Commentary on the economic , geopolitical and simply fascinating things going on. Served occasionally with a side of snark.
Saturday, December 21, 2013
Bitcoin news December 21 , 2013 - BTC China CEO Attempts To Calm The Bitcoin Market After RMB Deposit Shutdown .......... Going forward , one question for Bitcoin will be how do emerging countries and markets view Bitcoin - Jana survey reveals the thinking in 9 emerging markets ......Alleged Top Moderators Of Silk Road 2 Forums Arrested In Ireland, U.S. In International Sweep ...... Additional news items of note for Bitcoin !
online.wsj.com / Laura Saunders / Dec. 20, 2013 7:10 p.m. ET
Despite a recent plunge, bitcoin has had a banner year. Now comes the hard part—figuring out the taxes on it.
For the uninitiated, bitcoin is the most prominent of several “virtual currencies”—money that exists only online and isn’t backed by any government. Released in 2009 by an unknown person or group going by the name Satoshi Nakamoto, bitcoin is maintained by a decentralized network of computers, called “miners,” that process and verify transactions. As of Friday afternoon, the value of all bitcoins in circulation was nearly $8 billion, according to CoinDesk.
This year the price of a bitcoin has risen from about $13.50 to about $650 on some exchanges, down from a November high of about $1,200 just before concerns arose that China will crack down on the virtual currency.
Experts say, however, that there’s no agreement on a host of fundamental questions for U.S. taxpayers holding or using virtual currencies. “People who invested in bitcoin or used it to buy goods or services this year have gains or losses, but no rules for reporting them,” says Omri Marian, a professor of law at the University of Florida in Gainesville. “What should they do in April?”
Over the past several months, Bitcoins have soared in popularity, acceptance and price. Naturally, it was only a matter of time before Bitcoin crime followed. As reported here previously, earlier this month, the largest heist in the history of Bitcoin was pulled off when the illegal drug bazaar Sheep Marketplace was plundered, either by hackers or insiders, and about $100 million worth of the currency was stolen from customers.
That was only the most recent heist however: the reality is that Bitcoin theft has been around for years. In June of 2011, a user named Allinvain was the victim of what is arguably the first recorded major Bitcoin theft. As The Verge reports, "Allinvain awoke to find that a hacker had stolen about half a million dollars’ worth of bitcoins. “I feel like killing myself now,” he wrote at the time."
Outright robbery is not the only crime plaguing the new digital currency, as more sophisticated thefts have emerged including ponzi schemes:
The supposedly high-return investment fund Bitcoin Savings & Trust turned out to be a pyramid scheme, its owner charged with ripping off investors for $4.5 million in bitcoins. MyBitcoin, a “wallet” service that stored bitcoins like a bank account, disappeared with about $1 million worth of users’ bitcoins. Several of the most trusted and well-known Bitcoin companies, including the Mt. Gox and the now-defunct Bitcoinica exchanges, have also suffered high-profile thefts.
Victims of credit card theft can cancel a card or reverse fraudulent transactions, but Bitcoin is attractive to thieves because its transactions are irreversible. “Bitcoin is like cash,” says Nicolas Christin, an assistant research professor at Carnegie Mellon University who has done extensive analysis of Bitcoin. “The only way to get it back is by tracking you down and basically beating you up with a lead pipe.”
So it appears that despite the advent of the digital, hard physical objects - like lead pipes - still rule supreme.
But going back to Bitcoin is, where the vast majority still aren't exactly clear what the fiat currency alternative actually is, it’s difficult to understand exactly how digital theft works. What are you stealing, exactly? And once you’ve got it, what do you do with it?
There is no such thing as a Bitcoin. The virtual currency is nothing more than a public ledger system, called the blockchain, that keeps track of an ever-expanding list of addresses, and how many units of bitcoin are at those addresses.
If you own Bitcoin, what you actually own is the private cryptographic key to unlock a specific address. The private key looks like a long string of numbers and letters. You may choose to store your key, or keys if you have multiple addresses, in a number of places including a paper printout, a metal coin, a hard drive, an online service, or a tattoo on your body.
All methods can be protected with various levels of security, but all methods are vulnerable to theft since the robbery simply depends on gaining access to the string. “I recommend creating physical paper wallets using an Arch Linux boot which has never been online,” says Marak Squires, an early Bitcoin adopter who is developing a secure Bitcoin bank. “Unfortunately, this is not an option for most people. For the average user there are no good options right now to securely store cryptocurrencies.”
The most lucrative attacks are carried out on online services that store the private keys for a large number of users, as Sheep Marketplace did. It seems these attacks are often carried out by insiders who don’t have to do much hacking at all. Just copy the database of private keys and you can gain control of the bitcoins at all those addresses. You, the thief, can now spend those bitcoins whenever you want, as long as the owner doesn’t move them first.
2. Getting away with it
While Bitcoin has some features that make it great for thieves, it also has some features that make it not so great. The fact that the blockchain is public means that anyone can see to which address the coins were transferred next. After the Sheep Marketplace heist, some users tracked the thief as he or she moved the stolen coins from address to address.
This tracking technique isn’t very helpful for the time being, since the thief’s identity is still unknown. However, Bitcoin forensics is getting better and better as programmers figure out new ways to extract information from the blockchain. A thief may leave traces that are undetectable now but could be uncovered in the future, inspiring a retroactive investigation.
That’s why this step, money laundering, is so important. Laundering Bitcoin is done with “mixers,” also called “tumblers,” which randomly crisscross your bitcoins with other users’ bitcoins so that you get a clean address that the blockchain cannot connect with any of the addresses from which the coins were stolen.
Most of the time it works basically like this: you transfer your stolen bitcoins to a new address owned by the Bitcoin tumbler. That address is still “dirty” because there is a clear path from the victim’s address, so the tumbler leaves the coins there. The tumbler makes a note to transfer the same amount of bitcoins from other users to a new “clean” address owned by you. But it doesn’t make the transfer right away. Anyone watching would probably notice if the same exact amount of bitcoins — say, 96.1 — were moved into a new address, so the tumbler has you withdraw your coins over time in smaller amounts. When you request 10 bitcoins, the tumbler will transfer 10 bitcoins to your clean address. Extra-careful tumblers may also split these payouts further, especially if it is a noticeably large number of bitcoins.
Over time, the tumbler will sip bitcoins from the “dirty” addresses in order to replenish the pool. By the time your dirty address gets tapped, you’re long gone. The tumbler is only accessible through the anonymizing Tor network, making it difficult for law enforcement to trace traffic to it or discover the people behind it.
Of course, that also means you have to trust the tumbler. “Caution: Mixing services may themselves be operating with anonymity. As such, if the mixing output fails to be delivered or access to funds is denied there is no recourse. Use at your own discretion,” reads the Bitcoin wiki.
Another option is to launder the money the way the mob might: spend it at Satoshi Dice or another Bitcoin casino.
3. Get rich
Now you’ve got clean bitcoins — hopefully a lot of them! — and you’ve got your eye on a villa in the south of France. Unfortunately, the landlord doesn’t accept Bitcoin. Like most merchants in the world, she wants a government-sanctioned currency, preferably the euro.
