the reward collected?

The candidate blocks are already set up in advance so that rewards are controlled by the winning miner’s own unique mining address. This is possible because the miner already included this address in his own unique candidate block before it became a winner. The reward address was already incorporated in the block data to begin with. Altering the reward address in any way would invalidate the winning hash and with it that entire candidate block.

In addition, a miner can only spend rewards from blocks that actually become part of the main chain, because only those blocks can be referenced in future transactions. This design fully specifies the initial control of all first appropriations of new bitcoins. Exactly who wins each next block is random. To raise the probability of winning, a miner can only try to contribute a greater share of the current total network hashing capacity in competition with all of the others trying to do the same.

As shown above with the Rothbard quote, a completely different hash comes out even after the slightest change to the message. This is why the protocol includes a place for a number that is started at zero and changed by one for each new hash try (“nonce”). Only this tiny alteration, even if the rest of the candidate block data is unchanged, generates a completely different hash each time in search of a winner. In the example above, it looks like this miner found a winning hash for this block at some point after the three billionth attempt (“nonce”:3013750715), and this was just for that one miner or mining pool, not including the similar parallel but unsuccessful attempts of all the other miners, and all this just for the competition for this one block.

The key point to understand is that finding a hash under the difficulty level is extremely competitive and difficult, but verifying afterwards that one has been found is trivial. The rest of the miners do so and move right along. They use the newly discovered hash of the previous block header (“prev_block”) as one of the inputs for their next crop of block candidates (which assures the vertical integrity of the single chain of blocks) and the race continues based on the remaining pool of unconfirmed transactions.

A powerful, self-financing, verification network

The Bitcoin mining network is, as of late September 2014, running at about 250 petahashes per second and rising at a logarithmic pace that will soon make this figure look small (rate tracked here). This means that about 250 quadrillion hashes are currently being tried across the network every second all the time. This is the world’s most powerful distributed computing network, by far, and has already been steadily extending this lead for quite some time.

Block rewards and transaction fees help promote the production and maintenance of this entire network in a decentralized way. Since block generation is random and distributed on average in proportion to hashing power contribution, it helps incentivize all contributors all the time. Many miners participate in cooperative mining pools so that at least some rewards arrive on a fairly regular basis.

The network is designed to be entirely self-financed by participants from the beginning indefinitely into the future. Early on, new coin rewards are larger and transaction-fee revenue smaller. Finally, only transaction-fee revenue is to remain, with a long and gradual transition phase built in.

If Bitcoin does remain successful over the longer term, by the time transaction-fee revenue predominates, there would likely be many orders of magnitude more transactions per block by which to multiply the average competitive fee per transaction.

This has been a summary look at a few of the key technical elements of Bitcoin. Hashing algorithms and digital signatures are especially counter-intuitive and relatively new inventions, but knowing what they make possible is essential for understanding how Bitcoin works. Each of Bitcoin’s major elements contribute to the central functions of verification, unforgeable record-keeping, and fraud prevention. These technical underpinnings and the functions they support sound about as far from the systematic deceptions of a fraud such as a Ponzi scheme as it would be possible to get.

Adapted and revised from Bitcoin Decrypted Part II: Technical Aspects and reposted from konradsgraf.com and actiontheory.liberty.me.

About the Author

KonradGraf_04 - Version 2 Konrad S. Graf (@KonradSGraf) writes on Bitcoin and monetary theory. This work so far is collected at http://ift.tt/1eou0fG. He appeared on panel discussions on Bitcoin and economic theory and monetary history at the Bitcoin 2014 conference in Amsterdam, and in 2013, he presented on Bitcoin and social theory at the Mises Seminar Australia in Brisbane and via pre-recorded interview at the Bitcoin Singapore conference. He is currently focusing on additional research and writing in this area.

