Bitcoin offers merchants transaction fees that are much lower than other payment solutions

With the excitement of all the various cryptocurrencies currently in the space, what sometimes is under-discussed is their role in the future of transactions. As merchants learn about the benefits of accepting crypto-currencies like Bitcoin, skepticism will be met by the numerous advan-tages of using this type of protocol for payment.

At BitPay we currently have 30,000 merchants, including higher profile clients like Gyft, TigerDirect and the NBA’s Sacramento Kings. While these forward thinking companies immediately saw the benefit of Bitcoin and were quick to jump aboard, the mainstream acceptance of Bitcoin also requires our smaller merchants that sell specialized items or services. Once skepticism and misinformation is quelled, the facts of Bitcoin as a payment method become crystal clear to many merchants.

Through BitPay merchants pay 1% or less of their transaction amount (de-pending on volume) as a processing fee which is significantly less than other payment processing options. It’s the P2P nature of the Bitcoin net-work that enables this extremely low payment processing option. It’s also important to realize that Bitcoin is still in its infancy and other payment options have had 50 plus years to build their network and infrastructure. Bitcoin has been around since 2009 and in those five years the user ex-perience for merchants and customers has become drastically easier. This will continue to improve as the open source platform develops.

What’s important is for other Bitcoin companies in the space to contribute development time to ensure the protocol can grow properly. At BitPay, Bitcoin Core developer Jeff Garzik is a member of our team and we con-tinue to contribute to the platform through projects such as Bitcore. One of our biggest hopes is as other startups grow that they will be able to expand their development teams to contribute to Bitcoin.

Bitcoin users currently have various reasons to use the protocol; includ-ing technological, political, financial and economic. As merchant ac-ceptance grows and education on the subject grows, the user base will diversify and the platform will become easier to use. We aren’t close to widespread acceptability in the same vein as a credit card, but it is some-thing that the Bitcoin community is currently developing.

An analogy I quite often make is to the music industry in the early 2000s. Napster forced record labels to change their business model to one that is more in line with what the consumers wanted. Some advantages that Bitcoin has over what happened with Napster include the existence of a global marketplace, venture capital investments and continued develop-ment of the protocol. The switch to digital was something that was con-fusing and scary for many music fans and the immediate resistance slowly faded away and business opportunities such as iTunes and Google Music came to make buying digital music easier and the preferred way to pur-chase a song. Bitcoin is controversial now because it’s challenging some-thing that has been the same for a very long time. It’s more important to realize that, like any other technology, it becomes more mature and eas-ier to use over time.

Some of the smartest and most successful entrepreneurs in the world are embracing Bitcoin.

These individuals see the long term potential in how it could drastical-ly reduce payment costs as well as the global reach it has. BitPay has continued to bring credibility, excellent support and development of the platform to the community and that has resulted in being the mar-ket leader for Bitcoin Payment Processing. We also hope to contin-ue to grow globally with new offices in San Francisco, New York City, Argentina and Amsterdam as well as a new location for our continuously growing Atlanta office.

SPECIAL ADVERTISING FEATURE

THE EVOLUTION OF TRANSACTION SOLUTIONS

ACCEPT BITCOIN

www.bitpay.com

are much lower than other payment solutions

With the excitement of all the various cryptocurrencies currently in the space, what sometimes is under-discussed is their role in the future of transactions. As merchants learn about the benefits of accepting cryptocurrencies like Bitcoin, skepticism will be met by the numerous advantages of using this type of protocol for payment.

At BitPay we currently have 30,000 merchants, including higher profile clients like Gyft, TigerDirect and the NBA’s Sacramento Kings. While these forward thinking companies immediately saw the benefit of Bitcoin and were quick to jump aboard, the mainstream acceptance of Bitcoin also requires our smaller merchants that sell specialized items or services. Once skepticism and misinformation is quelled, the facts of Bitcoin as a payment method become crystal clear to many merchants.

Through BitPay merchants pay 1% or less of their transaction amount (depending on volume) as a processing fee which is significantly less than other payment processing options. It’s the P2P nature of the Bitcoin network that enables this extremely low payment processing option. It’s also important to realize that Bitcoin is still in its infancy and other payment options have had 50 plus years to build their network and infrastructure. Bitcoin has been around since 2009 and in those five years the user experience for merchants and customers has become drastically easier. This will continue to improve as the open source platform develops.

What’s important is for other Bitcoin companies in the space to contribute development time to ensure the protocol can grow properly. At BitPay, Bitcoin Core developer Je� Garzik is a member of our team and we continue to contribute to the platform through projects such as Bitcore. One of our biggest hopes is as other startups grow that they will be able to expand their development teams to contribute to Bitcoin.

Bitcoin users currently have various reasons to use the protocol; including technological, political, financial and economic. As merchant acceptance grows and education on the subject grows, the user base will diversify and the platform will become easier to use. We aren’t close to widespread acceptability in the same vein as a credit card, but it is something that the Bitcoin community is currently developing.

An analogy I quite often make is to the music industry in the early 2000s. Napster forced record labels to change their business model to one that is more in line with what the consumers wanted. Some advantages that Bitcoin has over what happened with Napster include the existence of a global marketplace, venture capital investments and continued development of the protocol. The switch to digital was something that was confusing and scary for many music fans and the immediate resistance slowly faded away and business opportunities such as iTunes and Google Music came to make buying digital music easier and the preferred way to purchase a song. Bitcoin is controversial now because it’s challenging something that has been the same for a very long time. It’s more important to realize that, like any other technology, it becomes more mature and easier to use over time.

Some of the smartest and most successful entrepreneurs in the world are embracing Bitcoin.

These individuals see the long term potential in how it could drastically reduce payment costs as well as the global reach it has. BitPay has continued to bring credibility, excellent support and development of the platform to the community and that has resulted in being the market leader for Bitcoin Payment Processing. We also hope to continue to grow

and Amsterdam as well as a new location for our continuously growing

http://www.bravenewcoin.com/

CONTENTS

Letter from the Editor 3

Expert Advisory Board 7

Bitcoin’s Shroud of Subtlety and Allure 14 by DANIEL KRAWISZ

CryptoCoin Social 16

Why Do I Need to Pay for Secure E-mail Services? 20 by GERRY BAKKER

Network Security and Proof of Work… Do we Need an Alternative? 22 by ARIANNA SIMPSON

Working from First Principles to Build Bridges, 26 Fund Core Development, and Go to the Moon by RENE-LEE SYLVAIN

Dana io & The Corporation 28 by MIKE YEUNG

continued on page.6

Why Bitcoin Doesn’t Need a Bitcoin Valley by ARIEL DESCHAPPELLES

8Demonstrating Bitcoin’s Social Value—Charity, Bitcoin, and the BitGive Foundation by CONNIE M. GALLIPPI

12A State of Mining by DOM STEIL

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I AM SOSHI…July in the Bitcoin world showed a downward trend in price from a $650+

US position on the first to a low of $564 on the thirty-first Pricing had

not seen this lower-level since mid June 2014, where we sunk to the

$560 marker

What is the cause of this? Some speculate that Miners are mining and im-

mediately selling off the majority of their coins Others say it is because the

“Big Money” Bitcoin wallet holders are dumping some of their coins, and it’s

causing a ‘follow the leader’ mentality, where selling is the trend Others say

it is due to the “New Money” being invested into Bitcoin, which is amassed

and not put into circulation Still others say it was directly related to Dell

accepting Bitcoin—that they received a huge influx, beginning on July 18th,

and then they sold their accumulated coins back into the market, and this

dropped the price further

The smartest minds in our Crypto community are constantly speculating as

to the price of Bitcoin, yet there really are no concrete numbers to rely on

To an outside observer, Bitcoin may seem like a volatile and uncertain invest-

ment To the insider within the Crypto community, these price fluctuations

may be considered as windows of opportunity If you are newly acquiring

Bitcoin, short-term history will tell you this is a good time to buy Long-term

history will tell you that there was never a bad time to buy, except at any

price significantly higher than it is today

Speculation will tell you that there is never a bad time to buy, because the

world expects the price of Bitcoin to soar once global adoption reaches a

certain point When and where is that point? Nobody knows, at least no-

body in our crypto circles know We do know that every day, more and more

business are accepting Bitcoin We do know that there are now over five mil-

lion wallets open globally, and we know that if history’s valuation of com-

modities, precious metals or currency is any indication, the price of Bitcoin

will continue to rise as the demand for Bitcoin increases

Enjoy! —S

Issue 03 August 2014

Published by CRYPTO BIZ MEDIA, a division of CRYPTO BIZ GROUP

Editor-In-Chief SOSHI

Chief Operations Advisor TRENT NELLIS trent@cryptobizmagazine com

Chief Financial Advisor BARRY MORGAN

Chief Technical & Media Advisor JAY ADDISON

Senior VP of Business Development NATHAN WOSNACK

Art Director VANESSA KING

Social Media Crusader TYLER OMICHINSKI

COVER DESIGN Jay Addison

CONTRIBUTING WRITERS Oleg Andreev, Sean Comeau, Ariel Deschapell, Connie Gallippi, Daniel Krawisz, Jesse Michek, Justus Ranvier, Johnathan Rumion, Gabriel Scheare, Arianna Simpson, Dom Steil, Rene-Lee Sylvain, Brian Vereschagin, Mike Yeung

IN CANADA: VANCOUVER BC Ilya Brotzky Ilya@cryptobizmagazine com

IN THE US: SACRAMENTO CA Brandon Johnson Brandon@cryptobizmagazine com

IN NEW ZEALAND: AUCKLAND Belinda Too Belinda@cryptobizmagazine com

CRYPTO BIZ MAGAZINE PH3507 1111 West Pender St Vancouver BC Canada V6E 2B4

TEL 1 844 CRYPTO1 (1 844 279 7861)

E-MAIL contact@cryptobizmagazine.com

www.cryptobizmagazine.com

Crypto Biz Magazine assumes no responsibili-ty for unsolicited material Opinions expressed herein are those of the authors and advertisers and do necessarily reflect those of CRYPTO BIZ GROUP, editors, advisors or staff Readers are encour aged to thoroughly investigate and consult with a crypto financial advisor before embarking on any investment, speculation or financial opportunities Crypto Biz Magazine makes no warranties or guarantees and we assume no lia bility regarding advertisements or editorial con tent or any claims that may arise from them The contents of Crypto Biz Magazine are Copyright © 2014, all rights re-served Crypto Biz Magazine may not be repro-duced in whole or in part without the ex pressed written permission of CRYPTO BIZ GROUP

subscriptions@cryptobizmagazine.com for a FREE subscription to Crypto Biz Magazine

Receive our monthly editions delivered to you in the digital format of your choice.

FOLLOW US ON

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Yes, it’s that easy.coinkite.com

CONTENTS continued from page.2

Blockchain-Based Consensus in a CryptoTown Society 30 by BRIAN VERESCHAGIN

Cash And Credit in a Cryptocurrency Economy—Part 1 32 by JUSTUS RANVIER

LastPass Password Manager—Part 3 34 by SEAN COMEAU

Bitcoin Service Directory 37

What’s Behind The Bitcoin Surge? 40 by JESSE MICHEK

Finding My Calling and Building a Castle; Behold the Magic of Bitcoin 44 by GABRIEL SCHEARE

Austin Bitcoin Meetup 45 by JONATHAN RUMION

Bitcoin Merchant Directory 46

Github Bitcoin Glossary 48 by OLEG ANDREEV

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EXPERT ADVISORY BOARDKRISTOV ATLAS

KRISTOV ATLAS is a network se-curity and privacy researcher who studies crypto-currencies He is the author of Anonymous Bitcoin: How to Keep Your Ƀ All

to Yourself, a practical guide to maximizing fi-nancial privacy with Bitcoin Kristov is also a correspondent for the World Crypto Network, ap-pearing regularly on the weekly roundtable show The Bitcoin Group, and host of Dark News, a show about un-censorship technologies

LISA CHENG

LISA CHENG is the co-founder of Distributed.buzz and the CEO of the Vanbex Group She is the force behind the popular news aggregation site BitcoinRegime.

com and a behind the scenes advocate of Bitcoin 2 0 and blockchain technology She comes from an accomplished background after having worked at Fortune 500 companies and technol-ogy startups involved with Big Data, algorith-mic trading, and enterprise systems Lisa’s time is now focused on consulting and planning for new cryptocurrency projects after having worked for the Mastercoin Foundation in leading the Business Development effort She is located in Vancouver, British Columbia, Canada and you can reach her via Twitter @lisacheng

BRANDEN PETERSEN

BRANDEN PETERSEN is the founding Executive Director and Chairman of the Board of yesbitcoin Along with this work, he serves on the Financial

Standards Working Group at The Bitcoin Foundation Elected to the Minnesota House of Representatives in 2010 and the Minnesota State Senate in 2012, Petersen currently represents the people of Senate District 35 in Northwest Anoka County His legislative accomplishments in education policy reform as well as citizen data privacy protections are among the notable items in his body of work as the youngest member of the State Senate Along with his work in the public sector, Petersen has also been delivering strategic communications solutions for an array of non-profit and corporate clients as a Senior Counselor at Ainsley Shea Communications in St Paul, MN

PIOTR PIASECKI, BSc MSc

P I OT R P I A S E C K I i s a C h i e f S c i e n t i st a t P rova b l e I n c , a Vancouver-based software de-velopment startup Since discov-ering Bitcoin in 2011, he became

a reputable member of the Bitcoin community under the nickname “ThePiachu ” Piotr wrote his Master’s thesis on the subject of Bitcoin securi-ty in Technical University of Lodz, in Poland He is also a moderator of Bitcoin.StackExchange.com, /r/Bitcoin subreddit, runs a number of Bitcoin-focused websites, such as Vanity Pool and TestNet Faucet, as well as writes a blog on various cryptocurrencies

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With VC money being poured into Bitcoin startups, more billion-dollar businesses accepting it, and great-er mainstream acknowledgment that Bitcoin is here to stay, speculation on where the future “hotbed” of cryp-tocurrencies will develop is receiving a lot of attention The assumptions behind a “Bitcoin Valley” understand-ably come from an existing expectation of how new technology develops We seem to be irrevocably at-tached to the idea that any one area can and should lead the way in Bitcoin adoption and innovation, and this idea has good precedence Progress and innova-tion have traditionally been centered in geographic lo-cations, but Bitcoin is a bit different Thinking in terms of where a “Bitcoin Valley” might form might not neces-sarily be inaccurate in the short term, but it dramatically understates what Bitcoin is capable of achieving, and the scope of the impact it will have in the long term