So now you’ve got to convert your bitcoins to euros. But you’ve got a lot of bitcoins. If you’re the owner of Sheep Marketplace, you’ve got $100 millions’ worth. The Bitcoin economy is still tiny and relatively illiquid — there aren’t many buyers who could cash you out for that much Bitcoin all in one sale, and a transaction of that size would surely raise alarms. It also becomes much harder to conceal your identity when you exchange Bitcoin for other currencies. Most exchanges require some type of identifying information, and at the very least you need an account into which the euros can be deposited.
It’s time to get creative. There are several ways you can unload a lot of Bitcoin while maintaining your anonymity. Find a rich buyer who is willing to take the bitcoins without verifying your identity in exchange for a discount on the price, for example. However, the best way to protect yourself is to remain patient. Unload your bitcoins in a series of transactions over weeks, ideally months or even years, in order to avoid arousing suspicion from those watching the blockchain as well as real-life authorities that might wonder how you suddenly came into millions of dollars.
Now, enjoy life in France.
http://www.coindesk.com/chinese-bitcoin-exchange-okcoin-accused-faking-trading-data/
( Some important takeaways - first , how trustworthy is trading data from any of these exchanges ? Second , if you didn't think HFT would permeate this arena , please think again - already taken over by HFT . Third , if the operator could potentially be faking trading data , can you trust the exchange overall ? )
Chinese Bitcoin Exchange OKCoin Accused of Faking Trading Data
OKCoin, once the second largest mainland China-based bitcoin exchange (after BTC China) according to volume, has been accused of faking its trading volume data.
In the days following rumours of the ban, while traders panic-sold their bitcoin holdings and would-be buyers were barred from making deposits into their accounts, many were surprised to find that the trading volume on OKCoin remained unrealistically high.
The exchange rates, despite plunging, maintained levels on a par with other exchanges such as Huobi.com, which circumvented the ban by allowing traders to charge their accounts by transferring money to its CEO’s personal bank account.
The concern was first raised by someone under the pseudonym Shi Diaomao, a self-proclaimed bitcoin arbitrageur who makes profit by buying and selling BTC on different platforms to exploit the exchange rate gap.
“Shi concluded that the real transaction volume could be as low as one tenth of what the company purported to exchange.”
In his article posted on 20th December on Xueqiu, one of China’s most popular investors’ social media platforms, Shi claims that in a two-hour period on 19th December, OKCoin’s data indicates that over 30,000 BTC changed hands.
However, by comparing the number with the tally of selling and buying orders that were displayed separately, Shi concluded that the real transaction volume could be as low as one tenth of what the company purported to exchange.
Shi said after noticing the discrepancy, he immediately contacted the website’s customer service rep, who failed to provide a plausible explanation and later became unresponsive on Xueqiu.
During the process of communication, Shi saw that the displayed volume suddenly plunged, which reinforced his suspicion that the website had previously faked its trading volume and was correcting it now that it was in danger of being caught red-handed.
In an online audio interview, Shi said that he would not call OKCoin out and accuse it of manipulating the exchange rate, but he cautioned traders against the exchange, claiming that it “plays both the player as well as the referee”.
In response, Xu Mingxing, CEO of OKCoin who is also believed to be one of the largest bitcoin holders in China, issued a very brief explanation, in which he attributed the discrepancy to the company allowing large traders to trade through its API rather than the webpage interface – an explanation, if true, that may be somewhat hypocritical given that only a couple days ago Xu wrote a statement criticizing the use of “high-frequency trading software”.
Many perceive Xu’s explanation as a cover-up, among them, some Chinese bitcoin celebrities such as Li Xiaolai and Zhao Letian who posted on Sina Weibo agreeing that OKCoin’s data was problematic.
Zhao Letian’s posting states:
“The two graphs show the market depth of BTC China and OKCoin. Despite the great difference of market depths, their trading volumes are very close, which can only mean that one is cheating. The reason that I stopped going to OKCoin is that it is very hard for me to buy more than 1000 BTC [at one time].”
Users also question OKCoin’s claim that it is the world’s largest litecoinexchange.
One posting published on 19th December on Sina Weibo says:
“The daily transaction of litecoin [on OKCoin] yesterday has reached an unprecedented nine million, but there are only a total of 20 million in existence. How can I ever believe it?”
Xu Mingxing was previously scheduled to host a Q&A session on Xueqiu on 20th December, but it has since been cancelled.
As of 2:52 PM CST, 21st December, the daily trading volume displayed on OKCoin is 4,215.52 BTC, which has shrunk dramatically from its previous level of tens of thousands per day.
In a letter posted on the Chinese bitcoin trading site BTC China CEO Bobby Lee attempted to calm the markets by posting a long, detailed description of the way forward for the company. “As China’s first Bitcoin and Bitcoin trading platform company, we have more than two and half years of operating experience and a good reputation,” he wrote. ”I believe you love Bitcoin and will fully understand our decision.”
Lee also clarified that the ban on RMB deposits is temporary and that the People’s Bank Of China saw bitcoin markets as similar to any commodity market and that “ordinary people have the freedom to participate in them at their own risk.” He also announced a number of improvements and changes to the platform aimed at retaining customers.
The company announced a new product called “Currency Lock” that stores bitcoin in “cold storage” with “bank-level” security. Commentators see this as a move to prevent a bitcoin sell-off by skittish investors who could see their wallets disappear while they wait out the RMB ban. They have also added a 0.3% transaction fee to all deposits and withdrawals to discourage rampant bitcoin conversion or transfers and to prevent large accounts from buying or selling speculatively.
In short, it’s business as usual at BTC China, but with a few caveats. The company recently closed a $5 million Series A round from institutional investors Lightspeed China Partners and Lightspeed Venture Partners. BTC China was bootstrapped prior to this round, with money put in by its three co-founders, Bobby Lee, Linke Yang, and Xiaoyu Huang. The closure of RMB deposits by the People’s Bank Of China this week precipitated a 50% decline in the currency which has stabilized at about $700 on Mt. Gox.
Bitcoin has taken customers on a rollercoaster ride this 2013. Most of the action involving the virtual currency has taken place in the established US, European, Chinese and Japanese tech markets but the effect of the Bitcoin could be greatest in the developing world, VentureBeat reported.
Citing a study done by the research arm of Jana, a mobile platform connecting brands with emerging market consumers, the report featured what 1,800 people in nine emerging markets think about the Bitcoin. The countries covered were India, Indonesia, Philippines, Vietnam, Kenya, Nigeria, South Africa, Brazil, and Mexico.
On the question if they have heard of the Bitcoin before today, a good number of respondents from Asian countries said they had. Forty-eight percent from Indonesia said yes, followed by 45% from Vietnamese respondents and 34% from the Philippines. Only 13% of the respondents from South Africa and 16% from Mexico answered affirmatively.
There were 58% of the respondents who said that they would be comfortable investing in the Bitcoin. Kenyan respondents felt most comfortable at 74%, most likely due to the popularity of M-Pesa, a mobile money service. This makes a lot of people comfortable handling digital money, the report said. Less than 50% of the respondents in Brazil and Mexico say they would be comfortable investing money in Bitcoin.