Please send Konrad a tip: 174YDzQuMdUgNbd9sQspPdNjZwg7UxQNVi

September 30, 2014 at 07:30PM

29 September 2014

The Liberty Beat Partners with Genesis Communications Network

The Liberty Beat Partners with Genesis Communications Network


Contact: John Bush, Owner and Editor in Chief of The Liberty Beat

Phone: 512-773-6102 Email: JohnBush512@gmail.com

San Marcos, TX – The Liberty Beat, your daily source for liberty news and activist updates, is announcing a new partnership with the Genesis Communications Network that will greatly expand the reach of the program. The daily news service will also soon be producing three updated editions a day.

Since January of 2013, The Liberty Beat has provided daily top-of-the-hour news that could be heard on LRN.FM and up to 14 times per day on 90.1 FM in Austin, TX.

Now, you can hear the daily news service on the Genesis Communications Network and many of their AM and FM affiliates. The Liberty Beat will be included at the top of every hour during Free Talk Live, the Katherine Albrecht Show, the NutriMedical Report, and will also be downloadable via the GCN podcast feed.

The program has evolved from a one man hobby operation to a full fledged news service that contracts with writers and producers from their office in downtown San Marcos, Texas.

“We’ve come a long way in the quality and depth of our content,” said John Bush, founder of the Liberty Beat. “I used to exhaust myself running the program solo. Since bringing on Derrick Broze and Catherine Bleish as writers and Brian Hagen as our voice talent, we have been able to take it to the next level. With our new partnership with GCN, the sky is the limit!”

Every day The Liberty Beat announces the price of gold, silver and bitcoin, then provides a unique set of daily news topics including features on foreign policy, the rise of the police state, economics and alternative currencies, sustainable living, activist events and action, and more.

In the coming months, The Liberty Beat will be transitioning from a once a day format to delivering regular updates throughout the day in the form of three daily editions. You can contribute to the growth of the Liberty Beat by contacting John Bush to become a sponsor, or visiting http://ift.tt/1lnuHbe to contribute via PayPal, bitcoin, or other means.

The Liberty Beat Team is planning to celebrate this new partnership with a launch party at Brave New Books in late-October. An announcement will be posted when plans are finalized.

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September 29, 2014 at 10:10PM

Crypto-Anarchists and Cryptoanarchists

The word “crypto” is Greek in origin (from kryptós) and means “hidden” or “secret.” Cryptozoology is the study of hidden and rare animals, cryptography is the study of hidden or secret writings, etc. In contemporary times, the use of crypto as a prefix usually designates a secret identification. While few today would declare their allegiance to the ideals of fascism, it is not uncommon to hear people referred to as “crypto-”fascists. The addition of crypto as a prefix in this case indicates a belief that someone is 1) secretly a fascist or 2) they act in ways to surreptitiously bring about fascism.

The double entrendre of “crypto as a prefix” can help us understand the role of crypto in the broader paradigm of achieving a liberal society. Crypto-Anarchists, I argue, are ideologically committed anarchists who recognize the superior efficacy of utilizing cryptographic means to achieve freedom. The population belonging to this group is, shall we say, narrow. These anarchists are “crypto” in the first sense of the word: they are anarchists who deliberately and intentionally want to recreate society on the basis of decentralized consensus, trustless networks, and strong encryption.

Cryptoanarchists, on the other hand, encompass the whole body of people who are using cryptographic tools without the understanding that they lead to anarchy. They embody the second sense of the word “crypto” – that is, that by using cryptographic tools as a function of their own self-interest, they are ignorantly and absentmindedly promoting an anarchist world. They are popularizing and normalizing tools of trade – such as Bitcoin or OpenBazaar – without any reference to society, politics, or economics. They are, usually, blissfully unaware of the goings-on at the Federal Reserve or the latest attempt by the Dept of Justice to regulate “intellectual property.” They care not for discussions of Internet freedom, and aside from the mass revolt against CISPA/SOPA, they generally do not foray into topics pertaining to digital property, privacy, political freedom and independence, and so on. They are mostly Muggles who, through natural processes of diffusion, have learned from others to use Bitcoin, TOR, TextSecure, GNU/Linux, or other various tools in the Crypto-Anarchist toolbox.