Bitcoin is the first time that something with the quali-ties of a scarce physical object exists only digitally on the Internet This scarcity allows it to retain an arbitrary amount of value that makes it useful for trade, com-pounded by the fact that it is able to travel around the world as fast as any piece of information that can trav-el over the Internet That it exists only in cyberspace means that the Bitcoin protocol is not operationally tied down to any physical location It can be used and

mined from anywhere on the planet with an Internet connection, but that much is obvious

However, how about Bitcoin-based businesses? While the United States currently possesses the largest num-ber of Bitcoin startups, they are still spread around the globe—everywhere from Hong Kong to San Francisco, Atlanta to London, and beyond One characteristic an area logically needs to have to become the “Bitcoin Valley” is favourable regulatory policies However this only really applies to businesses dealing with the inter-section of fiat money and cryptocurrencies This is ob-viously a massive niche as new adopters need to get their hands on bitcoins somehow, and all bitcoins are likely to pass through the Coinbases, Circles, and ex-changes of the world many times over Yet as large a financial opportunity as conversion is, it won’t be the main driver of future Bitcoin growth

One of the fundamental features of Bitcoin is that it allows you to act as your own bank, completely side-stepping complicated and expensive payment gate-ways and fiat accounts The most massive strives in Bitcoin will come from businesses that leverage it as a payment and banking tool, increasing daily bitcoin transactions and helping to stabilize its fluctuating val-ue Having companies like Dell and Expedia accepting

WHY BITCOIN DOESN’T NEED A BITCOIN VALLEY by ARIEL DESCHAPELL

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it is the first step, but as the ecosystem continues to mature, the biggest contributors will be startups that only accept bitcoin in lieu of dealing with expensive and low quality payment gateways

Payment processors such as Authorize net charge a host of difficult to calculate fees that can vary wide-ly from merchant to merchant, and are especially hard for small sites and overseas entrepenuers to set up At the end of the day this is all just to acquire a less than ideal means of payment for both the business and its customers For this reason, as Bitcoin adoption increas-es, it will be incredibly advantageous for merchants, both online and off, to completely cut out tradition-al payment processors Bitcoin even allows them to operate a business without touching a bank account or going near legacy financial systems This is already demonstrated by Blockchain info, which takes all rev-enue in bitcoins and whose CEO, Nicolas Cary, is also paid entirely in bitcoins This model will provide a huge opportunity to those in the world without access to traditional financial services, and entrepreneurs who no longer have to deal with expensive and clumsy pay-ment processors or banks

After a new adopter acquires some bitcoins for the first time, and assuming they enter a fairly robust “Bitcoin economy,” they are no longer subject to any effective regulatory oversight Especially in regards to the web—with no need to deal with any traditional fi-nancial institutions, the physical location of a startup dealing in bitcoins in regards to regulation becomes insignificant Indeed, anyone using Bitcoin is tapping into an ultra-fast payment system that can be used by anyone around the world, regardless of where the customers or business are located When you level the playing field this dramatically, the only logical reason to relocate oneself anywhere is to access talent and/or funding Yet in the 21st century even those two im-portant factors aren’t as magnetic as they originally were With continuing growth and innovation in crowd-funding—much of which is naturally occurring in cryp-tocurrencies (Swarm being the prime example)—new models for achieving funding and courting investors are quickly becoming valid options Again, this works regardless of location, and coupled with online social tools that link investors to potential promising start-ups, the old methods of seeking capital are no longer the only ones

When all of these factors are in play, startups from any part of the world are able to compete evenly on the same playing field Why shouldn’t talent follow a simi-lar model, too? Since paying employees via bitcoin has become so easy, and with the growing popularity of sites like Coinality com, remote work and collaboration only becomes more and more attractive, even if it’s just an initial first step This allows you to pool talent from around the world, regardless of location, rather than being limited to those in your area, or those who are willing to relocate While there will always be an unde-niable allure and advantage in working closely with a team, the alternatives pulls the focus away from estab-

lished centers of talent and helps to ensure the deck isn’t so stacked against the little guys

In developed countries such as the United States, fi-nancial services are indispensable They are a funda-mental part of the economy, and its ability to function at the extremely high and complex level that it cur-rently does Not only will Bitcoin adoption improve upon that financial system, but it will make it available to countless more for the first time As such, both the largest opportunity for businesses and the greatest source of innovation will be these newly empowered regions, and anyone else who decides to “plug in” to the Bitcoin ecosystem Because of its purely digital nature, and complementary technological factors in crowdfunding and remote working, Bitcoin’s benefits are available to everyone Whether you’re in a Harvard dorm or in an apartment in India, the disparity of op-portunity between the two is smaller today than it ever has been

Bitcoin’s largest potential as a disruptor is not in el-evating a few super-massive companies in one geo-graphic area, it’s in leveling the playing field the world over, and opening the floodgates to a truly “flat” world, where location has little influence on anyone’s ability to compete in the global marketplace It’s in grant-ing more opportunities and control for the vastly un-banked third world, struggling entrepreneurs, and every other individual on the planet While a geo-graphic center may indeed emerge with many Bitcoin-based companies, it will pale in comparison to the greater global innovation that will be simultaneously made possible under those circumstances

While it’s easy to count the number of new billion-dol-lar businesses accepting Bitcoin, and all the VC capital being poured into it, the aggregate work of countless nameless individuals is what keeps driving Bitcoin for-ward One should remember Bitcoin’s humble begin-nings, over five years ago, when it was being mined on a single PC Its growth from then to now, already an astronomical achievement, is thanks entirely to the efforts of a dedicated, risk-taking, and entrepreneurial grassroots community And it is that decentralized and grassroots community, not increased regulatory clarity or flashy headlines, that will continue to drive Bitcoin adoption ever forward —S

ARIEL DESCHAPELL is an enthusiastic Bitcoin communi-ty organizer, analyst, writer, and entrepreneur Since first hearing about Bitcoin he has been on a mission to correct the vast amount of misinformation circulating about Bitcoin online, article by article He is a Miami born Cuban-American, and attends Florida International University for finance In his spare time he enjoys reading, eating, playing Halo, and mountain climbing Ariel accepts Bitcoin tips: 1D9P94wkZNvaDVei4q8iYS9zKKkHgbRjLG

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1 Increasing Employer Efficiency and ProductivityAs an Employer, your goal is to increase productivi-

ty and efficiency within the workplace Bitcoin Payroll promotes both elements by de-

creasing the time it takes employers to pay their employees and increasing

the payroll administrator’s time for more innovative and profit generat-

ing tasks With the use of a Bitcoin Payroll Company, employers re-duce the time it takes for an em-ployee to be paid through banking institutions from 2 – 4 business days to just 10 minutes That is a reduction of over 57,600%!

Increasing productivity is an im-portant function of business and

one of the ways to do this is to out-source repetitive tasks to a third party

When offering Bitcoin wages, spending time on all the legal components and ac-

counting tasks of paying employees in Bitcoin is working-hours that a startup founder or a payroll admin-istrator could use to grow the business instead A Bitcoin Payroll company removes this friction from growth and takes on the task of paying employees, freeing up time for founders and administrators to focus on projects that increase sales and revenue

2 Paying International Employees Easier, Faster, and Cheaper

Our world is becoming increasingly connected with each passing day Companies located in the U S employing workers in places such as Argentina and India, have a ris-ing need to lower foreign exchange risk and penalties for paying international workers in an easy, fast, and afford-able fashion

With the traditional system, transferring currencies re-quires sending a wire transfer from the employer’s bank through a series of channels that can include up to 3 banks or more, and an exchange rate in favor of the ex-changing institution The average wire transfer fee alone for sending between only two financial intermediaries is $45 per transfer The various charges on international payroll transactions consume a large percentages of the employees’ overall wage, and it may take 4 – 6 business days for the employee to get access to the funds, unless the employer wants to pay a fee to make it faster Bitcoin

PRESS RELEASE—As of July 21st, Bitwage has re-leased its private Bitcoin Payroll Alpha Service This service combines a user-friendly portal for em-ployers and employees with enterprise-qual-ity Bitcoin storage and distribution systems, thereby providing a Bitcoin Payroll service and streamlining the traditional payroll process The Alpha Service has been designed for smaller busi-nesses, such as startups; it minimizes the time, effort and room for human er-ror in Bitcoin payroll Using Bitcoin Payroll is easy for both domestic and inter-national employees; sim-ply sign up your employees, and let Bitwage take care of the rest With payroll taken care of, founders and employ-ees of small businesses can fo-cus on development and generating sales Based out of Palo Alto, Bitwage is now working with companies inside of the US, with plans to expand internationally in a number of countries that show high demand for Bitcoins Please contact us at alpha@bitwage.co to be in-volved Follow us on twitter for up to date Bitcoin and Payroll industry knowledge

4 BENEFITS OF USING BITCOIN PAYROLL

As technologies continue to advance the quality of information and comfort, the traditional finan-cial system remains slow, inefficient and costly As a result, companies, governments and peo-ple alike lose billions of dollars every year Payroll is no exception to the major financial processes that have been hampered by inefficient finan-cial intermediaries Processing payroll through banks and the ACH system takes money away from employers and employees through 2 – 4 day processing periods and cumbersome fees With the advent of Bitcoin, payroll processors can take advantage of financial efficiencies such as faster and cheaper transactions, creating huge savings for everyone involved Following are the 4 Benefits of Using Bitcoin Payroll

BITWAGE ANNOUNCES RELEASE OF FIRST FORMAL BITCOIN PAYROLL SERVICE

THE FUTURE OF PAYROLL IS HERE.

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Payroll completely bypasses this system, reducing transfer fees and waiting periods from traditional payroll companies to near zero

With Bitcoin Payroll, not only is the waiting time re-duced, the cost for conversion is reduced as well Traditional Payroll Companies have to go through banks that normally charge two to three percent to convert the employer’s local currency to the employ-ee’s local currency By using Bitcoin instead of banks as the underlying protocol to pay international em-ployees, the employer can pay in one fiat currency, the employee can receive pay in another fiat currency and the currency conversion rate will be dramatical-ly reduced This way, employers and employees who have no relation or understanding of Bitcoin, can reap the benefits of Bitcoin without even realizing it

3 Employers and Employees no Longer Need to Use Bank Accounts

The requisite of a bank account for the payments of goods and services tacks on unnecessary charges in the form of transaction fees and time For an employer who accepts Bitcoins, there are only three options with your Bitcoin reserves: investment, payment of goods on a small scale and conversion With Bitcoin Payroll, employers are able to pay their employees as well as their pay-roll taxes with Bitcoins, there-by providing a new, large-scale option for employer Bitcoin re-serves This reduces the need to spend money on one per-cent conversions plus banking fees and the need to send pay-roll payments through the slow, costly banking systems

Not so long ago, employees received checks in the mail, which then had to be deposited into their bank

accounts, costing employees time and money Now, people have their wages sent directly into their bank accounts These checks are analogous to the current process of obtaining Bitcoins Employees current-ly need to put money into a bank account and then must find the right Bitcoin provider to accept the fiat currency and turn that money into Bitcoin Bitcoin Payroll gets rid of the extra costs of the time associ-ated with finding the right Bitcoin provider and send-ing money from a bank to the Bitcoin provider as well as the associated bank fees

4 Reaching the Under-BankedThe World Bank has released an infographic outlin-ing the severity of the under-banked problem world-wide: “Approximately 2 5 billion people do not have a formal account at a financial institution ” Since Bitcoin Payroll removes the need for bank accounts, the under-banked all around the world now have ac-cess to global digital marketplaces, and the oppor-tunity to save and hold money digitally, instead of in their wallets or under their mattresses

According to the TIME article Why So Many Americans Don’t Have Bank Accounts, almost one-third of the U S population is considered under-banked Among businesses in the U S that employ this segment of the population, such as Walmart and Taco Bell, there is a growing trend for using payroll cards issued from banks that charge a number of fees to use These pay-roll card fees include withdrawal fees, balance inqui-ry fees, transfer fees, purchase fees, paper statement fees, and card replacement fees (as well as inactivity fees of $7) Payroll cards and other alternatives, such as check-cashing services, and money orders, cost $800 – $900 on average a year out of an average of a $22,000 yearly budget So how do the underbanked avoid the seemingly endless penalties that traditional banking payroll companies want to charge?