Highly-volatile, the Bitcoin rose from less than $10 to more than $1200 in just one year. One of biggest selling points of the digital currency is the ease and affordability it provides for transferring money. Compared to traditional cross-border transfer services which charge sky-high fees, Bitcoin can be sent for free, the report said. It also operates worldwide and is not under the control of any specific government.
The report quoted Adam Draper who runs a Bitcoin-oriented accelerator program who said that the digital money is still considered more of an asset. He said, "It is interesting to look at inflationary markets like Argentina, Venezuela, and India, where the value of a Bitcoin could be a better store of value than their own currency. Remittances and cross-border payments are also a big deal, and Bitcoin could change the game if adopted appropriately."
Bitcoin poker site Seals with Clubs has confirmed that its database was compromised, although it failed to mention that it lost 42,020 hashed passwords in the process. The hashes were posted to a forum some 24 hours earlier and needless to say they attracted plenty of people bent on cracking them.
For some reason Seals with Clubs used SHA1 hash functions, which are for all intents and purposes obsolete. Even the latest SHA3 hash is not suitable for passwords and it appears that the site was relying on cryptographic salting to make them more secure, making sure that different hashes would be used even if two users chose the exact same password.
In any case, it did not take long for people to start figuring out some passwords, such as “bitcoin1000000”, “sealswithclubs”, “88seals88” and “pokerseals”. The revealed passwords quickly led security experts to join the dots and conclude that the passwords came from Seals with Clubs users.
On Wednesday, a user posted the database of hashes to a password recovery forum operated by commercial password cracking service InsidePro. The user offered $20 in bitcoins for every set of a thousand unique hashes. It took just nine minutes for the first reply and the first set of 1,000 hashes. Within a day, about two thirds of the list was cracked, reports Ars Technica.
By Thursday, Seals with Clubs was in damage control mode, officially admitting the breach and announcing that it has issued a mandatory password reset. A post on its site read:
The datacenter that we employed up to November permitted unauthorized access to a database server and our database containing user credentials was likely compromised. Passwords were salted and hashed per user, but to be safe every user MUST change their password when they next log in.
Please do so at your earliest opportunity. If your Seals password was used for any other purpose you should reset those passwords too as a precaution.
The site pointed out that it would implement additional security measures, including two-factor authentication and login from a limited number of IP addresses.
This, however, will not address another problem. Since Seals with Clubs is a bitcoin-only service, every account holder is a bitcoin user and there is good chance that at least some of them reused the same password on other bitcoin sites. In other words, some users might be using the exact same password on their exchange accounts or online wallets.
As for Seals with Clubs, it is a relatively small site compared to major Texas Hold’em sites out there. The small team of poker players behind the site chose to remain anonymous and the site was apparently launched after they were sacked. We hope playing poker during office hours had nothing to do with it.
Why bother installing CPU-mining malware on thousands of machines, when you can just break into someone’s Amazon cloud computing account and create a well-managed datacentre instead?
This week, a software developer discovered someone had done just that, and made off with a pile of litecoins on his dime.
Melbourne-based programmer Luke Chadwick got a nasty shock after receiving an email from Amazon. The firm told him that his Amazon Key (a security credential used to log on to Amazon Web services) had been found on one of hisGithub repositories.
Github repositories
Github is an online version control system used for collaborative software development. It works using a central repository holding the source code for a software project.
The source code reaches the site when the author ‘pushes’ the directory containing it to Github, replicating the entire thing by creating a repository there.
When the author chooses to make that repository public, other software developers can ‘fork’ it, producing a copy of the repository for their own use, which is then ‘cloned’, or copied down to their local computers.
“Chadwick logged in and found a bill for $3,420. The unauthorized user had created twenty Amazon virtual machines.”
Once they have made their own contributions to the project, either by changing or adding new source code, they can synchronize their code with the forked repository, and then ask the original author to ‘pull’ their contributions back into the original repository.
Unfortunately, some software developers unwittingly store digital ‘keys’ used to access online services in those directories.
As long as the Github repository is private, no one else can see them. But as soon as they make it public, the directory becomes searchable, and others can form the repository, accessing the keys.
This has happened on Github before with a type of digital certificate called SSH (Secure Shell), which can grant attackers access to a software developer’s own computer. And it also happened to Chadwick. He said:
“The problem was the same (embedded in GitHub repositories), but this is different to the SSH keys, which could only be used to connect to an existing instance.”
“These keys were for the Amazon’s API and could be used to create new machines.” That’s what the attacker did.
1,427 instance hours
After getting word of the key being found in his repository, Chadwick logged in and found a bill for $3,420. The unauthorized user had created 20 Amazon virtual machines. All in all, they had used up 1,427 ‘instance hours’, meaning that they were probably at it for just under three days.
Chadwick wanted to save the virtual machine instances for forensic purposes, but couldn’t afford to leave them running while playing for Amazon support, so he killed them.
However, just before he did, he attached the storage volume from one to his own virtual machine instance. He found that the unauthorized user had been mining litecoins with the stolen CPU cycles.
In terms of computing performance, the attacker had made effective use of the stolen account, creating a virtual machine in the ‘compute-optimized’ class. The cc2.8xlarge instance that they chose has a 64-bit processor with 32 virtual CPUs, and 88 ‘EC2 Compute Units’.
CPU-friendly Scrypt
Litecoin uses a proof of work mechanism called Scrypt, which is designed to be CPU-friendly and resistant to GPUs and ASICs. This makes a high-performance EC2 instance perfect for the job, because raw CPU power is what it’s good at.
Others who have set up legitimate Scrypt mining instances on EC2 (albeit mining YaCoin not litecoin – and in a different type of Scrypt) claim to have seen 750 Khashes/sec in performance per instance. The attacker’s 20 machines would therefore have been mining at around 15 Mhashes/sec when running together.
Analysing the volume that he mounted on his own virtual machine, Chadwick found that the attacker had used the litecoin mining pool pool-x.eu for the coins. At 1.156GH/sec, this pool represents around 1.1% of the entire litecoin hash rate, suggesting that while mining, the attacker could have accounted for around 1% of the pool’s overall hash rate.
Out the pool
The pool’s administrator, mailing from a vacation in Thailand, preferred not to give his name, but goes by the handle ‘g2x3k’. He apologized for not picking up on Chadwick’s email. He thinks CPU cycle theft happens a lot in the litecoin mining space.
“Usually I close accounts on request,” he said, adding that he has banned IP addresses on request before. “Even if I shut them out they can still setup [a] pool or solo mine with those resources.
“I have a list of Amazon IPs already banned, since it was used at the beginning of litecoin to mine more then I thought was a fair share,” he continued.
Let’s hope for the attacker’s sake that they sold early (or for the sake of justice, that they didn’t). Chadwick found out about the instances and shut them down on Monday 16th December, which was the same day that the price of litecoin started crashing.
If the cloud thief wasn’t selling their coins as they went, then they could have lost a healthy profit.
Chadwick doesn’t believe that it would be very easy to track down the attacker. “While I’m sure that Amazon has some records (as does the pool), I would expect the person to be using Tor,” he said.