Both of these groups are absolutely vital to the success of crypto-anarchy as a movement. The field of intelligent specialists in cryptography, systems security, digital cash, and peer-to-peer networking is small. Though this group is few in numbers, they provide the much needed ideological zeal to inspire people to devote their time to create these products, often voluntarily. Computer scientists, IT specialists, and software geeks of all types are, like everyone, influenced by incentives. The work they perform is work like any other, and is usually purchased by various companies. Intelligent programmers are normally scooped up by large, centralized companies to tackle specific problems relating to server maintenance, communications, or other projects. Software giants today have little incentive – or perhaps disincentive – to spur their hired coders to create innovative, decentralized networks. Decentralized networks are anathema to the Microsofts and Apples of the world today. Hence, the majority of “software proficient” people find themselves working on puzzles for corporations – they are not geniuses who strike out and break the paradigm.

The ideologically committed Crypto-Anarchists are the ones putting fire in our hearts; they are the ones inspiring and encouraging others to pick up an encrypted weapon and join the fight. They spread anarchy through their natural means: coding. Crypto-Anarchists, like Cypherpunks before them, write code. While writing code, they also write prose that speaks to the souls of fellow programmers and software developers spending 40 hours a week to tweak Skype’s “calling” interface. When approached with dreams of independence and integrity, many devote their volunteer time to building anarchist tools. For all its ideology, Bitcoin is COOL. It is NEAT. It is innovative in ways that surpass economics, computer science, and law. It ushers in a new paradigm of communication and contracts. Bitcoin will do to money what BitTorrent did to information: release it. Money and contracts will no longer be the domain of bankers and lawyers. They are unnecessary, antiquated solutions to collective action problems that existed before decentralized consensus mechanisms were available. In the Bitcoin age, they are dinosaurs, unfit for the new future world. Describing and elaborating on this new world brings excitement. Anything is possible! Programmers now have a small side-interest in working on Bitcoin or Bitcoin-related projects. They saw the computer science implications long before economists saw the economic implications (lawyers have yet to be brought up to speed on the legal implications). The Crypto-Anarchist zealotry is hugely important; it shunts men and women out of their regular daily lives toiling away for centralized institutions and it creates a desire to free the world from software giants and telecom companies.

While they are the firebrand minority, most of the work to be done relies on the cryptoanarchists: the mass crowd of consumers who desire cool stuff. Once Bitcoin crosses the innovation chasm, and regular people realize they can use it in place of stuffy government money, they will become adherents and will support it simply for the amazing things it does: own and control money without tying it to a legal identity, send it to next door or across the world for five cents, and have perpetual access to your account. Of course, if they realize that it destabilizes fiat currencies and central banks, all the better. But that is the domain of Crypto-Anarchists, not cryptoanarchists. So long as they are using Bitcoin or TOR (to evade internet espionage) or Linux (to evade malware), they are promoting anarchy. The critical tie-in, for Crypto-Anarchists, is to create anarchist tools hidden within amazing consumer goods: Smartphones that are completely open-source, communication tools that are end-to-end encrypted, operating systems that leak no information! This is the key! Package the tools to anarchism nonchalantly in new technologies and watch the world transform.

Once consumers start chatting over lines that are end-to-end encrypted by default, dragnet surveillance is over. Once consumers start browsing the Internet through I2P or TOR, Internet espionage is over. Once consumers start using Bitcoin in their purchases, debt payment, remittances, savings, and investment assets, the monetary circus of inflating fiat currencies is over. Without control of money and information, the State itself withers. It cannot tax what it cannot surveil. By popularizing these crypto tools within “normal” consumer electronics, we make anarchy in everyone’s self-interest. No longer need they report their earnings to the IRS because their employer automatically sends a W-2 or a 1099; all earnings and expenditures are on cryptocurrency ledgers.

The Blockchain and other innovations will eradicate any ability for the State to prey on its people. Most advocates for liberty have taken the attitude that mass awareness is required, that without educating and informing people that they are slaves under a worldwide criminal apparatus, there will never be freedom – but this is not so! Simply give people the tools to protect themselves, wrap them in shiny user interfaces, and say nothing more. Let the intelligent users discover the lineage of cryptography and digital cash, and let the typical users enjoy their privacy. Nothing more is needed to undermine the State than mass disobedience through cryptography.