Being paid in bitcoins means that these under-banked people in the U S and around the world can avoid the entire payroll-card, check-cashing, and money-ordering processes by distanc-ing themselves entirely from the insti-tutions that take a large percentage of their paycheck Bitcoin Payroll offers a unique opportunity to solve a crisis that has seemed unsolvable for years by providing the under-banked access to a digital form of currency and a fu-ture that may finally take away what many deem as “the poverty tax ” —S

Jonathan Chester, Founder & CSO Grant Kurz, Marketing, Bitwage Bitcoin Payroll: made easy

1⁄3 of US Populationis Under-Banked

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DEMONSTRATING BITCOIN’S SOCIAL VALUE—CHARITY, BITCOIN, AND THE BITGIVE FOUNDATION by CONNIE M. GALLIPPI

Little did I know when I set off to the Bitcoin Foundation’s conference in San Jose, California last year that my life was about to change dra-matically The conference was one of the first all-Bitcoin events of this magnitude ever held—hard to comprehend now with the litany of Bitcoin events happening, what seems like daily, around the world

I already knew that the power and the poten-tial of Bitcoin was revolutionary; but things really clicked when I was immersed in the en-ergy of that conference Surrounded by enthu-siastic entrepreneurs, brilliant programmers, and Angel and Venture Capital investors in the heart of Silicon Valley, I knew this was the next dot-com boom

With my background in nonprofits, my nat-ural inclination was to capture the beauty of

Bitcoin in ways that would allow the community to give back Practically instantly, and quite mag-ically, the BitGive Foundation was conceived

BitGive focuses on charitable giving and demonstrating Bitcoin’s social value on a global scale With every opportunity we have to talk publicly about our work, we begin with

the story of Bitcoin’s social value This is the true beauty of Bitcoin and why it will revolu-tionize our world  

It is clear that demonstrating the social value of Bitcoin is a win-win for both charitable orga-

nizations and the Bitcoin commu-nity Not only are charitable efforts helping those in need, this type of application of Bitcoin can help

bridge the gap from early adopters to main-stream users Donations provide something that people can relate to and also offer an easy on-ramp to Bitcoin

We are now celebrating our one-year anniversa-ry, and we already have some successful charita-ble efforts under our belt, including $4,850 (BTC

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eq ) raised in one day for Save the Children’s Philippines Typhoon Relief Efforts. Our current campaign for The Water Project has raised over $7,000 (BTC eq ) to provide clean, safe water to a community in sub-Saharan Africa

So, what do we mean when we say the social value of Bitcoin? The Bitcoin community knows well the many benefits that cryptocurrency pro-vides, and I believe those benefits apply even more powerfully to the charitable community Peer-to-peer transactions, anytime, anywhere, allow us to access the most remote parts of the

world directly, with aid and support Of course the technology is new, and the pieces of the ecosystem are still being put into place, but soon, through SMS transactions, we will be able to reach the needy—directly This blows open a global donor market, in a single consistent currency, to charitable organizations working in the most remote and impoverished parts of the world

Reduced fees and the ability to transact di-rectly, without governments or banks interfer-ing, means more of the funds actually go to the cause, and make micro-donations more feasible and effective Often, traditional philanthropic channels cannot reach remote areas; and when they can, the many stages in the support process open the opportunity for fraud, and funding may not get to where it was originally intended

Bitcoin also provides an avenue of freedom to give to causes and organizations that are of personal importance—when you may not feel comfortable having your charitable gifts be public knowledge, for a variety of reasons We face a number of issues today that are politi-cally charged or polarizing; and yet many are extremely important issues that must be ad-dressed Bitcoin offers a way to support such causes without public scrutiny or backlash

The fact that Bitcoin holds its value in places where there is a government-controlled curren-cy is also of significant importance to the char-itable sector In countries such as Argentina, where inflation rates are well over 20 percent,

a charitable organization already relying on do-nations to make ends meet is destined to fail Bitcoin provides a storage of value that remains intact and is not manipulated by the govern-ment It can allow for a more consistent ex-change of value in these environments, which would mean more meals or school books for the children of that community

The last—and perhaps most compelling—bene-fit of Bitcoin for charitable causes is its increase in value over time Bitcoin’s value has risen from just pennies, to over $600 per BTC at the time

of this writing; and as a deflationary currency, is expected to rise in value over the long term This allows charitable organizations to have that much more of an impact

Building on this, the BitGive Foundation is devel-oping a long-term fund that will function similar to an endowment Bitcoin holdings that increase over time will provide a sustainable and robust fund from which to give back Our current hold-ings are already at six times their original value, yet we still have a long way to go Support us in moving the needle on the important issues facing our world today, leveraging the power of Bitcoin for social good —S

Not only are charitable efforts helping those in need, this type of application of Bitcoin can help bridge the gap from early adopters to mainstream users Donations provide something that people can relate to and also offer an easy on-ramp to Bitcoin

CONNIE M. G a l l i p p i i s t h e Founder and Executive Director of the BitGive Foundation She has a strong background in work-ing with nonprofit organizations for over 14 years and is based in Sacramento, California Ms Gallippi took an early leadership role in Bitcoin philanthropy, founding BitGive in mid-2013 She is also a spokesperson for the social value if Bitcoin, elevating female lead-ers in the community, and helping to bring more women into Bitcoin Follow her on Twitter @conniegallippi or @BitGiveOrg Donations can be made to the BitGive Foundation: www.bitgivefoundation.org Wallet address: 1PEoUKNxTZsc5rFSQvQjeTVwDE9vEDCRWm

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BITCOIN’S SHROUD OF SUBTLETY AND ALLUREby DANIEL KRAWISZ

ATTACKS ON BITCOIN

A successful attack on Bitcoin means at-tacking Bitcoin’s value There might well be a bug that could be exploited to put the network out of commission

temporarily, but would soon be fixed, and the network would be up and running shortly there-after To destroy Bitcoin permanently means to end the profit opportunities available with it, and that means either a malicious hashing attack on the network, making mining impossible; or such a malevolent policy against Bitcoin trade that even the black market abandons it Both of these require spending resources in proportion to the profits that Bitcoin enables

In this article, I will discuss three reasons why such an attack is unlikely to succeed: antifragility, subtlety, and attacker defection The interplay of these three defenses makes Bitcoin into a kind of wave that rewards those who ride it and drowns those who resist it

The first of these, antifragility, is exemplified in the fact that malicious hashing is impossible up to a certain fraction of the network Below the point that selfish mining becomes possible, ad-ditional hashes per second are almost certainly beneficial because they increase the security of the network Any potential attacker, therefore,C

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must weigh in the possibility that he may end up ben-efiting the network instead of destroying it A similar risk accompanies a legal attack on Bitcoin Bitcoin can adapt to half-hearted attacks It would move deeper into the black market where it would become perma-nently strengthened Furthermore, a legal attack could be easily corrupted into one that brings as many bit-coins as possible to the government agents instead of one that destroys it (see below)

BITCOIN’S SUBTLETYBitcoin adoption happens one person at a time, and this is true for potential attackers as well as the rest of us It takes an entrepreneurial mindset to be able to imagine what Bitcoin could become, given how com-paratively small it is now It takes time and meditation for people to take Bitcoin seriously because most of its value is in the future By the time this happens, Bitcoin has become much more expensive than when they first learned of it

Thus, Bitcoin is protected from attackers by being ini-tially beyond their understanding When Bitcoin was very small, it was very stealthy and was completely un-known to the establishment Now they laugh at it, just as it has begun to grow bold Of course, we don’t know who really dismisses it and who is deliberately trying to draw attention away from it

BITCOIN’S ALLUREFurthermore, potential attackers are at a disadvantage for another reason: Bitcoin tends to oppose organiza-tions rather than people Even someone who stands to lose from Bitcoin by not reacting to it, such as a bank-er or government agent, stands to gain a great deal by buying now Only the very wealthiest people might reasonably expect to be worse off attempting to buy up as much as possible now than if it were gone (This could happen if their attempt to buy caused the price to rise too fast relative to their ability to acquire addi-tional bitcoins, to the point that they ultimately had less influence over the future Bitcoin economy than they have over the economy of today ) Thus, the agen-cy problem with Bitcoin affects bitcoin competitors as well as Bitcoin holders

Nearly any government agent who begins to see Bitcoin as a potential threat must also simultaneously see it as an opportunity He, too, can invest in Bitcoin And why shouldn’t he? Bitcoin may be a threat to his livelihood, but it may well be making him an offer he can’t refuse How can an organization that stands to lose by the adoption of Bitcoin provide its members with a better opportunity for staying loyal than Bitcoin provides for defection?

Even those who might resist the temptation to defect would have to think about the defection of his fellows How quickly is adoption happening? Is there time to mount an attack before Bitcoin becomes too power-ful? How easily could the resources for such an attack be amassed, given both the ignorance and treachery

of the other agents If such an attack is unlikely to suc-ceed, then buying now would be the only intelligent action Regardless of whether he liked Bitcoin, it would be futile to continue pursuing a doomed cause

Potential Bitcoin attackers are in a Prisoner’s Dilemma In the same way that the people cannot easily reb-el against the king owing to a lack of coordination on their part, governments cannot rebel against Bitcoin for the same reason The government puts the peo-ple in a Prisoner’s Dilemma against one another, and Bitcoin does the same to government agents

Bitcoin is like Invasion of the Body Snatchers Bitcoin attracts inside men to act as covert saboteurs There have long been predictions from both bitcoiners and naysayers of impending government attacks, but I think there is a possibility that Bitcoin could win with-out suffering much resistance Moreover, although I said above only that any legal bitcoin attack could be perverted, the considerations discussed in this section tend to make such diffusion very likely

Bitcoin defends itself by being obscure, but once it has attracted someone’s attention, its best interest is for that person to understand the logic presented here For then he will also understand that his best course is to deny Bitcoin’s threat to his superiors and quietly to become its willing slave

FOOTNOTES—Right now Bitcoin Core does not fol-low the proper strategy to protect against selfish mining even at very low hashing rates, but the fix would be extremely easy to implement and would make selfish mining impossible up to twenty-five per-cent of the hash rate —S

DANIEL KRAWISZ graduated with his Master’s degree in phys-ics from The University of Texas at Austin in 2010 He is a founder of the Satoshi Nakamoto Institute and is now its Director of Research Daniel accepts Bitcoin tips: 19zEabLpYpB7yMQCXF8K9un67ZL7U59M3h

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WHY DO I NEED TO PAY FOR SECURE E-MAIL SERVICES?by GERRY BAKKER

It’s a fact that companies like Google and Microsoft offer free e-mail services. So why use a paid e-mail service?

THE NEED FOR MORE PRIVACYIndividuals and businesses increasingly require a high level of privacy in online communication, to prevent their data from being monitored, or accessed inappropriately The right to privacy is an important principle, protecting a person’s pri-vate sphere, which in our modern society includes e-mail communication

Intelligence agencies utilize surveillance tech-nologies to monitor e-mail communication, in the supposed interest of national security Some e-mail providers screen e-mail communication in order to display targeted advertisements to the end user, or store message contents and person-al data in order to extract information that may

be shared with third parties for commercial gain (so-called “data mining”)

For all you Gmail, Yahoo and Outlook365 e-mail users out there that are getting a bit uncom-fortable with the NSA reading every one of your e-mails, you should find a secure e-mail service in Canada, where the NSA can’t force them to re-veal your e-mail contents

You should also be using secure and encrypted connections when you access e-mail with web-mail, POP, IMAP, and SMTP Preferably, use desktop apps like Outlook, Apple Mail, Thunderbird, etc , to download your e-mail from an e-mail server, using POP3 instead of IMAP C

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IMAP is a wonderfully convenient feature that many of us think we just have to have, with syn-chronized copies of all e-mails, on all devices, at the all times The only problem with this conve-nience is that it exposes our e-mail contents—in equal measure, on all devices If you lose one of these devices, or it is stolen, then the person who finds it, or the thief, has the ability to view your e-mails, and even delete them in synchronous fashion, from all of your other devices, as well

POP3 pops into your e-mail server account and downloads your e-mail to your desktop, and your other devices if you have each device set to leave e-mails on the server for 3 – 5 days—enough time to open each device and down-load your e-mail After that time, it deletes them from your server only—freeing up space for more e-mail, and erasing any trail of their existence on the web server

IMAP or POP3? The decision is yours, but con-sider the consequences and the trade-offs of each method

WHAT ABOUT PRIVACY?A secure e-mail provider should be committed to protecting their customer’s privacy

SECURE TRANSFER OF E-MAIL1. Between you and your e-mail provider

If you’re using webmail, any e-mail that you send or receive, between your computer and your provider’s e-mail servers, should be en-crypted while it is transferred This is the case for e-mail you send and receive Similarly, if you are using an e-mail client like Windows Live Mail, Outlook, Thunderbird or Apple Mail with your e-mail server, then your e-mail will be en-crypted while it is transferred between your computer and your e-mail provider’s servers Your e-mail won’t be encrypted while stored on those e-mail servers, but the servers should be located in a high-security facility in Canada

2. Between your e-mail provider and other e-mail services

Whenever your e-mail provider’s servers send and receive e-mail for you, they try to use a secure, encrypted connection between your e-mail server and the e-mail service used by the other person The secure e-mail server “asks” the server at the other e-mail service if it can accept a secure connection If it “re-plies,” saying it can, then the transfer of your e-mail will be done over a secure, encrypted connection This prevents your e-mail being read even if it’s intercepted during transmis-

sion If the receiving server is unable to sup-port a secure connection, then e-mail will be transferred using the standard protocols that all e-mail services use Unless you’ve encrypted the contents of your e-mail, (see part 3, below), it’s possible that, if it was intercepted during transmission, it could be read Your e-mail pro-vider has no control at all over whether oth-er e-mail services use secure connections, so while this is a very useful facility, provided by secure e-mail providers, it’s not something you can rely on entirely to keep your e-mail private Your secure e-mail provider will have no con-trol over how the people you correspond with connect to their e-mail service

3. Securing/encrypting the contents of your e-mail

The only way to ensure that your messages are completely private is to encrypt the contents of each message, before you send or receive it through a secure e-mail provider This means that you’re not relying on any technology that e-mail services employ, and that your message will remain private and secure between you, and the people you correspond with To do this, you’ll need to use some kind of encryption system, such as PGP (Pretty Good Privacy) When using this, you and your recipient will both need to generate encryption keys, which you use to send e-mail to each other Keys are used to encrypt messages before they’re sent from your computer, and then used to decrypt messages once they’ve arrived at the destina-tion computer PGP is very secure, and as far as the industry knows, has not been compro-mised However, the need for senders and re-cipients to both use encryption keys means it’s not very convenient, and therefore, most peo-ple don’t bother to use PGP, or other similar methods Your e-mail supplier should integrate PGP into their services, to allow you to facili-tate the use of this kind of security

A final thought: For all you Wix and Weebly users, paid e-mail providers offer the perfect solution for all your e-mail requirements Now you can have your fancy website, and match-ing e-mail accounts, in a safe environment that’s completely transparent to your site’s visitors

GERRY BAKKER has been involved in network security and web hosting since 1983 Communication started at 300 BAUD with Compuserve and eventually the new internet in 1995 Today the internet is a big scary place with attacks on everyone’s priva-cy and theft of their identities My daily routine is spent fighting off DDOS attacks, identifying and fixing hacker’s attacks on client sites and constantly battling spam or email spoofing

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NETWORK SECURITY AND PROOF OF WORK… DO WE NEED AN ALTERNATIVE?

by ARIANNA SIMPSON

The Bitcoin protocol is designed using a proof of work mechanism, which determines who is permitted to sign the transactions that need to be verified A proof of work (PoW) is a piece of data which is computationally diffi-cult to achieve, meaning that it required a lot of either time or hashing power (or both) to find the solution, but it’s easy to verify that this work was actually been com-pleted Bitcoin uses a proof of work algorithm called hashcash, which has been around a lot longer than Bitcoin itself, and was created with the purpose of be-ing an anti denial-of-service (DOS) measure Hashcash is fairly versatile and can be implemented with a number of functions; bitcoin uses hashcash-SHA256^2