In the meantime, Amazon has stepped up and refunded Chadwick his money.
At least two moderators of the Silk Road 2 user forums have been arrested by authorities in the U.S. and Ireland. A source claiming to have inside knowledge of the arrests said that Libertas, a moderator on the Silk Road 2 forums [TOR link], has been arrested by the Irish Police (Garda Siochana) in Wicklow during a raid carried out on Thursday at about 8PM local time. A source at the Wicklow Police has confirmed the arrest of the yet-unnamed moderator.
The FBI allegedly arrested another moderator, Inigo, in Virginia.
“They caught [Libertas] this evening at his house in Wicklow at around 8pm Irish time, and managed to seize a large number Euro of bitcoins in the raid. The figure is to be confirmed,” the source said. “It looks like the beginnings of the demise of Silk Road 2, not very long after its resurrection.”
A police source independently confirmed the arrest of Libertas, saying that a man was arrested last night in connection with the new Silk Road and charged yesterday (under the Criminal Mutual Assistance Act of 2008.) Police searched his house and took computers. He made bail last night.
Libertas did not respond to online messages.
The source explained that a EU law enforcement infiltrated both the Silk Road and the Silk Road 2 after the arrest of site owner Ross Ulbricht.
“Silk Road were very foolish in their operations,” he said. “A number of EU LE units infiltrated their market admin. Plenty of other information was acquired. We will see that as the Ross Ulbrict case proceeds, EU law enforcement had a large part to play in providing the FBI with the information they needed, partially because most of the operators and the servers were over this side of the Atlantic.”
Authorities have not released the names of the moderators although the Irish police believe that Libertas is “tied in with” the Irish Silk Road drug trade.
In Virginia a Reddit user claiming to be in a relationship with Silk Road 2 moderator Inigo announced that her boyfriend had been arrested.
I’m not sure what his login name was, all i know is that apparently he was an admin and then a mod and that he also ran the book club. He is a wonderful person and has been supporting me (due to my chronic pain), so to say the least my world has been turned inside out and upside down. They told me they were making arrests all around the world at the same time….can anyone give me any info on who he was? i’m hoping he was well liked and respected because even though i didn’t know he was doing this, I can guarantee he was doing it out of his passion for Libertarianism and for the idea of a free marketplace. Just thought i would pass on the message….
Her story – corroborated by arrest warrants and a business card from Christopher Tarbell, a Special Agent for the FBI who took down the first Silk Road earlier this year – is not confirmed at this time.
The case number she provided, 3:13-MS-356, appears in the docket for the United States District Court for the Eastern District of Virginia and cites Andrew Michael Jones as defendant.
Preet Bharara, the United States Attorney for the Southern District of New York, George Venizelos, the Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation (“FBI”), Brian R. Crowell, the Special-Agent-in-Charge of the New York Field Division of the Drug Enforcement Administration (“DEA”), and Toni Weirauch, the Special Agent-in-Charge of the New York Field Office of the Internal Revenue Service, Criminal Investigation (“IRS-CI”), announced today the unsealing of an indictment against ANDREW MICHAEL JONES, a/k/a “Inigo,” GARY DAVIS, a/k/a “Libertas,” and PETER PHILLIP NASH, a/k/a “Samesamebutdifferent,” a/k/a “Batman73,” a/k/a “Symmetry,” a/k/a “Anonymousasshit,” in connection with their alleged roles in operating “Silk Road,” a hidden website designed to enable its users to buy and sell illegal drugs and other unlawful goods and services anonymously and beyond the reach of law enforcement. JONES was arrested in Charles City, Virginia, on December 19, 2013, and was presented in Richmond, Virginia in the United States District Court for the Eastern District of Virginia today. DAVIS is believed to be in Ireland. NASH was arrested in Australia on December 20, 2013, by the Australian Federal Police in Brisbane, Australia. All three individuals are alleged to have conspired to run the Silk Road website with Ross William Ulbricht, a/k/a “Dread Pirate Roberts,” a/k/a “DPR,” a/k/a “Silk Road,” the alleged owner and operator of Silk Road, who was previously arrested in San Francisco, California, on October 1, 2013, pursuant to a Complaint filed in Manhattan federal court.
Overstock.com revealed more details of its forthcoming bitcoin adoption on Friday as Patrick Byrne, CEO of the online retail giant, told CoinDesk about the company’s timeline to roll out the digital currency.
The company has not yet chosen a third-party payment processor to manage its bitcoin payments, Byrne said, but added that this will happen in the next two weeks. Nothing will happen immediately after that, he added. Instead, the company will begin taking bitcoin payments in June or July.
“We’ll probably be working with the third parties. There are a few different ones that are interested in our business. It makes sense to work with them rather than developing it from scratch,” Byrne said.
Byrne cited cost as a key driver for the bitcoin move. “You’re getting rid of the interchange fees. We’re paying credit card companies around 2%. For a company whose margin is 1%, picking up 2% on that is quite attractive.”
But his reasons are also ideological. Byrne, a renowned libertarian, re-emphasized his “pro-freedom” stance, taking a poke at the US dollar in the process.
A pro-freedom stance
“In an ideal world we’d go back to gold so you’d have a monetary system based on something that government mandarins can’t expand at the stroke of a pen,” he said. “We’re not going to go back to gold, but bitcoin shares that virtue. It is mathematically if not physically constrained.”
While governments can’t expand bitcoin’s quantity with the stroke of a pen, they can apparently do a lot to squeeze its value. The digital currency has been highly volatile of late, jumping from under $100 in value in August to as high as $1147 on the Bitcoin Price Index (BPI) earlier this month. Following statements from the Chinese government last week, it lost more than half its value from that peak.
Byrne waved away this news. “Political influence like that has a lot of effect on it now. It will have less of an effect as adoption gets broader, and it will be less prone to the whims of government bureaucrats,” he said.
However, as a publicly listed company, Overstock.com is mandated to protect the interests of its shareholders and manage risk.
Byrne didn’t have a set goal for the proportion of revenues that he expected to come from bitcoins. As a rough estimate, he suggested that 1% would be reasonable. Based on that figure, bitcoin sales would have accounted for roughly $30,000 per day on average in 2012. Byrne confirmed that the firm would either hedge its position in bitcoin, or simply close it out into US dollars at the end of each day.
Overstock.com will be among the first of the larger retailers in the US to take the plunge and accept bitcoin. This foregrounds it in a traditionally conservative industry, said Jeremy Allaire, CEO of digital payments company Circle Internet Financial.
“In general, medium to large retailers, including online, are relatively conservative about new payment methods,” Allaire said. “For example, it was only just ten years ago that McDonalds starting accepting credit card payments.”
Challenges to consider
One of the biggest challenges facing publicly listed companies like Overstock.com that want to accept bitcoin could be accounting for its value if it doesn’t settle in fiat at the end of each day, continued the former co-founder of Allaire Corporation.
The Internal Revenue Service has not issued any significant guidance on the tax treatment for decentralized digital currencies, he pointed out. “This will hold back a lot of companies from accepting bitcoin as a payment. This is particularly the case if a retailer or e-commerce company actually receives and holds the bitcoin, versus just leveraging a payment processor who contracts with the retailer to pay them in local currency.”