September 29, 2014 at 07:36PM

Bitcoin: Magic, Fraud, or Sufficiently Advanced Technology?: Part I

Arthur C. Clarke’s third law famously states: “Any sufficiently advanced technology is indistinguishable from magic.” What Bitcoin makes possible can at first seem almost magical, or just impossible (and therefore most likely fraudulent or otherwise doomed). The following describes the basic technical elements behind Bitcoin and how it brings them together in new ways to make seeming magic possible in the real world.

Clarke’s second law states: “The only way of discovering the limits of the possible is to venture a little way past them into the impossible.” And this, we can see in retrospect, is basically what Bitcoin creator Satoshi Nakamoto did. Few at the time, even among top experts in relevant fields, thought it could really ever work.

It works.

One reason many people have a hard time understanding Bitcoin is that it uses several major streams of technology and method, each of which is quite recent in historical perspective. The main raw ingredients include: an open-source free software model, peer-to-peer networking, digital signatures, and hashing algorithms. The very first pioneering developments in each of these areas occurred almost entirely within the 1970s through the 1990s. Effectively no such things existed prior to about 40 years ago, a microsecond in historical time, but a geological age in digital-revolution time.

Some representative milestone beginnings in each area were: for open-source software, the GNU project (1983) and the Linux project (1991); for peer-to-peer networking, ARPANET (1979) and Napster (1999); for digital signatures, Diffie–Hellman theory (1976) and the first RSA test concept (1978); and for hashing algorithms, the earliest ideas (around 1953) and key advances from Merkle–Damgård (1979). Bitcoin combines some of the best later developments in each of these areas to make new things possible.

Since few people in the general population understand much about any of these essential components, understanding Bitcoin as an innovation that combines them in new and surprising ways, surprising even to experts within each of those specialized fields, is naturally a challenge without at least a little study. Not only do most people not understand how the Bitcoin puzzle fits together technically, they do not even understand any of the puzzle pieces! The intent here is not to enter into much detail on the content of any of these technical fields, but rather to provide just enough detail to achieve a quick increase in the general level of public understanding.

What Bitcoin is about in one word: Verification

It may help to focus to begin with not on the details of each field, but at how each part contributes strategically to Bitcoin’s central function. This is to create and maintain a single unforgeable record that shows the assignment of every bitcoin unit to addresses. This record is structured in the form of a linked chain of blocks of transactions. The Bitcoin protocol, network, and all of its parts maintain and update this blockchain in a way that anyone can verify. Bitcoin revises the Russian proverb, “doveryai, no proveryai,” “Trust, but verify,” to just “verify.”

If a single word could describe what the Bitcoin network does, it would be verification. For a borderless global currency, relying on trust would be the ultimate bad idea. Previous monetary systems have all let users down just where they had little alternative but to rely on some trusted third party.

First, the core Bitcoin software is open source and free. Anyone can use it, examine it, propose changes, or start a new branch under a different name. Indeed, a large number of Bitcoin variations with minor differences have already existed for some time. The open source approach can be especially good for security, because more sets of eyes are more likely to find weaknesses and see improvement paths.

Open source also tends to promote a natural-order meritocracy. Contributors who tend to display the best judgment also tend to have more of their contributions reflected over time. Unending forum discussions and controversies are a feature rather than a bug. They focus attention on problems—both real and imagined—which helps better assure that whatever is implemented has been looked at and tested from diverse angles.

Many computers worldwide run software that implements the Bitcoin protocol. A protocol is something roughly like a spoken language. Participants must speak that language and not some other, and they must speak it well enough to get their messages across and understand others. New protocols can be made up, but just as with making up new languages, it is usually rather unproductive. Such things only take off and become useful if enough others see a sufficient advantage to actually participate.