The proof of work consists in finding a target number that is below a certain target value, and in doing so the miner essentially “proves” that she performed a certain amount

of “work” in trying various inputs If I input a string into the SHA-256 hash function, there is no known way of deter-mining what the output will be Trial and error is the only way to find an input that will generate a hash that fits the desired criteria In theory, you could nail it on the first try, but the probability of this happening is very small

Given the current combined hashing power of the network, on average a solution is found every 10 min-utes, at which point the block has been mined and the bitcoins are released as a reward Every 2016 blocks, which ends up being approximately every two weeks, the algorithm moderates itself and either increases or decreases the difficulty of the problem In practical terms, this means that it either increases or decreases the target value, so it’s easier or harder to find a value below it This ensures a relatively smooth rate of release C

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for newly mined bitcoins, and avoids flooding the mar-ket with coins at any given time

It doesn’t matter whether I am using a supercomputer or a laptop to do the proof of work, it’s simply that with a su-percomputer I can go through the attempts much faster, which means I have a higher chance of solving the prob-lem before anyone else and therefore claiming the reward The only thing that is important is how many hashes I can go through per unit of time, which is why the pow-er of mining hardware is measured in MH/s, GH/s or TH/s (mega, giga and terahashes per second)

Some people in the cryptocurrency community have voiced the concern that miners may not be incentiv-ized to continue mining if the price of bitcoin plum-mets, or simply because the reward for solving a given block decreases over time Both are valid con-cerns but deserve to be addressed separately In the first case, the assumption is that the reward amount would be too low for it to be worthwhile financial-ly, and once all 21 million bitcoins have been mined this reward goes away entirely Currently, miners are primarily incentivized by the coinbase reward rather than the transaction fees, which is why many blocks end up with few transactions Miners profit from the transaction fees, and the more transactions they in-clude in a block, the more money they can make, but the opportunity cost of continuing to work on that block rather than go after a new one is high, as a competing block may win, rendering their work a waste of time and computing power

Let’s assume that, for whatever reason, the price of Bitcoin collapses, and therefore it’s significantly less lucrative (net negative, once you factor in the cost of electricity) to mine If miners are rational actors, most of them will stop mining, which is a problem for the network The unintended consequence, however, is that mining would become dramatically less compet-itive, and therefore substantially more lucrative for those miners who continue to mine—at least in the short term As I mentioned earlier, the algorithm self regulates to keep the average pace at which blocks are solved at around 10 minutes per block As the bitcoin developer guide explains, Every 2,016 blocks, the net-work uses timestamps stored in each block header to calculate the number of seconds elapsed between gen-eration of the first and last of those last 2,016 blocks The ideal value is 1,209,600 seconds (two weeks)

Based on a comparison to the ideal value, the algo-rithm either increases or decreases the difficulty of the problem to solve, essentially recalibrating to try and get as close to 1,209,600 seconds as possible To date, the difficulty has increased as more and more advanced ASIC miners continue to be developed, and more computing power is needed to have a chance at being the first to solve a block However, the algorithm can also self-regulate in the opposite direction, making it easier to solve the problem by increasing the target value Difficulty can be decreased by as much as sev-enty-five percent This component of the protocol is

particularly brilliant in design, as it basically guards it-self against market shocks that could be produced by sudden swings in the mining power being inputted at any given moment

Even if the bitcoins they are mining are worth sub-stantially less post-crash, if the miners believe that the expected future value of their bitcoins is significantly greater than it is at present, then it would make sense to continue mining Alternatively, if a large percentage of miners quit because they didn’t anticipate the fu-ture value of bitcoin to make their present expenditure worthwhile, the new environment could still attract a new class of miners who are not currently mining be-cause they don’t have the hashing power needed to make it lucrative, but if competition decreased dramat-ically, it would be Presumably, at this point other min-ers, who had been mining previously, would also see this and start getting back into the game, which would ultimately increase competition and start driving things in an upward direction again

The likelihood that we see a huge drop in the price of Bitcoin also decreases substantially over time, as it be-comes less probable as the network expands One of the main reasons Bitcoin prices have been fairly vol-atile to date is that the network (by which I mean the number of consumers with wallets and merchants who accept Bitcoin as a form of payment) is still relatively small Bitcoin’s market cap has been hovering between 7 and 10 billion dollars, which means that any hedge fund worth its salt could take a position and dra-matically swing the market Bridgewater Associates, for instance, is the world’s largest hedge fund with $150 billion in global investments under management In theory, they could buy ALL the bitcoins that have been mined to date 19x over, and still have enough left to throw six Instagram acquisitions in for fun… and that’s only one of the top funds Because the market cap is small, bitcoin to date has been subject to the whims of large actors; as the cap increases, there’s a strong chance that this will change

There’s also the issue to consider that even in the ab-sence of a price crash, incentives to mine naturally de-crease over time as the amount of bitcoin received as a reward for mining a block is halved every 210,000 blocks, or approximately every four years There is rea-sonable cause for concern that without the incentives provided by block rewards the network will no longer be secured, in that the transaction fees will not be suf-ficient to support the cost of securing the network This is a manifestation of the game theory concept of the “Tragedy of the Commons” in which no individual actor wants to perform work or contribute to the com-munity because he believes that she can reap the ben-efits regardless, but when everyone behaves this way, the system ends up collapsing and leaves everyone worse off No one wants to pay transaction fees, but if everyone avoids paying them, the miners will have no incentive to keep security levels high, which could re-sult in a systemic collapse

continued on page.36

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As a Bitcoin enthusiast and in vestor, ARIANNA SIMPSON is part icular-ly passionate about help-ing women get involved in the Bitcoin community She is now at Facebook, working out of the New York office, where she or-ganizes the Bitcoin meetup group In her previous lives, Arianna did ecology research for the National Science Foundation in South Africa, co-found-ed Tigervine, lead sales & boutique operations at Shoptiques.com, and spent several months back-packing through Southern Africa Her Bitcoin address is: 1DLBeB2NxcGNsCAFyLa6ateQqtBc1o1LJh

continued from page.21

To some extent, the point in time at which this prob-lem becomes a reality will depend on the price of Bitcoin, and no one can accurately predict when the network will reach that point; but even if prices con-tinue to grow, this is likely only a case of delaying the inevitable If a bitcoin today is worth $600 and I re-ceive 25 when mining a block, and in ten years I only receive 6 25 bitcoins for doing the same work, yet each one is worth $100,000, mining still makes a lot of sense Even considering the investment in mining equipment, assuming that the amount of electricity I will have to expend will be higher, and discounting for two to three percent annual inflation, there’s still a substantial potential upside There are a number of external factors (exact cost of electricity, price of ASICs or other mining equipment, etc) that will play into this and influence whether the network incen-tives to mine remain high enough, so it’s worthwhile considering other mechanisms, prominent amongst which is proof of stake

Proof of stake (PoS) is an idea that came about as an alternative solution to proof of work, primarily as a safe-guard to some of the original protocol’s perceived short-comings Apparently it was first proposed in 2011, in the bitcoin talk forum by “QuantumMechanic ” and since then, several models for implementation have been de-veloped A proof of stake scheme is similar to proof of work in that it is also a mechanism for determining who will sign the transactions in a given block, but instead of relying on hashing power, it uses ownership as the de-ciding factor Simply put, if Alice holds five percent of all coins, she has the ability to mine five percent of the blocks Theoretically this should increase network secu-rity by making it more difficult to mount a 51% attack In order to do so, someone (probably a mining pool) would have to control over half of all coins in existence, which is much harder to do than controlling fifty-one percent of the hashing power It’s worth considering that this isn’t impossible, as a large centralized pool could form and come to control over half the coins in circula-tion through a combination of owned coins and loans, for example Realistically, however, in a proof of stake situation it wouldn’t make much economic sense to mount this type of attack It would substantially reduce confidence in the network’s security, and likely cause the price to plummet By crashing the value of a coin in which it is so heavily invested, the malicious mining pool would essentially be shooting itself in the foot To some degree, this is also true in a PoW scenario, but the dis-incentive is much stronger where PoS is being applied

Although there’s no way to know exactly if and when an alternative to proof of work will become neces-sary due to a lack of mining incentives, a proof of stake scheme could also be a desirable solution, for environmental and efficiency reasons Since the proof of work process does not actually solve real-world problems, the energy is essentially burned without a real return, which is suboptimal Implementing PoS, either in the form of a fork from the main proof of work blockchain or via the use of an altcoin that uses

it (i e , Peercoin, or something similar) could be sig-nificantly less costly than bitcoin mining as it current-ly stands, because the current system gobbles up a huge amount of electricity Because PoS uses far less energy, as almost none is expended in the mining process, it would be substantially cheaper to make a profit mining than in a PoW scenario It would also meaningfully reduce transaction fees in the long run, as miners wouldn’t have to charge high fees in order to cover their power and hardware costs

We still lack a perfect solution to all these issues, and PoS is not a panacea either One problem I see with im-plementing a PoS mechanism is that it could cause illi-quidity in the market and lead to great concentrations of wealth Miners would be incentivized to hold their Bitcoin in order to be allowed to mine more, and there-fore large concentration pools of currency would accu-mulate Currently, miners have an incentive to convert some of their mined bitcoins into dollars by selling them, but this is largely true because of a) price volatility—it is still risky to hold everything in Bitcoin, and b) there are still many assets that cannot be purchased using Bitcoin If PoS were implemented, and as both a) and b) become less relevant as the network expands, this could lead to a vast majority of coins being held by very few

Despite the considerable improvements that proof of stake offers over proof of work in certain spheres, ultimately, neither proof of work nor proof of stake offer a perfect solution to long-term network secu-rity concerns Still, both clearly have useful charac-teristics which, applied in conjunction, could help overcome some of their own shortcomings Just as I was wrapping up this writeup, Ryan Selkis passed along a fascinating paper by Bentov, Lee, Mizrahi, and Rosenfeld which proposes a third option, called Proof of Activity (PoA) PoA is predicated on the belief that neither PoS nor PoW are flawless, and seeks to pull in some of the better aspects of both I’ll write about the PoA paper separately in a future article The paper, titled Proof of Activity: Extending Bitcoin’s Proof of Work via Proof of Stake, is fairly technical, but it’s very thorough, and for those who are so inclined, I definitely recommend a read —S

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ABOUT COINFEST…CoinFest is the world’s FIRST decentralized currency convention! Not the first convention about decentralized

currency, but rather the first currency convention to itself be decentralized in concept, organization and form.

We book venues all across the globe for a simultaneous extravaganza of cryptocurrency, hosted in a non-profit

fashion by various partners. CoinFest is not owned by any person or company, and all domain names and other

assets will eventually be turned over to a decentralized autonomous organization.

Anybody can start a CoinFest of their own, so long as they uphold the spirit of CoinFest. One may not charge

admission for a CoinFest event, as it is intended for public outreach. CoinFest is also intended to incentivize

cryptocurrency adoption, and thus one may not host a CoinFest at a venue or business that does not support

alternative currency, barring extreme circumstances. All currencies are allowed, but use of state-backed

currency (within the state backing said currency) is discouraged, except for the purpose of purchasing

alternative currency.

CONFIRMED LOCATIONS FOR COINFEST 2015 Vancouver, Canada, the birthplace of CoinFest. It will once again be organized by CoinFest founder Andrew

Wagner

Winnipeg, Canada, brought to us by returning organizer Josh Nekrep. Check out his website

Montreal, Canada, home of Canada’s Bitcoin Embassy. Now joining us thanks to Francis Pouliot, chief

executive of the Canadian chapter of the Bitcoin Foundation

Renaca Beach in Vina Del Mar, Chile. Major thanks to our anarchist friend Gabriel Scheare from Galt’s Gulch

Mexico City, Mexico, spearheaded by Bitso co-founder and Bitcoin Co-Op member Pablo Gonzalez

Donate to CoinFestCoinFest is entirely funded by donations and sponsorships, and charges no fees to event venues or guests.

If you like what we’re doing to spread currency innovation and freedom, you can support the movement by

donating to one of the following addresses, or by using CoinOS!

Donate with CoinOS!

February 20 – 22—CoinFest is now an annual event. Save the date!

www.coinfest.org Contact

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FEATHERCOIN ADDRESS: 6sifxgAmyoBhXQCrRYpZko1tz4J3hRVSE5

DOGECOIN ADDRESS: DNAeVUATMqjFrNKom719QxdfisKsKTrqnf

There is a seemingly inevitable chance that a financial system like Bitcoin will get adopted worldwide If this occurs, we believe there should be a process which is similar to what governments currently refer to as “eco-nomic stimulus ” For this reason, we wanted to build and test SatoshiVote, which—in simplified terms—is monthly crowd-funding on a global scale In more com-plex terms, SatoshiVote allows us to choose where our value goes, instead of forced inflation of our savings This is far different from our current economic system, where a central bank prints money, calls it “economic stimulus,” and chooses which bridges to build or wars to fight With SatoshiVote, we’re proposing that peo-ple cast a vote that transfers value and in turn pays for their collective hopes for the future, creates jobs, and stimulates the economy With this global funding meth-od, we feel these votes will be far more effective and ef-ficient than political ones The most exciting part of this process is its potential to achieve so much more than we thought possible

In the past, governments and their corresponding cen-tral banks were the only ones capable of funding expen-sive, long, and risky undertakings After governments are elected, they have the ability to print money on a regular basis, allowing them to pay people over long periods of time to perform work The type of work this funding has created in the past has included industrial development, moon missions, military conflicts and more These types of projects require expensive, continuous funding, af-fect populations globally, and—when funded in this man-ner—cause inflation, basically forcing citizens to pay for spending they aren’t even aware of This ability to inject printed money into the system, and essentially “choose” what people do for work, is responsible for some of the greatest accomplishments in history, as well as some of the most terrible ones In a monetary system like Bitcoin, where the money supply is fixed and held by the people, how will we create jobs, stimulate the economy, and de-cide what infrastructure to build?