In November’s US Senate hearings FinCEN director Jennifer Shasky Calvery said that she had been in dialogue with the IRS and anticipated guidance on virtual currencies from the agency.
Belgian mobile carrier Mobile Vikings has started accepting bitcoin payments – claiming it is the first telecom operator to do so.
The company’s service is available in Belgium and the Netherlands. Payments can be used to top up credit or to buy new SIM cards and gift vouchers.
A press release from the operator reads:
“With this new method of payment, Mobile Vikings anticipates the demand of its early adopters, who were not only the first to join Mobile Vikings, but were often the first to purchase bitcoins, and now want to cash these virtual coins.”
Mobile Vikings have decided to employ the BitPay platform, which has already gained plenty of traction among merchants in the bitcoin economy.
BitPay also helps to eliminate any ambiguities by converting bitcoin using the real time exchange rate. It executes the conversion at the moment of payment, which means exchange rate fluctuations aren’t very relevant.
“Just as email and Skype have changed the world of mail delivery and telephony, Bitcoin is a payment system that is simply revolutionary for the monetary world. Everyone is talking about it, but few people know it, let alone use it,” said Hans Similon, Chief Viking Evangelist (Yes, that is his real title).
He added: “As innovation is part of the DNA of Mobile Vikings, we are the first telecom company to introduce a payment option with bitcoins worldwide.”
“It’s the only way, for ourselves and our members, to really get to know this innovative electronic payment option. The proof of the pudding is in the eating!”
Mobile Vikings told CoinDesk that subscribers have enquired about bitcoin, as many of them were early adopters of the digital currency and already have a bitcoin stash.
“We try to listen to our community as much as possible, so that’s why we decided to implement it. Mobile Vikings is also known for being innovative and a bit rebellious, so in our eyes there is a perfect match,” said Mobile Vikings’ chief marketing officer Dorien Aerts.
At the beginning of 2013, Mobile Vikings had more than 160,000 subscribers in Belgium, with next to no marketing, apart from a few interesting guerrilla tactics. The company has a going presence in the Netherlands and Poland, too.
The National Australia Bank (NAB), one of Australia’s ‘Big Four’ banking groups, published a three-page research paper on 19th December titled “Bitcoin to replace AUD?” (Australian dollars).
Despite the provocative title, the paper does not suggest replacing the national currency with bitcoin, nor say it could happen in the near future. Rather, it is an explanation of bitcoin and a comparison of the nature of digital currencies with existing sovereign currencies, and how they fit into the current international financial system.
Bitcoin could well become a widely accepted medium of exchange, the paper said, but it would take many more years to achieve mainstream acceptance.
Major banks around the world have stayed mostly quiet on bitcoin, or presentedreports full of references to money laundering and warnings about bitcoin that would seem to apply equally to all national currencies: they can be stolen, or used to purchase illegal goods.
The tone of NAB’s report, however, appears neutral and genuinely curious about bitcoin, presenting a mostly well-explained guide for FX traders more used to the ways other currencies function. It could be an indication of the way large financial players speak of bitcoin amongst themselves, rather than to the general public.
What is a currency?
The paper reminded readers currency has taken many forms over the years, and that Australia’s first currency was rum.
“As such, bitcoins can indeed be a currency, as could anything labeled as such. As long as you believe it is.”
Unlike recent government pronouncements, the NAB report suggests bitcoin does in fact meet most of the classical stipulations of a currency: it is durable (thanks to its basis in easily-duplicatable digital data), portable (people can access it from a variety of devices and locations), scarce (thanks to the overall limit and adjustable mining difficulty), fungible and divisible. It faced some problems with recognizability and acceptance, it said, with only a handful of physical businesses taking bitcoin as payment in Australia.
The explanation of cryptocurrencies was also refreshing, especially to those tired of hearing the accusation that bitcoin is ‘not backed by anything’:
“These are de-centralized digital (or electronic) mediums of exchange. They are not backed by physical assets but rather peer security.”
Exchanges vs. merchants
The paper reviewed the bitcoin situation in other countries, explaining the exchange business and noting that (as of the time of its release) 47% of all bitcoin trades were in Chinese yuan (CNY), with US dollars representing 45%. Other world currencies accounted for only the remaining 8% of bitcoin trades.
Arguments against bitcoin in the report were mainly economic: There are significant costs behind its creation, and the overall 21 million BTC limit could prove deflationary. It also mentioned “a large red flag saying ‘buyer beware’ at current levels of price and use,” with simple demand and supply being the only ways to determine bitcoin’s fair value.
“The fact that there are multiple exchanges but only 1723 registered businesses worldwide advertised as using bitcoin (no doubt there are more in reality), suggests there may be something in the idea that there is currently more people buying bitcoin in anticipation of an increase in bitcoin value, rather than buying bitcoin in order to use them as a payment method. That strongly suggests a bubble in the present value of bitcoin.”
International view
The report gave a rundown of authorities’ positions on bitcoin worldwide, including Thailand’s implicit ban and the recent changes in China, but also noting that Germany regards bitcoin as capital gains – taxable ‘private money’ and Switzerland might be about to declare bitcoin a foreign currency.
It also briefly referred to bitcoin’s ‘connection’ to illegal activity, in the context that this image was a barrier to building widespread trust, which would take a long time.
NAB is generally considered to be the most bitcoin-friendly of that country’s large banks. One other, the Commonwealth Bank, has actively blocked transactions and closed bitcoin-related accounts, while others have not yet made their positions clear.
“It’s great to see that Australia’s legacy banking system will be joining us in the 21st Century. The Association is pleased by the NAB’s well reasoned and objective analysis. That’s what we’re looking for from the whole sector.”
With the legal status of bitcoin still under debate in Poland, a recent announcement by an official from the country’s Ministry of Finance sheds more light on the complex issue.
A growing number of local businesses are embracing the use of bitcoin, but national authorities remain cautious about regulating the use of digital currencies in the Polish economy.
On 18th December, a seminar on the legality of bitcoin was held at the Warsaw School of Economics (Szkoła Główna Handlowa). Based in the Polish capital Warsaw, SGH is one of the country’s leading business universities.
Speaking at the seminar, Szymon Woźniak, an official from the Polish Ministry of Finance, said that the ministry does not consider bitcoin to be illegal, although it does not consider it to be a legal currency either.
Woźniak explained:
“What is not forbidden is permitted. However, we certainly cannot consider bitcoin to be a legal currency.”
The ministry is carefully observing the development of bitcoin, according to the ministry official. The ministry is also monitoring how other European Union member states are regulating the status of bitcoin, Woźniak said, adding:
“We are not blocking the way for the development of bitcoin. However, we expect its users to declare whether they want the state to protect and regulate, or to remain uninvolved.”
According to the official, under Polish law, profits generated by digital currency transactions are subject to taxation, and those who do not declare them to the country’s revenue service could face sanctions.
Despite the legal uncertainties, some local observers believe that the Polish bitcoin market has significant growth potential and point to the increasing popularity of bitcoin mining in Poland.
Krzysztof Piech, Ph.D., an economist and lecturer at SGH, said at the seminar that Poland is in the avantgarde of the worldwide digital currency movement.