Second, as a peer-to-peer network, there is no center. Anyone can download core Bitcoin software and start a new node. This node will discover and start communicating with other nodes or “peers.” No node has any special authority or position. Each connects with at least eight peers, but sometimes many more. Some faster and always-on nodes relay more information and have more connections, but this conveys no special status. Any node can connect or drop out any time and join again later. A user does not have to run a full node just to use bitcoin for ordinary purposes.

It is common to say that Bitcoin is “decentralized” or doesn’t have a center. But then, where is it? Thousands of active peering nodes are spread over most countries of the world and each one carries an up-to-date full copy of the entire blockchain.

Some nodes not only relay valid transactions and blocks, but also join the process of discovering and adding new blocks to the chain. Such “mining” activities both secure the final verification of transactions and assign first possession of new bitcoin to participating nodes as a reward. Understanding basically how mining works requires a look at the distinct functions of several different types of cryptography.

Bitcoin cryptography dehomogenized

Bitcoin relies on two different types of cryptography that few people understand. Both are counter-intuitive in what they make possible. When most people hear “cryptography,” they think of keeping data private and secure through encryption. File encryption can be used to help secure individual bitcoin wallet files, just as it can be used for the password protection of any other files. This is called symmetric key cryptography, which means the same key is used to encrypt and decrypt (AES256 is common in this role). Encryption may also be used for secure communication among users about transactions, as with any other kind of secure traffic. This is called asymmetric key cryptography, which means a public key encrypts a message and its matching private key decrypts it at the other end.

However, all of this is peripheral. Nothing inside the core Bitcoin protocol and network is encrypted. Instead, two quite different types of cryptography are used. They are not for keeping secrets, but for making sure the truth is being told. Bitcoin is a robust global system of truth verification. It is in this sense the opposite of the “memory hole” from George Orwell’s 1984; it is a remembering chain.

The first type of cryptography within Bitcoin is used to create a message digest, or informally a “hash.” Bitcoin uses hashing at many different levels (the most central one is an SHA256 hash run twice). The second type is used to create and verify digital signatures. This uses pairs of signing keys and verification keys (ECDSA sepc256k1 for signatures).

The keys to the kingdom

Despite intuitive appearances to users, bitcoin wallets do not contain any bitcoin! They only contain pairs of keys and addresses that enable digital signatures and verifications. Wallet software searches the blockchain for references to the addresses it contains and uses all the related transaction history there to arrive at a live balance to show the user. Some of the seemingly magical things that one can do with bitcoin, such as store access to the same units in different places, result from the fact that the user only deals with keys while the actual bitcoin “exists,” so to speak, only in the context of the blockchain record, not in wallets. It is only multiple copies of the keys that can be stored in different places at the same time. Still, the effective possession of the coins, that is, the ability to make use of them, stays with whoever has the corresponding signing keys.

While software designers are working hard to put complex strings of numbers in the background of user interfaces and replace or supplement them with more intuitive usernames and so forth, our purpose here is precisely to touch on some technical details of how the system works, so here is a real example of a set of bitcoin keys. This is a real signing key (do not use!):


From this, a unique verification (public) key is cryptographically generated (compressed version):


This verification key is then hashed into a public address to which bitcoin can be sent. In this case:


Because this particular signing key has been made public, it has been rendered permanently insecure—sacrificed for the cause of Bitcoin education.

Part II will discuss hashing and the essential roles it plays in the technical structure of Bitcoin, as well how the system has been designed to be self-financing right from the beginning into the indefinite future.

About the Author

KonradGraf_04 - Version 2Konrad S. Graf (@KonradSGraf) writes on Bitcoin and monetary theory. This work so far is collected at http://ift.tt/1eou0fG. He appeared on panel discussions on Bitcoin and economic theory and monetary history at the Bitcoin 2014 conference in Amsterdam, and in 2013, he presented on Bitcoin and social theory at the Mises Seminar Australia in Brisbane and via pre-recorded interview at the Bitcoin Singapore conference. He is currently focusing on additional research and writing in this area.

Please send Konrad a tip: 174YDzQuMdUgNbd9sQspPdNjZwg7UxQNVi

September 29, 2014 at 05:30PM