Our funding method will hopefully begin to address that question It will seamlessly encourage and allow people to send one to two dollars per month to whichever “cam-paigns” are listed on our site These campaigns can be anything: environmental projects, medical research, or expe-ditions like manned missions to Mars Historically, these initia-tives were very hard to get funding for, but with Bitcoin, you have access to 2 6 billion people on the Internet, and one to two dollars a month is painless for a significant number of those people That’s an enormous potential pool of continu-al monthly funding Some people will associate SatoshiVote with traditional crowdfunding, but it is fundamentally differ-ent The requirements for these campaigns include unknown costs and extremely long timelines They cannot be accom-plished with large one-time donations; which is exactly what previous crowdfunding methods provide To build infrastruc-ture, or pay for large transformative undertakings, you need continuous monthly funding, and a lot of it This is why we think SatoshiVote will fill an unmet need for the Bitcoin econ-omy and give it some insane purchasing power

Given this information, we’re compelled to test out this fund-ing method even though the odds of initial success are low At first we’re listing Bitcoin-specific campaigns because we think those are most likely to get funded; but in the future, all types of campaigns can be listed Having a platform where society can combine value towards a common goal—in a truly democratic way—will be an essential part of any fric-tionless, deflationary, and global financial system

To take a look at what we’re building, please go to SatoshiVote. —S

WORKING FROM FIRST PRINCIPLES TO BUILD BRIDGES, FUND CORE DEVELOPMENT, AND GO TO THE MOON by RENE-LEE SYLVAIN

RENE-LEE SYLVAIN studied Finance and Accounting in uni-versity, with a healthy dose of Computer Science After graduating, during the recession, he worked in the oilfields instead of finance At the same time he completed the 4th Class Power Engineering course at NAIT Three years later, and with lots of money saved from MWD technician work, he started investing in Tesla Motors and Bitcoin His goal now is to work in the finance and cryptocurrency field while working as much on SatoshiVote as possible C

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Find Businesses Accepting Bitcoins and LiteCoins

CoinMap

www.coinmap.org

Spend Your Bitcoins

DANA.IO & THE CORPORATION (2004) COULD BRING BITCOIN TO 1,000 HIGH SCHOOLS by MIKE YEUNG

I n te r n at i o n a l h i t d o c u m e n t a r y The Corporation is celebrating its 10th anniversary with its ‘Get Up #OffTheCouch Crypto Challenge’—a cryptocurrency-only crowdfunding campaign to re-release a shorter cut of the film, to be distributed to one thousand schools

$35,000 has already been raised in a campaign that accepted both fiat and cryptocurrencies The film is still look-ing to raise another $15,000 to reach their original funding goal Campaign creator Kat Dodds is making this a race to the top for a special thanks section of the film, that will feature the logos of the contributing cryptocur-rencies, with special prominence for the cryptocurrency in which the cam-paign receives the largest total amount of donations “All cryptocurrency do-nations will be kept as and used as cryptocurrency as well,” says Dodds

Released in 2004, The Corporation stunned the world with its revela-tions of an out-of-control business model, legally protected as a “per-son” and tasked to pursue profit above all else While crypto-currencies were not around when the film was first re-leased, they’re salient to the film’s message Just as The Corporation has shed light on how these companies dominate our lives, Bitcoin has exposed our financial system as unstable, unjust, and unfair

You can find the campaign here: dana.io/cryptochallenge

Information about the film can be found at the following: www.thecorporation.com www.imdb.com/title/tt0379225 —S

MIKE YEUNG (@saitoshee) is also the CEO of Saftonhouse Consulting Group, a cryptocurrency consultancy based out of Vancouver He has explained Bitcoin on Global TV, CBC Radio, The Vancouver Sun, Huffington Post, and other publica-tions Michael is also the founder of the Simon Fraser Bitcoin Club, Canada’s

f i r s t s t u d e n t a d vo c a te g ro u p for Bitcoin SFU sits alongside Stanford, MIT, and Berkeley in the College Crypto Network

Current version of the film above, and the 2004 film below.

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Proof-of-Stake Verified. Proof-of-Work Distributed.

Network-Stake-Dependent Interest.www.vericoin.info/verifund.html

50% of the Multi-pool fees will go to the VeriFund,

services for VeriCoin will be paid from the VeriFund VeriCoin

www.vericoin.info

Donate: VRC: VTHZfUg11wEJmSgBLUcmCKGYekuqFcGHQq BTC: 1LRWAyE3WKwTzXszEmtqKXzikQvoq7NJBa

BLOCKCHAIN-BASED CONSENSUS IN A CRYPTOTOWN SOCIETY

by BRIAN VERESCHAGIN

The implications of blockchain-based consensus reach far beyond the integrity of our currencies Individuals have never had the ability to independently verify the integrity of the information networks and hierarchies that compose their society Even further still, we have never had a viable alternative to the profit motive, which is based on the consume and multiply model seen throughout nature Technology threatens to put an end to scarcity at the same time our civilization ca-reens toward the end of a parabolic rise in resource exploitation Blockchain technology allows for the co-operation required to transition our society from the destructive motivation of profit, to those of human needs and sustainability

This awakening may be put into context by studying the different ways in which we have shared informa-tion in the past Spoken language has a limited prox-imity and spreads slowly while residing in the volatile minds of our early ancestors Written language pro-vided reliable storage and the geographical reach to enable expansive societies The invention of the print-ing press brought broadcast media, capturing the knowledge of the world to book and leading us to the radio and television The Internet brought us instant worldwide interactivity and collaboration between participants With each revolution, the amount of in-formation available to each individual has exploded

The kind of information shared within and amongst societies ranges from cultural ideas to financial ac-counting and ownership Access to and control of such information has been traditionally trusted to hi-erarchical institutions such as government, corporate media and central bank This system ultimately relies on individual human trust, which is the reason that our exploits manifest themselves in the direction of our civilization Blockchain-based consensus allows us to construct, and voluntarily participate in, systems of rules designed to augment or replace critical points of trust within all levels of society

The CryptoTown On The Ground project was launched to encourage collaboration between crypto pioneers, development talent, and expert guidance on the crit-ical path toward mainstream adoption of crypto A grassroots approach acknowledges that existing in-stitutions are ultimately motivated to create scarcity and dependence and will not help us Independence is achieved through the cryptomall model of local sup-port networks and the continual refinement of tools and methods employed Although most of the crypto crowd is currently focused on cryptocurrencies, they are just a part of the global shift towards decentral-ization in which new elements of society are emerging from cryptographically secured trust

The process of decentralization is like a swinging pendulum, finding balance between hierarchies and networks Some things may transition to a network model of cooperation like cryptocurrency, yet we may still try to pass the responsibility of protecting our private keys to centralized exchanges and wallet ser-

vices Throughout history we have tried many meth-ods of societal organization, but until now, every facet has been subject to the exploitation of human trust The profit motive, enshrined to law, is a cultural relic of an environment of scarcity and exploitation where technology now threatens sustainability and abun-dance Crypto may help to form the bridge between a civilization forged in the fires of scarcity, to one ulti-mately motivated by human needs and sustainability

The profit motive, which underpins the whole of our society, emerges from basic trends observed amongst the diversity of life on planet Earth In the absence of a natural predator, we can observe the exponen-tial growth of a species, and the collapse of its un-derlying resources When the underlying motive for each individual is profit and growth, the end result is a catastrophic depletion of carrying capacity The ex-ploitation of every last opportunity fuels a pervasive resistance to obsolescence, resulting in artificial scar-city and an obsessive aversion to solving problems Institutional hierarchies built of human trust may feel threatened by the prospect of transparency, where ex-ploitation of opportunities for personal gain may be the glue of the operation

Real-time global interaction of culture and ideas, coupled with the authentic persistence of the block-chain, provides individuals with equal access to the vast structures of society As we develop the ability to interact directly with the uncensored contours of our collective will, wild phenomena such as the block-chain itself may emerge Manipulation-free access to our peers may awaken a new consciousness which is aware of The Game, and may cooperate to become self-sustainable

We are born innocent and taught by society how to react to each situation with programmed aversions and desires We each believe most strongly in our own experience of what constitutes a normal soci-ety and culture Awareness of this programming is required to transcend the fearful grouping and ex-ploitation behaviors of a system that has nearly run its course If we are to believe that currency is the most potent blockchain application, we may over-look the possibility of obsoleting the very concept of money and economics —S

BRIAN VERESCHAGIN Brian is an Information Technology pro-fessional with an affinity for com-munication networks His logical approach and attention to detail has provided him with the tools and experience necessary to gain better insights into complex sys-tems The CryptoTown project embraces open collaboration and community empowerment where permission and trust are not re-quired Get creative! Find out more at http://www cryptotown org Brian takes tips at 15zRQWgNkzHjHTjnMHrQGzZp3uLMbmgyg6

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CASH AND CREDIT IN A PART 1 CRYPTOCURRENCY ECONOMYby JUSTUS RANVIER

The success of Bitcoin has created the possibility of a new, free-market, cross-border, online economy with Bitcoin serving the role of base money (cash) There’s certainly room for optimism on this point, however it’s not going to happen on its own Bitcoin is the new cash, or base money, for this economy Cash by itself is not enough to meet all the needs of an economy, so build-ing that future economy will require additional, sup-porting technologies Open-Transactions is one of those supporting technologies, and the this article will explain how and why it fits into the new economy we’re building

CASH AND CREDIT IN A CRYPTOCURRENCY ECONOMY

This article is part of a series describing the com-plementary relationship between Bitcoin and Open-Transactions as tools for creating a new, digital economy This is the first article, describing the leg-acy financial system Other articles in the series are Open-Transactions, and Practical Applications of Open-Transactions

Before we can talk about what the future of money will look like, it’s important to establish some context by talking about the present, and how it got to be this way

A BRIEF HISTORY OF CURRENCYModern currencies started with gold and other precious metals Over the past few thousand years, people in a variety of cultures around the world discovered gold and decided to trade it as a commodity Over time, as finance and commerce became more sophisticated, the concept of a unit of account emerged, and gold gener-ally became the default unit Much has been written re-garding why gold fell into this role, but for the purpose of this article, it’s sufficient to note that it did

The next major step in the evolution of currency came when people trading with gold coins realized that gold isn’t a particularly good medi-um of exchange when it comes to transactions that involve either high or very low denominations, or long distances They discovered that it was more effi-cient to store their gold with a third party who special-ized in that service, and trade informa-tion about their owner-ship of the gold, rather than the gold itself

This arrangement was the beginning of both banks and paper currency Banks were trusted third parties to whom depositors would hand over their gold for safekeeping, without relinquishing their claim of own-ership The proof of their gold ownership came in the form of paper notes with a specific face value that the bank promised to redeem for gold on demand This ar-rangement can be thought of as a custodial relation-ship, and it can also be thought of as a loan Depositors loaned their gold to the bank, in exchange for a prom-ise to return it The promises represent the bank’s lia-bility (debt), which depositors could use as a medium of exchange The invention of banks and paper notes was also the invention of debt trading

This basic structure has been preserved to present-day, even though modern government-issued currencies are no longer promises to deliver gold from a vault For ex-ample, other than coins, every form of the U S Dollar is a debt instrument Federal Reserve Notes are liabilities of the Federal Reserve, redeemable in U S Dollars (the-oretically) Bank account balances are liabilities of the banks Every other financial instrument (stocks, bonds, CDs, checks, futures, etc ) are liabilities of the issuer

Every transaction involves the transfer of liabilities from one party to another, with the exception of some phys-ical cash transactions Financial instruments, in all of their various forms, are contracts between the issuer and the bearer, which represent the issuer’s promise to redeem the instrument for some specified form of value

CASH IN THE CRYPTOCURRENCY ECONOMYOnce we understand where our modern financial instru-ments came from, and if we know something about the features of Bitcoin, it should be clear that in the future the role for financial instruments which represent mon-ey will be diminished Bitcoin is like what gold would be if it came with built-in teleportation It is almost as easy to move a representation of a bitcoin as it is to

move a bitcoin itself—after all, both are just information With that

ease of movement, the need to hand over bitcoins to third parties custodians for easier

transactions is nearly eliminated

Nearly eliminated, but not to-tally There are two areas in which

there is still room for trading representations of Bitcoin:

CURRENCY TRADING PLATFORMS: Transactions on the Bitcoin network are fast,

compared to something like a bank wire or ACH trans-fer, but still take an average of ten minutes to finalize In certain applications, where individuals want to rapidly exchange bitcoins, the exchange needs to happen out-C

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side the blockchain This means recreat-ing the same custodian-representation model, using a suitable mechanism

TRADE CREDIT: Trade credit is a form of B2B (business to business) loan that is critical to the smooth flow of commerce in an economy Few people who are not di-rectly involved with the B2B financial dealing are aware of it, but it represents the largest use of capital for busi-nesses of all sizes in developed economies

TRADE CREDITConsider the businesses which might operate in a small town If the town is reasonably-sized, then one of these businesses will be an auto repair shop Where there are auto repair shops, we would also expect to see an auto parts store which would act as the repair shop’s supplier

Suppose a customer arrives at the repair shop with a car that requires a new alternator Typically that cus-tomer isn’t going to pay until after the job is done The repair shop needs to obtain an alternator from the parts store, but does not yet have the customer’s pay-ment for the repair How do they resolve this chicken-and-egg problem?