Poland-based bitcoin miners rank tenth among all countries in terms of their output, according to data obtained by Piech:
“We have a human resources potential and innovative financial institutions. Regulations are the lacking element which could help both sides [cooperate] for the benefit of the economy”.
Other speakers at the event included Lech Wilczyński, co-founder of local startupInPay. The company is currently developing a pilot program in a number of Polish cities which is set to boost the use of bitcoin among the country’s retail outlets.
To achieve this, InPay will provide local retailers with payment terminals and educate them on the legal and tax-related aspects of implementing digital currency payments at their businesses.
The question of bitcoin’s legal status was previously addressed in a policy document signed by the country’s Deputy Minister of Finance, Wojciech Kowalczyk and released in July 2013, as earlier reported.
The document stated that, under Polish law, bitcoin and other digital currencies cannot be considered as legal currencies, as they are not universally treated as such by Poles.
As a result, all transactions made in bitcoins are to be considered as a result of two parties agreeing contractually to use the digital currency in settling their dealings, according to the policy document.
The finance ministry also said that the question of the legal status of digital currencies was debated not only in Poland, but also in a number of EU member states, and “all eventual actions related to digital currencies should be taken at international level, in particular at the European Union level.”
Despite the lack of official recognition of bitcoin by national authorities, Poles trade digital currencies on local platforms.
According to data obtained from Bitcoincharts, local bitcoin exchangeBitcurex.pl had, on 20th December, a 30-day volume of some 37,156.5 BTC and 92.68m PLN ($30.59m).
Trademark and patent related news , security items......
CoinDesk spoke to Nicolas and Ben of Blockchain.info about it being the #1 bitcoin site, how it will remain so into the future, why its users trust it so much and how online wallets need to be easy to use as well as secure.
The Blockchain.info team has been busy. The site grew by over 50% last month, with over 118 million page views and over 3 million unique visitors in November 2013. The number of registered bitcoin wallets jumped from 500,000 at the start of the month to 800,000 at the end and is now on its way to 1 million. These ‘My Wallet’ users engage in about 24,000 transactions daily, sending about 150,000 BTC in total.
That’s quite a change from January 2013, when the site boasted “over 110,000 users.” Even in August, daily transactions were around 100,000 BTC (worth $12m at the time). Due to the way Blockchain’s encryption works, it is impossible to know the total number of bitcoins stored there.
Services
Blockchain.info has grown to be not only the #1 most visited bitcoin-related site, but arguably also the most compelling and most-often quoted. If the block chain itself is bitcoin’s raw narrative told in some incomprehensible language, then Blockchain.info is its interpreter.
The clean, bare-bones design appeals to statistics geeks and bitcoin newcomers alike, with a simple search box to recover information on transaction IDs, bitcoin addresses, or IP addresses. There’s a page of various developer APIs providing access to every kind of useful data on the bitcoin economy with a simple message: “Services provided by Blockchain.info are free of charge. Please do not abuse them.”
The My Wallet service has grown to such proportions that it will soon be spun off to a separate property, Blockchain.com. The team plans to offer a raft of new payment services to wallet users upon logging in, such as the ability to acquire bitcoins from popular exchanges or spending them for gift cards with Gyft. They also hope to add options like bill-paying and other shopping opportunities.
The basic block chain explorer “Always has been, always will be a free service” to support research, media and institutional investors.
Looking to the future
Blockchain.info did all this despite its team being (for the moment) also quite bare-bones. In fact, until the spring of 2013 Blockchain was just one person: software developer Ben Reeves. But then bitcoin started heading to the moon and Blockchain had to grow to handle all its users, of both the data and the bitcoin wallet service.
There are currently five people on the Blockchain team, spread around the world: two in Yorkshire, UK; two in New Hampshire, USA; and one in Japan. Even then, it’s rare to catch every member in their home country at a given time and the five-strong team is no longer enough.
Blockchain.info’s staff members are based in the UK, America and Japan.
“We’re growing and hiring a world class team to help manage our development, infrastructure, and user base. A careers page will be going up on the site any day now,” said Nicolas Cary, Blockchain’s second employee.
The team agrees mass adoption and mobile access are both essential to bitcoin’s success. Blockchain is currently the only native mobile wallet app available on all major platforms. Cary said:
“We will absolutely be investing in mobile… We want everyone everywhere to be able to access this; it’ll be a huge benefit to bitcoin everywhere.
“We’re ready to bring on the next generation of users. This is going to be disruptive tech for remittances, etc. I want the doors to be open to people experimenting, We will spend all our resources and every waking moment making (Blockchain) the most advanced and usable option.”
The company also pays and transacts entirely in bitcoin.
“We are a 100% fiat-less company; maybe the first in the world. We have ZERO endpoints into the ‘real-world’ economy, and the few remaining services we pay for personally we’re converting one at a time,” Cary said.
Online wallet security
As a wallet service that exists online, Blockchain is extremely conscious of security issues and the bad press online wallets have received due to lax security, bad code, or corrupt operators.
Cary points to an article recently published on a major technology news blog that warned people away from all online services, with a hint of irritation:
“I thought it was an irresponsible article. It makes me mad to see stories about online wallets being a bad idea. Cold storage is great, but if you want to use bitcoin every day then you need some sort of portable storage that’s easy to access.”
He’s also annoyed that Blockchain tends to get referenced somewhere in any story about an online wallet being compromised, though this probably comes with the territory of being the most well-known.
Blockchain suffered probably its only significant breach in August 2013 when 50 BTC was stolen from some addresses within wallets. The issue was caused by insecurities either in JavaScript’s random number generator or the Android OS itself. Blockchain refunded all lost funds to users.
Customers also lost funds due to insecure passwords, not using two-factor authentication, or simply by misplacing their access credentials. Earlier in the spring, Ben Reeves realized he couldn’t handle the sheer number of support tickets by himself, so decided to expand the team, and started building the legal framework to turn his hobby into a serious company.
“We have a responsibility to defend the technology [of online wallets],” said Cary.
Blockchain’s wallet service is set up in a way that users shouldn’t need to be concerned about security infrastructure on the server side. All the important encryption related to the security of users’ bitcoins happens on the client side, in the browser or on a mobile device.
It stores an encrypted backup of user wallets on Blockchain’s servers so they may be accessed from various places and devices, but do not store user passwords anywhere. The relevant JavaScript code is downloaded from Blockchain’s servers every time a user logs in.
Cary said that although client side encryption was important and provided a strong buffer against any server side security issues, the company also takes its server security very seriously. Blockchain is hosted on a dedicated privately owned hardware and is protected by hardware based intrusion protection and packet inspection. Wallets are encrypted with a master key and backed up to Amazon S3 with each update.
Cary said:
“Maybe ‘web-assisted’ wallet is a better description than ‘web-based’ wallet. Unlike traditional web wallets Blockchain users retain exclusive control of their coins and private keys, and if used correctly should require very little trust in our service.”
Blockchain also has “several monitoring systems in place both internally and externally” to ensure code is being served as expected, and the developers are confident that a security breach such as a modified server occurred, it would be caught quickly.