There are two ways: either the repair shop keeps enough cash on hand to pay for everything up front, or the parts store gives them the alternator immediately, and allows them to pay later

The latter option is trade credit Suppliers of a busi-ness typically set up accounts with their businesses that allow for delayed billing, typically with 30-, 60-, or 90-day delays The effect of this delayed billing is ex-actly equivalent to a short-term loan of currency

How common is trade credit? Collectively it represents the largest P2P loan market in the world How large is that, exactly? To take Walmart as an example, the cap-ital they have in trade credit exceeds the amount of shareholder equity by a factor of eight Trade credit is the largest and most important facilitator of modern commerce that you’ve never heard of

NET BILLINGBusinesses of all sizes are constantly issuing and re-deeming liabilities in the form of trade credit—it’s part of their daily operations However, many individ-uals are not familiar with this concept since they may not be directly involved with B2B finance For that reason, a brief explanation of net billing is in order

Suppose the parts store has cre-ated a charge account for the repair shop with the following terms: “two percent, ten, net thir-ty ” This means the part store ex-pects every invoice to be paid in full within 30 days from the date it was created If the repair shop pays early, no later than ten days after the creation of the in-voice, they can take a two per-cent discount

Imagine the alternator cost a hundred dollars, and was picked up on the second of the month The shop can pay the invoice with a ninety-eight dollar payment, as long as the payment was received no later than the twelfth, or the full amount if paid between right after the twelfth and before thirty days have elapsed If the pay-ment is late, usually other terms in the contract between the parts store and the repair shop would contain a monetary penalty The time-based system of discounts and penalties in the billing contract are equivalent to an interest rate, if we’re viewing the arrangement from the point of view of a short-term loan

The parts store and the repair shop will probably have many outstanding invoices open at any given time The repair shop might pick up parts several times per day and issue a single payment each week The parts store will typically take incoming payments and apply them to the outstanding orders from oldest to newest

It is beneficial for businesses to operate in this way for two reasons First, because prior to the invention of Bitcoin, paying invoices tended to be a slow and man-power-intensive operation Being able to write a single check that covers many invoices at the same time is a great way to reduce overhead This reason will be less urgent in a cryptocurrency economy

The second reason is that this billing arrangement al-lows businesses to better manage their cash flow, es-pecially for those businesses operating on thin margins This reason remains relevant in a cryptocurrency econ-omy It’s much easier for a business to pay its suppliers after the customers have paid The ability of businesses to issue running loans to one another acts as lubrication for the machine we call the economy

Now that we’ve explained the basics of legacy financial instruments the series will continue with a description of Open-Transactions —S

(Originally published on Open Transactions News. Reprinted with permission.)

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LASTPASS PASSWORD MANAGER PART 3

by SEAN COMEAU

LastPass was founded in April of 2008 The name is based on their slo-gan, “The last password you have to remember ” The program is available for download at the LastPass web-site It is available in free and premi-um versions The premium version is one dollar per month with no mini-mum required A premium subscrip-tion adds the following features:

remove ads

access to faster support

use of all of the mobile clients from one account

additional multi-factor authenti-cation options

LastPass for Applications: allows log-in to non-web applications such as Skype

IE-Anywhere: use with Internet Explorer from a USB drive on any computer, no install to that com-puter needed

EXTRA SHARING FEATURES: man-age and synchronize sharing with up to five other LastPass users An enterprise version of LastPass is also available

The Windows version download-ed and installed to a Vista 64-bit computer very easily The installer puts browser extensions into Firefox, Chrome, and Internet Explorer On the next run of each browser, one click got the extension activated During the account cre-ation an option was given to keep a history of logins and form fills The location where this history is kept was not specified

On Mac OS X, taking a browser to the LastPass site will offer an install of the extension for that browser Firefox and Chrome had one-click activations Safari required a down-load Clicking on “show all downloads for this platform” shows a universal OS X installer that installs for Safari, Chrome, Firefox, and Opera All were activated with one click

LastPass is cross-platform and multi-browser Windows, Mac OS X, and Linux are all supported Mobile apps are available for iOS, Android, Blackberry, Windows Phone, and Windows Surface Internet Explorer, Firefox, Safari, and Google Chrome are fully supported with browser plugins Opera and Konqueror us-ing “bookmarklets,” with reduced

functioning The database is stored encrypted on the LastPass server, so data is available from any device with an internet connection

A checkbox option to “replace pass-word manager” for Firefox, Chrome, and Internet Explorer was given during the install If this is deselect-ed, later an option is given to “de-tect insecure items,” meaning the passwords in the browsers There is an option to import them from the browser and a separate option to erase them from the browser

LastPass imports from other pass-word managers This was incorrectly reported as a premium-only feature in one review The process involves exporting from the other manager into a supported format Support for 24 other managers is listed, as well as generic CSV files The im-port from Roboform has been com-plicated by changes to Roboform 7 A prior version must be installed to fully transfer the logins Import of a database from KeePass worked flawlessly Note that exported data-bases from any program are not en-crypted The file should be securely erased after being used for an ex-port-import operation C

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When LastPass is installed in a browser, it can be accessed through a small icon in the address bar Once you are signed in, any site in the database will have the same icon in its username or password field A simple click on this icon is all it takes to populate the field and get you in to the site

If the site is not in the database, a small window appears with the login, with the option to save that site You will have to enter your credentials one last time LastPass will capture them and remember them from then on

LastPass can fill forms online You can create profiles for each type of form you are likely to encounter

Lastpass also features encrypted storage of notes and attachments

LastPass has multi-user capabili-ties There can be multiple users on the same machine, each with their own database More significantly, it is possible to share one or more passwords with other LastPass users There is an option to send them only the encrypted version and not let it be shown in plain text This is the “share” versus the

“give” option, where the recipi-ent can see the actual password LastPass does warn that an adept recipient can use the capture tech-niques in LastPass and possibly be able to see a “shared” password

The premium version allows shar-ing and syncing of passwords with up to five others, with a shared family folder Only the creator of the folder has to be a premium member It is not specified how the syncing is done, whether it is re-cord-level or not

The Lastpass website states that encryption is AES 256 bit with in-creased PBKDF2 iterations The data is encrypted and decrypted

locally before leaving the device to sync with the LastPass server The encryption key never leaves the de-vice LastPass warns you that there is no way they can recover for you if you lose your master password

Several multifactor authentication options are available The free version supports Google Authenticator, the Microsoft Authenticator App, Duo Security, Toopher, or Transakt It also sup ports a custom method called

Grid Multifactor Authentication This is a wallet-sized card with a grid of ran dom numbers Lastpass will ask for numbers from certain positions of the card during the l o g i n T h e p r e m i u m v e r s i o n adds fingerprint, Sesame, smart card, and Yubikey multifactor authentication methods

Other security features include au-tomatic log-offs, virtual keyboards to thwart keyloggers, the ability to disable logins by country, the abil-ity to disable logins from Tor net-works, and a feature that notifies you of changes to your credit sta-tus There is a security check that evaluates your existing passwords and can check online to see if there

have been breaches where your passwords are used

LastPass has a secure password generator so that a unique random password can be given for each site It includes a security challenge that evaluates existing passwords both by strength and whether they are reused The master password is evaluated by a bar display as you enter it A 14-character password

continued on next page

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SEAN COMEAU is a computer security and cryptography en-thusiast based in Vancouver, BC, Canada

continued from previous page

with one uppercase letter, four numbers, one special character, and one letter repeated three times was given a full bar display and rated as extremely secure

The website has details about the encryption methods, but they are buried in the online user manual AES 256 is an open-standard encryption method, and PBKDF2 is a well-known key derivation function from RSA tech-nologies LastPass was given a highly favorable review by Steve Gibson in 2010 The process he described is summarized as follows:

“The goal for LastPass is to store an identifier on their server that is derived from your mas-ter password, but has arrived at their server in an unrecoverable state First, on your device, the cryptographic key is derived from your master password It combines your username, email ad-dress, and password and runs that through a one-way hashing function, creating the 256-bit key This stays on your device The key is then (still on your device) combined again with your password and again sent through the one-way hashing function, so the key is now not recoverable from this new hashed blob ”

At the time of Gibson’s review the hashing function was SHA-256 The LastPass site does not specify the hash-ing function used now Gibson does not explain how he determined all of these details

It is this hashed blob that goes to the LastPass server At the server, a random number generator is hashed into a 256-bit token that is saved with your account This is then combined with the hashed blob that came from your device, hashed again, and stored Every time you log in, a disguised token is generated from the password you enter, sent to the server, where it is recombined with the random number, the token is re-computed, and compared with what is on file If you

got the password correct, the results will match Your key and password cannot be recovered on the server, because what is stored there is the result of three one-way hashing operations

This was put to the test in an incident in early May of 2011 Lastpass noticed anomalous traffic on one of their servers, and after they could not explain the traffic they thought it possible that data was stolen They alert-ed users in a blog post In an interview with PCWorld, LastPass CEO Joe Siegrist reported that the amount of data that was potentially lost would amount to a few hundred accounts The company forced some users to change passwords, but advised anyone who used non-dictionary passwords that their data was safe They enacted precautions such as requiring email ver-ification if the user was logging in from a previously unused IP address They never determined that data definitely was stolen, but acted as if it were since the network traffic was unexplained

Other commentators, such as Steve Gibson and his fol low-up comments, and Robert L Mitchell at Computerworld, agreed with the assessment that strong passwords were safe The data, if it was indeed stolen, would need to be attacked with brute-force guessing methods, which would be impractical on strong passwords The report-ing by the company seems fairly open; they initially re-ported the problem themselves and their blog post describes several areas where they judged themselves in need of improvement

This incident shows the risk of having important data stored at a remote server It also shows that individu-als must take responsibility for fundamentals of secure practices, such as using secure passwords Each individ-ual must weigh the potential risks and the convenience of online storage when considering this product —S

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This is a list of merchants, and their websites, that accept bitcoins for their services If you know companies that are now accepting bitcoins and who you’d like to see added to this list, please contact us at directories@cryptobizmagazine.com Additionally, let us know if you find that any of these companies has stopped accepting bitcoins, or if you have any difficulty using bitcoins with them

WALLETS

BLOCKCHAIN blockchain.info

COINKITE coinkite.com

MULTIBIT multibit.org

COINBASE coinbase.com

HIVEWALLET hivewallet.com

XAPO xapo.com

EXCHANGES

BTC-E btc-e.com

CRYPTSY cryptsy.com

QUADRIGA CX quadrigacx.com

CAVIRTEX cavirtex.com

MINTPAL mintpal.com

SWISSCEX swisscex.com

BITCOIN SERVICE DIRECTORY

INDEXES

BITCOIN AVERAGE bitcoinaverage.com

BITSTAMP bitstamp.com

BITCOIN CHARTS bitcoincharts.com

BRAVENEWCOIN bravenewcoin.com

COINDESK coindesk.com

COINMARKETCAP coinmarketcap.com

CoinMarketCAP

PRESS RELEASE—BitcoinExpo 2014 is the melding of the emerging power of the growing nation of China, and Western traditions and innovations in technology

Organizers of the Central European Bitcoin Expo, which was held in Vienna at the end of May, have already proved that they have the ability to connect people in the Bitcoin industry globally They created a very friendly and informal atmosphere, which resulted in added value, and helped to create and support new business projects in the industry These are only a few of many positive impacts of these expos Organizers promise that BitcoinExpo 2014 will be even better, and yet still different from other conferences China is the biggest market with the highest exchange volumes, the largest producer of miners, and dominates in many other fields Then there is the Western part of the world, which offers the biggest personalities The BitcoinExpo 2014 will combine both of these unique features of the East and the West

SHANGHAI’S EXPO WILL MAKE A DIFFERENCE BitcoinExpo 2014 will be a three-day event that will start on Friday, September 19th, with a party “It will be the best opportunity for networking and building relationships, and will also help attendees enjoy this event more than any other” says main event manager Andrej Sebesta, and concludes “it will be a great chance to introduce and get to know Chinese culture better ”

Saturday will start with both conference and expo After the official start of the expo—an assembly for all

participants—attendees can enjoy inspirational speeches, covering a wide range of crypto currency topics, and up-to-date information presented by local experts, and experts from all over the world Then there will be an exhibition, were everyone can enjoy the presentation of new and innovative products and services, and talk to many interesting company representatives Whether you want to meet with some of the most respected local business representatives, or you just want to gain reliable information about the Chinese Bitcoin community, buy your tickets now to take advantage of the early-bird prices found here

WHO, WHEN AND HOW MUCH ?Entrepreneurs, investors, startups, legal professionals, advisors, enthusiasts, students and everyone else is welcome.

The Bitcoin Expo 2014 will take place in Shanghai from September 19 – 21, 2014.

You can purchase an early-bird ticket up until August 8th, a two-day full ticket for ONLY 169EUR/ RMB 1488, or a VIP three-day ticket for ONLY 299 EUR/ RMB 2588

BitcoinExpo 2014 will not only be one of the biggest Bitcoin-related events, but one of the most accessible, too, with a lot to offer to the whole crypto community, so do not hesitate—join, and help grow the community worldwide. —S

BITCOIN EXPO 2014

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WHAT’S BEHIND THE BITCOIN SURGE? by JESSE MICHEK

As Bitcoin continues its surge through 2014, it doesn’t take new adopters of this little crypto to realize what all the fuss is about And if you still haven’t heard of Bitcoin yet, then we’ll just let a few Fortune 500 companies do some of the talking Apple, Dish Network, and Amazon are among the three companies that have recently sent a spark throughout the Bitcoin community in what has already been an explosive year for this coin

At first, Apple and Amazon turned a blind eye towards Bitcoin Apple even went as far as to remove all Bitcoin wallet apps from their apps store, sending fans of Bitcoin into a rage by smashing their iPhones and switching over to Androids Amazon simply said that they had no future plans to adopt Bitcoin into their payment network, but in

saying this, they had inadvertently put Bitcoin into the spotlight, which only seemed to increase its popularity

Now, both of these companies have seemed to come around and change their original stance towards Bitcoin Last week, Apple had their policies changed, which will now allow iOS apps to handle Bitcoins And Amazon is now managing a new patent, which specifically deals with a payment service, centered on Bitcoin

eBay and Paypal have been rumored to be sniffing around the Bitcoin hype as well

So what is it about this coin that has merchants, big and small, so excited for it? Well, for one, Bitcoin trans-actions are secure, irreversible, and do not contain cus-tomers’ personal information This prevents losses from fraud or chargebacks due to identity theft This will make denied or red-flagged credit cards a thing of the past A past which merchants will soon happily forget On average, merchants lose up to thirty percent in rev-enue a year through electronic payments, due to fraud-ulent or flagged credit cards

Bitcoins can also be sent almost instantaneously to anywhere in the world, with little or no fees This allows merchants to expand into larger markets with fewer administrative costs And with Bitcoins protocol be-ing cryptographically secure, this makes it impossible for any individual to manipulate or control it As a mer-chant, adopting Bitcoin is a no-brainer

However, Bitcoin wouldn’t have the lure it does if it was only tailored for merchants Fortunately, the everyday, average Joe can hop onto this crypto wave and vastly improve their daily lives with it, including the lives of oth-er people around them

Because Bitcoins can be sent instantly to anywhere in the world, parents can send their children funds should they be attending a college or university overseas If you wish to support a charity or sponsor a child in poverty, you can send them Bitcoins with the confidence that every bit is getting to its destination, without being gouged by ex-changes and extensive time delays You can crowd-fund social projects, support political parties or even tip an in-dependent artist who is looking for a little support

But above all else—and this is my fa-vorite feature—Bitcoin is completely decentralized This means that no gov-erning body controls it Much like no one controls the Internet Because of this feature, you will never see a coun-terfeited Bitcoin, inflationary economic bubbles, or fraud committed through its usage One could even argue that we will see a crypto currency become the world’s reserve currency someday, maybe even Bitcoin But that is a topic

of discussion for another day

Yes, Bitcoin is quite astounding to say the least, howev-er it is still in its infancy The reason for this is because its spending features are limited, people have never heard of a Bitcoin, or if they have, they tend to associate it with the Mt Gox or Silk Road fiascos; none of which had anything to do with the technology of Bitcoin So, until crypto cur-rencies become widely accepted by the populous, and it is inevitable that it will, we can only sit back and wait, as this little wave shifts and shapes itself into a massive tsu-nami, which will soon engulf the entire world in its wake

The more we see it grow and expand, the more we will slowly see a brand new world start to materialize and take form, as this paradigm shifts from an old and cor-rupt monetary system, into a decentralized utopia —S

JESSE MICHEK was born in a small town in northern Brit ish Columbia called Quesnel He spent the better part of 25 years there be-fore moving to the beautiful city of Vancouver Jesse came to the lower mainland to attend school for film and television but has since shift-ed his attention towards Bitcoin and other crypto currencies He is now a Bitcoin entrepreneur and has many aspirations inside of the cryp-to world His goal is to enrich as many people’s lives as possible with the aid and knowledge of crypto currencies Jesse also ac-cepts Bitcoin tips:1J6HMSDosSm59z5RRwv9sX2yDsvs6w3JSeC

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FREECOMING SOON: Download your FREE issue of Crypto Biz Magazine every month—straight to your iPhone or iPad—from the App Store.