Such a risk did not exist for users of the Blockchain apps for Android and iOS, the Mac app or the browser extensions, and Cary recommended these as the most secure ways to log in.
Sticking to principles
Blockchain’s live transaction stream is hypnotic, and watching a whole economy’s every interaction stream live provides an understanding of bitcoin’s elegance and power. Behind those numbers and confirmations there’s shopping, trading, gambling wins and losses, grievous user mistakes and crime.
And it all flows in full, undiscriminating public view like no other economy before it.
Most transactions are in the region of 0.1 BTC, 0.01 BTC. Then there’s 4.99 BTC and suddenly, a 100.4 BTC transaction appears. They both slip out of view amongst the rest. Blockchain.info’s interface for riding the stream is as elegant as bitcoin’s block chain itself, and its fascination with simple transaction data was one of the primary motivations for setting up the site in the first place.
Blockchain.info shows a list of the latest bitcoin transactions
The purpose and politics of bitcoin are as important to the current Blockchain team as the integrity of their code. Ben Reeves himself comes from a computer science background, not finance, and the team tries to “live and breathe the business” in their borderless, perpetually moving lifestyles.
“At this time we have no desire to be an exchange whatsoever,” said Cary, adding:
“It’s not our job to source coins to anybody. And we’re not trying to monetize the crap out of all this. We’re just a team of people who intrinsically support bitcoin.”
“The real stories are happening on the core protocol and the investments being made there. It’s the less glamorous side but it’s the important one.”
“When we joined together and discussed how we all came to bitcoin, what our core values were. We said we’re going to build something that makes a better world through better money.”
“Success for us is the adoption of bitcoin. Does it have pecuniary rewards for us? Of course. But we’re not interested in swimming in a pool of bitcoins like Scrooge McDuck. We’re interested in the disruption, the community, that’s what makes it fun,” he concluded.
A man from London is attempting to trademark the word “Bitcoin” in the United Kingdom.
In an application made to the UK’s patent office on 5th November, Marvin Dennis of Leyton, East London, is seeking to trademark the term used by Satoshi Nakamoto to describe his cryptocurrency.
Published by the Trade Marks Journal on 4th December, the application for the trademark is due to be granted on 6th February 2014 if unopposed. The trademark regards the use of the term with relation to “chocolates and confectionary”, so wouldn’t have a direct impact on bitcoin’s use in the areas of computing or finance.
This is not the first time someone has tried to trademark bitcoin. In 2011, an American lawyer sought to claim the trademark the word in the US and France.
France, like the United Kingdom, adheres to a principle of first-mover, which means that the first to claim gains ownership of the trademark, as opposed to a principle of first-use, which means that you may have trademark protection by virtue of having used that unique word or symbol, even if you didn’t explicitly register it.
After a massive backlash, Michael Pascazi dropped his US application but then renewed his efforts in France. Mt. Gox mounted a challenge to that claim, successfully defeating his trademark application by claiming it for themselves,saying in a press release:
“The Pascazis’ stated intention is to profit from these trademarks, which would hamper bitcoin enthusiasts, businesses and the community as a whole on a global basis in the free use and promotion of bitcoin. [Mt.Gox] will oppose this and any other “greed based” trademark application, in order to prevent self-serving attempts to profit from bitcoin through spurious legal suits, and keep the term ‘bitcoin’ free for all.”
It’s unclear whether Marvin Dennis owns any sort of chocolate or confectionary business. No business is listed in the trademark application, as would be the case if a business were applying for the trademark.
Additionally, there is almost no web trail for Mr Dennis. A series of webdomainsregistered to his name and address are inactive, ending on GoDaddy.com pages.
CoinDesk has been unable to find any social media accounts that can be definitively linked to him and he doesn’t appear to be linked with any businesses. An attempt was made to reach Mr Dennis at an email address linked with his domains.
In this case, Mr Dennis appears to have hired the Trade Marks Bureau to act as representatives for the trademark application. They did not respond to a request for comment.
Once reviewed, applications are advertised in the Trade Marks Journal for two months to allow for objections to be made. Objections are not a legal process, but merely submitting evidence that should be considered before granting a trademark. People can also take legal action to oppose a trade mark application.
Another patent application by a major corporation is raising eyebrows this week. This time, IBM’s application for an “E-Currency Validation and Authorization Services Platform” proposes a system to “track the life cycle of any individual e-currency token” both to detect its use in illegal activities and allow for a more accurate estimation of the e-currency’s value.
The application, made public recently after being filed in June 2012, says: “The ability to validate and authenticate digital tokens across the lifetime of any particular token will bolster trust and viability, allowing e-currencies to operate across disparate economic systems, fostering easier participating alongside sovereign currencies and other non-standard currencies.”
It drew almost instant comparison to Coin Validation, Matt Mellon’s proposed system of whitelisting “clean” bitcoins that had never been involved in illegal activity in order to make it more palatable to established financial institutions and regulators. The reaction from the bitcoin community to that plan has been almost universally negative, with accusations it would permanently “taint” coins and render them unacceptable for use even after changing owners numerous times.
Motives
So what is IBM up to? Is it applying to patent its own answer to Coin Validation? Posters in the Bitcoin Talk forum were initially concerned the company might also pose a threat to bitcoin fungibility.
Writing for Let’s Talk Bitcoin, Brian Cohen thinks it’s not as bad as that, though it definitely doesn’t reassure with lines like:
“When a user desires to verify a particular e-currency token, the e-currency Validation and Authorization Services Platform 100 may retrieve all transaction data, transactor data, grading data, etc. related to the e-currency token.”
And:
“The algorithm results may then indicate whether the particular e-currency token is fraudulent or involved in a fraudulent transaction.”
Cohen said IBM is interested in tracking digital currency tokens for broader reasons, such as the value estimation one. The company may instead be inventing a way for all kinds of different digital currencies, from bitcoin to X-Box Live Points to Zynga Credits, to have a common reference to validate their correct market values against national currencies, enabling their use far more broadly than their initial intended ones or for accounting and taxation purposes.
The platform would do this through tracking by determining an “average estimated value” for each currency. Proprietary digital currencies could thus break free of their “walled gardens” and be seamlessly transacted with each other. Users may better understand how accurate quoted market values indeed were, and verify whether the token being offered actually exists.
The application does seem to focus more on uniting information across various currencies rather than tracking individual tokens of one in particular, with identification of fraud as a by-product of analyzing patterns in the spending data. It’s important to remember it was filed in 2012, long before bitcoin started receiving mainstream attention and refers to several other systems without bitcoin’s characteristic public block chain for validating each coin’s existence.
IBM’s interest in the future of finance
Cohen notes also that IBM, though a technology and consulting firm, has a keen interest in banking and finance. Richard Brown, executive architect of industry innovation for banking and financial markets at IBM UK, is particularly interested in bitcoin and said in the year’s most watched interview on Finextra:
“I believe cryptocurrencies — and bitcoin is the first example — are going to change the world. But probably not in the way we expect,” Brown said, adding that people “haven’t thought through” the important effects that some of the technologies underpinning cryptocurrencies will have in future years.