A STATE OF MININGby DOM STEIL

There’s something about setting up a computer that prints out a digital currency while you sleep It could be knowing that you are turning electricity into a globally tradable commodity It could be knowing that you have established your stake in a global socio-economic ex-periment much larger than yourself Whatever it is, the concept of digitally “mining” something is captivating by nature This incentivized distribution and transaction verification mechanism is the backbone of the Bitcoin network, and all blockchain-based transfer of owner-ship protocols

The open-source nature of mining has created a com-petitive and volatile market that has evolved dramat-ically over the past two years Although the mining industry has flourished, concerns have risen with the network’s current state:

Vulnerable to Centralization: The “51% attack ” if some entity were to acquire a majority of the hashing pow-er of the network it could uproot the time-stamping verification mechanism that prevents double-spending transactions, it could reverse transactions, and ultimate-ly make its own blockchain the longest, effectively de-stroying the transaction security of the protocol Last month, Ghash io, currently the largest mining pool, con-trolled over fifty percent of the network for a few days They have stated that they will do everything they can to stay in control of under forty percent of the network, but can we still consider the network decentralized?

The Incentive for Miners: As more hashing power is added to the network, the network difficulty increases (to sustain the distribution rate) and therefore more in-vestment in mining equipment is needed to make min-ing profitable The entire network gains about 800 TH/s every day Even early adopters with access to capital and ASIC Machines still have small margins when taking into account all of the costs associated with mining Will miners continue to make investments in the next gen-eration miners needed to make a profit?

The Need for More Full Nodes: One of the main con-cerns regarding the network is that there are not enough fully validating Bitcoin client nodes By run-ning a full client P2P node like Bitcoin Core, you are actually becoming a node on the network If you are running an ASIC Miner most likely you are not running a full node It is important to distinguish between full nodes versus ASIC miners Full node clients take time to load the entire blockchain history as it is almost 20 GB There are currently around 7,000 reachable full nodes in the world (according to getaddr bitnodes io) How can you create incentive for people to download and setup a full node core client versus just buying an ASIC Miner?

Is the solution a new proof of “x” mining algorithm in the open-source bitcoin core software or will the Bitcoin network fix itself overtime?

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THE EVOLUTION OF MINING HARDWAREBitcoin mining is a combination of hardware, software and networking Originally, mining was done by CPU pro-cessing power, then it was augmented with GPU graphics cards, and in the past year, hardware built specifically for mining Bitcoin—ASIC Miners—have come to dominate the network The first ASIC Miners came in the form of USB Miners These rigs were comprised of a couple of 336 M/Hs USB workers, a powered USB hub and a Raspberry Pi to run the mining software At one point these USB ASICs were going for around $100 apiece However, with the ex-ponential increase in difficulty over the past few months, these miners have dropped in price significantly and have become obsolete in regards to mining to make a prof-it The more powerful miners that once were thousands of dollars also dropped in price with the increase in diffi-culty This made investments in more powerful hardware (Block Erupter Cubes running 30 – 38 GH/s, Antminers 100s of GH/s, and Terra Hash Miners) more affordable for miners The drop in the price in mining hardware has been driven by the price of Bitcoin and the difficulty of the net-work The price has gone from roughly $1,000 in January down to around $450 and has been between $600 and $650 for the past month Over the past year the difficul-ty and hash rate has increased at an exponential rate The hashrate has doubled in size every three months effective-ly making existing miners less of factor in comparison to the network as a whole

It is important to note that if the price of Bitcoin in-creases, and the difficulty and hashrate decrease, the price of all mining hardware could increase substantial-ly However, if the current pattern of the difficulty and hashrate increasing continues, then the price of mining hardware per GH/s will continue to decrease over time

So can mining be profitable? Yes, but it really depends on the time when you buy the hardware, your electricity and spacial capacity, and ultimately the price of Bitcoin You could mine ten bitcoins over a six-month period, and the price of those ten bitcoins could double overnight, and you’ll have made a profit on your capital investment On the other hand, the difficulty and hashrate could increase to where your once very effective miner that would make daily pool payouts now takes maybe a few days, even weeks to payout There needs to be a way for miners to validate their own blocks and be compensated in propor-tion to their hashrate without having to join a mining pool

THE FUTURE OF SELF-MINING AND BUSINESS MINERSOne way to achieve this, freemining, gives miners the abil-ity to select their own block content This will dramatical-ly affect the mining industry and possibly bring it back to a decentralized state If every small- and medium-sized business around the world had their own miner running a freemining fully validating P2P node, they could process and validate their own transactions in their own blocks It could become a customary piece of office hardware in any office This would give small- and medium-sized business the capacity to process their own transactions autono-mously and instantly, at zero to little cost, anywhere in the world Business Miners would enable access into global e-commerce markets and increase revenues on per-in-ternational users Currently the largest customer base for

internet companies represents a lower portion of revenue per user This enterprise problem could be solved by using micro-transactions, processed by business miners This in-dustry could open revenue streams in developing markets that could completely change supply-side logistics, remit-tance markets, and transfer records, given the right inte-gration with global mobile payment applications

Bitcoin mining enables business around the globe to en-ter the digital market at very minimal capital costs This is not only incentivizing them to accumulate Bitcoins but it will also increase adoption among customers and com-peting merchants Businesses will see they can avoid the costs that current payment processors charge, per swipe, or at a monthly premium They can bypass the fees, and delays in international wire transfers Business-to-business miners could send, verify, and record anything over the blockchain

The downside is that these businesses would have to download and set up full nodes These core clients re-quire more initial setup, bandwidth, and computational power There has to be a way to incentivize setting up these types of core nodes If you could effectively down-load a full node and mine from mobile devices, there would be a more significant increase in the number of core nodes in the network Although the difficulty and hash-rate is being driven up by ASICs, the number of reachable nodes with full transaction history is still small at around 7,000 This, in essence, means that there is a disconnect between the core client, and the machines running the majority the network

One of the ways to fix this problem would be to change the Bitcoin core proof of work algorithm The tough thing about this is that every change has to be tested in use This is why a lot of altcoins are considered the test beds for new block release times, proofs of X, and different amounts of coins per block released No matter what the core change is, the end goal is to build the volume capacity, efficiency, and security of Bitcoin as a global payment protocol For mining to continue to be decen-tralized, it is essential to create incentive for people to setup full nodes Some have even suggested putting full Bitcoin nodes in orbit

Mining has the robust combination of unstructured sim-plicity and limitless potential for worldwide adoption A ton of applications will be built on these types of glob-al decentralized networks over the next couple years Ultimately, no matter what titled asset is being trans-ferred and recorded in the blockchain, there needs to be incentive for miners to keep hashing —S

DOM STEIL is an entrepre-neur from the Silicon Valley He is well-versed in a variety of tech-nological fields and has experi-ence as a business analyst at the international enterprise level For more information, visit his blog at www.dominicsteil.wordpress.com Dom also accepts Bitcoin tips to:

1FiYresjQP7GV9EUxr9fudWm3Xz7WC2VMC

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A year ago, I came across a website promoting a new real estate project in Chile called Galt’s Gulch Based on a fictional location of the same name in Ayn Rand’s novel, Atlas Shrugged, it offered a beautiful place of gathering and refuge for libertarian-minded people such as myself Besides the physical, philosophical and political appeal, it also stood out in another very im-portant way; they accepted Bitcoin

I decided I was going to move to this Chilean prom-ised land and quickly set about finding a way to make it happen I didn’t have much money and had just bare-ly enough of an income to support my modest lifestyle in Vancouver, but there was a will, and indeed, a way to match it I partnered up with a couple of friends to invest in a bitcoin miner that ended up paying for itself in the first ten days of its operation After that, it didn’t take long to accumulate the funds I needed to make the big move I even had enough to enroll in an entre-preneurship program called Exosphere that was soon to be hosted in Chile as well I offered to pay my tuition in Bitcoin and they happily accepted it

It was right around that point when the magical feeling started to really kick in It felt as if the universe was align-ing, and it was meant to be smooth sailing from here on out I sold my worldly possessions, bought a plane ticket, and flew directly from Canada to Chile, soaring thankful-ly over the United States and its legions of rapey airport security personnel I landed in Santiago and spent a cou-ple of weeks relaxing and soaking-up the local culture, before proceeding to the beach resort town of Renaca to begin the Exosphere program I was pleased to find that not only the staff, but the rest of the participants were interested in Bitcoin also, and other revolutionary technologies It lasted three months, during which time, we worked hard, played hard, and found our respective callings in life I realized that my true passion was in de-

veloping and providing options to those without any I wanted to introduce competition into markets dominat-ed by abusive monopolies, and the project I have just launched is the result of that realization

As Exosphere came to a close, I turned my gaze back to Galt’s Gulch, Chile, and wasted no time in moving there That was a month ago and since then, the big idea has been well received by the Gulch’s founder, who generously provided a plot of land by the main clubhouse to build the project upon I wanted to build a castle and this is where it was going to be

I knew that a lot of young freedom-seekers like me wanted to live here in this particular valley, too, but couldn’t afford the land prices My intent was to build this castle to be filled with a multitude of compact living chambers, like the ones used in Japanese capsule ho-tels, so that even we of modest means might be able to own a home in the land of our dreams And so, develop-ment is now underway Fort Galt is becoming a reality No longer do you need to be a seasoned captain of in-dustry to own a home in such an idyllic locale, and more than ever before, young, ambitious dreamers like me will be able to strike out on their own and establish them-selves without drowning in debt Even visitors passing through will soon be able to stay in the castle, but if you haven’t already guessed, there’s a catch they’ll have to pay with Bitcoin —S

FINDING MY CALLING AND BUILDING A CASTLE; BEHOLD THE MAGIC OF BITCOIN by GABRIEL SCHEARE

GABRIEL SCHEARE Born and raised on an organic family farm in Canada, Gabriel has spent the majority of his young life seek-ing challenges and opportunities to learn and grow In 2013, after serving on the BC Libertarian Party’s board of directors, he invest-ed in a bitcoin miner and used it to generate the funds he need-ed to leave Canada and move to Galt’s Gulch Chile, where he now resides He studied entrepreneurship at Exosphere and is now fo-cused on the effort to develop his new community into beacon of light worthy of its name C

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AUSTIN BITCOIN MEETUP

The Austin Bitcoin Meetup was founded by myself, Jonathan Rumion (aka Yamamushi), in April of 2013 as a direct response to the rise of Bitcoin, to $260, and subsequent fall shortly thereafter What started as a small meeting between five developers quickly grew into weekly meet-ups of from 30 (on average) to over 150 attendees, interested in topics ranging from Economics to Trading, and creating new technologies to support this growing ecosystem

It would be unfair to say that I could have managed the fast-growing Meetup alone, almost in line with the rise of the Bitcoin price in late 2013 However, without the help of people like Justus Ranvier and Napoleon Cole, working within the Meetup; along with Daniel Krawisz and Michael Goldstein, working with the Mises Circle and the Satoshi Nakamoto Institute, I’m not sure that we would be where we are today

Most recently, in the past several months, we’ve found a home at Brave New Books in Austin, a Libertarian/Agorist/Conspiracy-themed store that has done noth-ing but support us, along with The Crypto Show, a CryptoAnarchist-themed radio show that broadcasts from the same building When Lyn Ulbricht (Mother of Ross Ulbricht, who is accused of being behind the Silk Road) was invited to our Meetups, the bookstore was quick to put together a fundraiser for Ross, and even Cody Wilson donated items for it

Jeffrey Tucker and Amir Taaki have also made in- person appearances, and most recently we’ve had

Jeremias Kangas (founder and CEO of Local Bitcoins) join us via webcam for a quick presentation

Whenever a local business gets involved in Bitcoin or any Crypto Currency, we will try to go out of our way to support them with Bitcoin, and invite them to be part of our Meetup so that they can see the impact they’re having on the people passionate about this technology Kevin Ludlow, a local candidate for Texas House of Representatives, District 46, has even start-ed accepting Bitcoin/Dogecoin/Litecoin donations and put some of those proceeds into a massive billboard about Crypto Currencies thanking /r/Bitcoin on Reddit