He noted that bitcoin is not completely fungible anyway given its public transaction ledger, and wonders if the technology is better suited to being primarily an asset register than a supposedly anonymous currency for daily use.
Russian search engine Yandex has started tracking the exchange rate of bitcoin for the US dollar, the euro and the British pound, but oddly enough not the Russian rouble.
Yandex is by far the biggest search engine in Russia, with a 60% market share. It also has a big following in several of the countries that are part of the Commonwealth of Independent States. In 2011 Yandex managed to raise $1.3bn in a NASDAQ initial public offering, the biggest IPO since Google went public seven years earlier. The company also operates an e-commerce payment system, dubbed Yandex.Money.
As of this week, the search engine allows users to check the bitcoin exchange rate directly, simply by typing in specific requests like bitcoin rate or bitcoin price in the search box. The converter springs into action, showing how many euros, pounds or dollars the specified amount of bitcoin is worth, based on the current exchange rate. It appears that the tool uses the CoinDesk Bitcoin Price Index in its calculations.
Yandex employs a very similar converter for all major currencies. As we said, the Russian rouble is conspicuously absent from the list of supported currencies, at least for the time being. Digit.ru asked Yandex why the Rouble was not included and the answer was simple – the main trading floors in Russia report the BTC rate against the US dollar, not the national currency.
As soon as the traders convert to roubles, Yandex will include roubles in its block information based on SERP, to address the matter and extend support to roubles, the company told Digit.ru.
It is interesting to point out that Yandex.Money launched a couple of years ago as a universal internet payment solution for merchants, businesses and other organisations. The service is limited to Russia and a handful of other countries, but it allows users to add most popular payment methods to their websites with relative ease.
There is still no word on bitcoin support though and it is unclear whether true digital currencies will ever be embraced by Yandex.Money.
At the moment, the service supports MasterCard and Visa and it allows users to make cash payments via 170,000 payment terminals throughout the country. Mobile payments are also supported on select carriers and customers pay no fees if they make payments using cards, cash or e-money. Yandex.Money is currently the largest internet payment system in Russia, with more than 14 million users as of mid-2013.
What do Jeremy Howells and several BIPS customers have in common? They each lost a lot of bitcoins because of the way they were stored. But BitGo, a company offering a new multi-signature wallet service, says that it doesn’t have to be that way.
Howells lost £4m in bitcoins after hethrew out his hard drive, while payment processor and online wallet service BIPS saw over $1m stolen in a wallet hack. They both suffered from the same problem: a single point of failure.
BitGo’s founder Mike Belshe says that relying on a single device to store your bitcoins is a bad idea. Web wallets are outside the user’s control, while their own devices are prone to attack, hardware failure, or simple user error. “You wouldn’t want to use pure web, but you wouldn’t want to use pure client-side either – at least not for most mortals,” he said. “Client-side software is a bear.”
Two out of three
Instead, his wallet service, called BitGo Safe, uses a little-acknowledged feature within the bitcoin protocol that makes it possible to better protect money in a bitcoin address. Called Pay to Script Hash (P2SH), it is a specification outlined in an update to the bitcoin protocol called BIPS 16. It enables multisignature transactions, and the benefit of those is that they enable bitcoin transactions that must be authorized by more than one public key.
Conventional bitcoin transactions are non-reversible, meaning that once a bitcoin transaction has happened, it is impossible to retrieve the funds. If Bob wants to send Alice some bitcoins in exchange for a product, then one of them has to make the first move, and trust that the other will follow through. Bob may send his bitcoins, only for Alice to keep the product. Conversely, Alice may send the product and Bob may never pay her.
But if Jen, our third party, acts as an arbiter, then she can hold the funds in escrow until both Bob and Alice confirm that they received their goods. All the parties can do this manually, but that would enable Jen to run off with the bitcoins, or for her bitcoin wallet to be compromised, leaving her responsible for Alice and Bob’s outstanding transaction. This is what happened with black market web sites such as Sheep Market, whose customers saw thousands of bitcoins stolen.
Instead, multi-signature transactions are encoded in the protocol to make it more efficient, and secure. In BIPS 16, any number of signatures can be required to complete a transaction, but generally, people describe them as ‘two out of three’ transactions, requiring two of three digital signatures to execute.
A multi-signature scenario
In a multi-signature scenario, Bob would send his bitcoins to a bitcoin address that he controls jointly with Alice and Jen. If Alice and Bob both agree that the goods have arrived and the transaction is complete, then Alice can confirm Bob’s transaction, unlocking the money, and Jen’s involvement isn’t needed. But if either party disputes the transaction, they’ll end up trying to perform the opposite of each other: Bob will try to return the bitcoins to his own address, while, Alice will try to extract the bitcoins to her address. They can then call Jen in to investigate. She’ll make a decision, and then use her signature either to back Bob’s or Alice’s transaction. The neat thing about this is that Jen can’t send the coins to her own address, and no one else can steal the coins without stealing two of the three signatures involved.
In addition to stopping online scams, it’s also useful for stopping theft. Belshe, a software engineer who has worked at Netscape and Google, has developed a wallet that uses multi-signature support not for escrow purposes, but for wallet security.
BitGo Safe
His wallet uses three keys. One is stored on Bit2Go’s server. Another is the user’s “hot” key, used in transactions, while the third is a backup key that can be held in any form by the user, say on a USB stick or a paper wallet. Money can be sent to the wallet’s address as usual, but when the user wants to withdraw it, the “hot” key must be combined with another key in a two out of three transaction.
Typically, that will be the server-side key. But if the server disappears, they can still withdraw money from their wallet using their own two keys. And if their hard drive dies, they accidentally throw it in the landfill, or a hacker compromises it, then they can use the backup key with the server-side key to retrieve their coins.
“Using the two of three system has a really nice property, which is that there’s always a backup key available,” says Belshe, who raised the issue of P2SH wallets on the Bitcoin Talk forum in November.
However, multisignatures alone are not enough, points out Mike Hearn, one of the core bitcoin developers. “For the web wallet service to do something useful it needs some way to authenticate the user that doesn’t rely just on passwords (otherwise it’s no different to wallet encryption),” he points out.
Bit2Go solves that problem by introducing another feature: out-of-band two factor authentication. When a transaction occurs, it sends a message with a one-time password to the user’s phone so that they can confirm the transaction.
“Now, in order for you to be compromised, they really have to attack three different devices,” Belshe says.
Providers of traditional web wallets like the idea. Brian Armstrong, CEO of Coinbase, which just scored $25m in funding, was positive.
“Coinbase is excited and interested in any solutions like this which would help secure bitcoin wallets,” Armstrong said. “For example, we offer the ability to create paper wallets today (which are offline, private, and a physical storage of bitcoin). Using two of three could be a nice addition to this.”
BitGo also offers several other services, including a person-to-person exchange designed to connect friends who want to buy and sell bitcoins, and a bitcoin gifting service. The latter enables people to give bitcoins to friends by setting up a multisignature BitGo address.
It would be easy to see how it could begin packaging this as an API service to other bitcoin businesses. Belshe is staying tight-lipped, but he’s promising more announcements from the company soon.
Submitted by Tyler Durden on 12/21/2013 18:58 -0500
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