Nobody can say where this is all going, but when I look at all the faces in the community and think about all of the people we’ve educated, it’s hard for me to believe that we’re not helping to change the world for the bet-ter, even if in a small way —S

JONATHAN RUMION a found-er of The Austin Bitcoin Meetup, graduated from college at 17 with a degree in Information Security He recently quit his job at Hewlett P a c k a rd to b e co m e a S e n i o r Software Engineer for Monetas working on Crypto Currency ex-change software in C++ (Open Transactions), and can be found on Twitter @WillNavidson The Austin Bitcoin Meetup accepts donations at 1Austin558GixJR3WuxoKCF4vFvd12vyQa, and uses proceeds to cover the costs of food and drink every Sunday (which are pro-vided for free to our attendees)

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ADORMO adormo.com

COINRX coinrx.com

EXPEDIA expedia.com

JRT PROPERTY jrt.com

JRT PropertyInternational Real Estate

NEW EGG newegg.com

OVERSTOCK COM overstock.com

BITFARE bitfare.org

DISH NETWORK dish.com

NEW MEXICO TEA CO nmteaco.com

SIMPLY TRAVEL simplytravelonline.com

This is a list of merchants, and their websites, that accept bitcoins for their products Please contact us at directories@cryptobizmagazine.com if you know merchants who are now accepting bitcoins and who you’d like to see added to this list Additionally, please let us know if you find that any of these merchants has stopped accepting bitcoins, or if you have any difficulty using bitcoins with them

BITCOIN MERCHANT DIRECTORY

GITHUB BITCOIN GLOSSARYSome unusual terms are used in Bitcoin documentation and discussions about tx or coinbase, or words like scriptPubKey fly around, without reference or context Help is here! This glossary will help you understand the exact meaning of all Bitcoin-related terminol-ogy—both words and phrases

0-CONFIRMATION (ZERO-CONFIRMATION)See Unconfirmed Transaction and Confirmation Number

51% ATTACKAlso known as >50% attack or a double spend attack An at-tacker can make a payment, wait till the merchant accepts some number of confirmations and provides the service, then starts mining a parallel chain of blocks starting with a block before the transaction This parallel blockchain then in-cludes another transaction that spends the same outputs on some other address When the parallel chain becomes more difficult, it is considered a main chain by all nodes and the original transaction becomes invalid Having more than a half of total hashrate guarantees possibility to overtake chain of any length, hence the name of an attack (strictly speaking, it is “more than 50%,” not 51%) Also, even 40% of hashrate allows making a double spend, but the chances are less than 100% and diminish exponentially with the number of confir-mations that the merchant requires

This attack is considered theoretical as owning more than 50% of hashrate might be much more expensive than any gain from a double spend Another variant of an attack is to disrupt the network by mining emp-ty blocks, censoring all transactions An attack can be mitigated by blacklisting blocks that most “honest” miners consider abnormal Under normal conditions, miners and mining pools do not censor blocks and transactions as it may diminish trust in Bitcoin and thus their own investments 51% attack is also mitigated by using checkpoints that prevent reorganization past the certain block

ADDRESSBitcoin address is a Base58Check representation of a Hash160 of a public key with a version byte 0x00 which maps to a prefix “1 ” Typically represented as text (ex 1CBtcGivXmHQ8ZqdPgeMfcpQNJrqTrSAcG) or as a QR code

A more recent variant of an address is a P2SH address: a hash of a spending script with a version byte 0x05 which maps to a prefix “3” (ex 3NukJ6fYZJ5Kk8bPjycAnruZkE5Q7UW7i8)

Another variant of an address is not a hash, but a raw pri-vate key representation (e g 5KQntKuhYWSRXNqp2yhdXz-jekYAR7US3MT1715Mbv5CyUKV6hVe) It is rarely used, only for importing/exporting private keys or printing them on paper wallets

ALTCOINA clone of the protocol with some modifications Altcoins usually have rules incompatible with Bitcoin and have their own genesis blocks Most notable altcoins are Litecoin (uses faster block confirmation time and scrypt as a proof-of-work) and Namecoin (has a special key-value storage) In theory, an

altcoin can be started from an existing Bitcoin blockchain if someone wants to support a different set of rules (although, there was no such example to date) See also Fork

ASICStands for “application-specific integrated circuit ” In oth-er words, a chip designed to perform a narrow set of tasks (compared to CPU or GPU that perform a wide range of functions) ASIC typically refers to specialized mining chips or the whole machines built on these chips Some ASIC manufacturers: Avalon, ASICMiner, Butterfly Labs (BFL) and Cointerra

ASICMINERA Chinese manufacturer that makes custom mining hard-ware, sells shares for bitcoins, pays dividends from on-site mining and also ships actual hardware to customers

BASE58A compact human-readable encoding for binary data in-vented by Satoshi Nakamoto to make more user-friendly ad-dresses It consists of alphanumeric characters, but does not allow “0,” “O,” “I,” “l” characters that look the same in some fonts and could be used to create visually identical looking addresses Lowercase “o” and “1” are allowed

BASE58CHECKA variant of Base58 encoding that appends first 4 bytes of Hash256 of the encoded data to that data before convert-ing to Base58 It is used in addresses to detect typing errors

BIPBitcoin Improvement Proposals RFC-like documents modeled after PEPs (Python Enhancement Proposals) discussing differ-ent aspects of the protocol and software Most interesting BIPs describe hard fork changes in the core protocol that require a super-majority of Bitcoin users (or, in some cases, only miners) to agree on the change and accept it in an organized manner

BITCOINRefers to a protocol, network or a unit of currency

As a protocol, Bitcoin is a set of rules that every client must follow to accept transactions and have its own transactions accepted by other clients Also includes a message protocol that allows nodes to connect to each other and exchange transactions and blocks

As a network, Bitcoin is all the computers that follow the same rules and exchange transactions and blocks between each other

As a unit, one Bitcoin (BTC, XBT) is defined as 100 million sa-toshis, the smallest units available in the current transaction format Bitcoin is not capitalized when speaking about the amount: “I received 0 4 bitcoins ”C

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BITCOIN CORENew name of BitcoinQT since release of version 0 9 on March 19, 2014 Not to confuse with CoreBitcoin, an Objective-C im-plementation published in August 2013 See also Bitcore, a JavaScript implementation for Node js by Bitpay

BITCOINJA Java implementation of a full Bitcoin node by Mike Hearn Also includes SPV implementation among other features

BITCOINJSA JavaScript toolkit Allows signing transactions and perform-ing several elliptic curve operations Used on brainwallet.org

BITCOINQTBitcoin implementation based on original code by Satoshi Nakamoto Includes a graphical interface for Windows, OS X and Linux (using QT) and a command-line executable bit-coind that is typically used on servers

It is considered a reference implementation as it’s the most used full node implementation, especially among miners Other implementations must be bug-for-bug compatible with it to avoid being forked BitcoinQT uses OpenSSL for its ECDSA operations which has its own quirks that became a part of the standard (e g non-canonically encoded public keys are accepted by OpenSSL without an error, so other im-plementations must do the same)

BITCOINDOriginal implementation of Bitcoin with a command line in-terface Currently a part of BitcoinQT project “D” stands for “daemon” per UNIX tradition to name processes running in background See also BitcoinQT

BITCOIN-RUBYA Bitcoin utilities library in Ruby by Julian Langschaedel Used in production on Coinbase.com

BITCOREA Bitcoin toolkit by BitPay written in JavaScript More com-plete than Bitcoinjs

BLOCKA data structure that consists of a block header and a merkle tree of transactions Each block (except for genesis block) references one previous block thus forming a tree called the blockchain Block can be thought of as a group of transac-tions with a timestamp and a proof-of-work attached

BLOCK HEADERA data structure containing a previous block hash, a hash of a merkle tree of transactions, a timestamp, a difficulty and a nonce

BLOCK HEIGHTA sequence number of a block in the blockchain Height 0 refers to the genesis block Several blocks may share the same height (see Orphan), but only one of them belongs to the main chain Block height is used in Lock time

BLOCKCHAINA public ledger of all confirmed transactions in a form of a tree of all valid blocks (including orphans) Most of the time, “blockchain” means the main chain, a single most difficult chain of blocks Blockchain is updated by mining blocks with new transactions Unconfirmed transactions are not part of the blockchain If some clients disagree on which chain is main or which blocks are valid, a fork happens

BLOCKCHAIN.INFOA web service running a Bitcoin node and displaying statis-tics and raw data of all the transactions and blocks It also provides a web wallet functionality with lightweight clients for Android, iOS and OS X

BRAIN WALLETBrain wallet is the concept of storing private keys as a memo-rable phrase without any digital or paper trace Either a single key is used for a single address, or a deterministic wallet de-rived from a single key If done properly, a brain wallet greatly reduces the risk of theft because it is completely deniable: no one could say which or how much bitcoins you own as there are no actual wallet files to be found anywhere However, it is the most error-prone method as one can simply forget the secret phrase, or make it so simple that someone is able to brute force and steal all the funds Additional risks are add-ed by a complex wallet software E g BitcoinQT always sends change amount to a new address If a private key is imported temporarily to spend 1% of the funds and then the wallet is deleted, the remaining 99% is lost forever as they are moved as a change to a completely new address This has already happened to a number of people

BRAINWALLET.ORGUti l ity based on bitcoinjs to craft transactions by hand, convert private keys to addresses and work with a brain wallet

BTCThe most popular informal currency code for 1 Bitcoin (de-fined as 100,000,000 Satoshis) See also XBT

CASASCIUS COINSPhysical collectible coins produced by Mike Caldwell Each coin contains a private key under a tamper-evident hologram The name “Casascius” is formed from a phrase “call a spade a spade,” as a response to the name of Bitcoin itself

CHANGEInformal name for a portion of a transaction output that is returned to a sender as a “change” after spending that out-put Since transaction outputs cannot be partially spent, one can spend 1 BTC out of 3 BTC output only by creating two new outputs: a “payment” output with 1 BTC sent to a payee address, and a “change” output with remaining 2 BTC (minus transaction fees) sent to the payer’s address-es BitcoinQT always uses a new address from a key pool for better privacy Blockchain.info sends to a default ad-dress in the wallet

GITHUB BITCOIN GLOSSARY CONTINUED

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A common mistake when working with a paper wallet or a brain wallet is to make a change transaction to a different address and then accidentally delete it E g when import-ing a private key in a temporary BitcoinQT wallet, making a transaction and then deleting the temporary wallet

CHECKPOINTA hash of a block before which the BitcoinQT client down-loads blocks without verifying digital signatures for perfor-mance reasons A checkpoint usually refers to a very deep block (at least several days old) when it’s clear to everyone that the block is accepted by the overwhelming majority of users and reorganization will not happen past that point

It also helps to protect most of the history from a 51% attack Since checkpoints affect how the main chain is determined, they are part of the protocol and must be recognized by al-ternative clients (although, the risk of reorganization past the checkpoint would be incredibly low)

CLIENTSee Node

COINAn informal term that means either 1 bitcoin, or an unspent transaction output that can be spent

COINBASEAn input script of a transaction that generates new bitcoins, or the name of that transaction itself (“coinbase transaction”) Coinbase transaction doesn’t spend any existing transactions, but contains exactly one input which may contain any data in its script Genesis block transactions contain a reference to The Times article from January 3rd, 2009 to prove that more blocks were not created before that date Some mining pools put their names in the coinbase transactions (so everyone can estimate how much hashrate each pool produces)

Coinbase is also used to vote on a protocol change (e g P2SH) Miners vote by putting some agreed-upon marker in the coinbase to see how many support the change If a ma-jority of miners support it and expect non-mining users to accept it, then they simply start enforcing the new rule The minority should either continue with a forked blockchain (thus producing an altcoin) or accept the new rule

COINBASE.COMUS-based Bitcoin/USD exchange and web wallet service

COLORED COINA concept of adding a special meaning to certain transac-tion outputs This could be used to create a tradable com-modity on top of Bitcoin protocol For instance, a company may create 1 million shares and declare a single transaction output containing 10 BTC (1B satoshis) as a source of these shares Then some or all of these bitcoins can be moved to other addresses, sold, or exchanged During a voting process or a dividend distribution, share owners can prove ownership by simply signing a particular message by the private keys associated with addresses holding bitcoins derived from the initial source

COLD STORAGEA collective term for various security measures to reduce the risk of remote access to the private keys It could be a normal computer disconnected from the Internet, or a ded-icated hardware wallet, or a USB stick with a wallet file, or a paper wallet

COMPACTSIZEOriginal name of a variable-length integer format used in transaction and block serialization Also known as “Satoshi’s encoding ” It uses 1, 3, 5 or 9 bytes to represent any 64-bit unsigned integer Values lower than 253 are represent-ed with 1 byte Bytes 253, 254 and 255 indicate 16-, 32- or 64-bit integers that follow Smaller numbers can be pre-sented differently In bitcoin-ruby it is called “var_int,” in Bitcoinj it is VarInt BitcoinQT also has even more com-pact representation called VarInt, which are not com-patible with CompactSize and used in block storage

CONFIRMED TRANSACTIONTransaction that has been included in the blockchain Probability of transaction being rejected is measured in a number of confirmations See Confirmation Number

CONFIRMATION NUMBERConfirmation number is a measure of probability that trans-action could be rejected from the main chain “Zero confir-mations” means that transaction is unconfirmed (not in any block yet) One confirmation means that the transaction is included in the latest block in the main chain Two confir-mations means the transaction is included in the block right before the latest one And so on Probability of transaction being reversed (“double spent”) diminishes exponentially with more blocks added “on top” of it

DIFFICULTYDifficulty is a measure of how difficult it is to find a new block compared to the easiest it can ever be By definition, it is a maximum target divided by the current target Difficulty is used in two Bitcoin rules: 1) every block must meet difficul-ty target to ensure 10 minute interval between blocks and 2) transactions are considered confirmed only when belonging to a main chain, which is the one with the biggest cumula-tive difficulty of all blocks As of September 5, 2013, the diffi-culty is 86,933,018 and grows by 20 – 30% every two weeks See also Target

DENIAL OF SERVICEA form of attack on the network Bitcoin nodes punish cer-tain behavior of other nodes by banning their IP ad dresses for 24 hours to avoid DoS Also, some theoretical attacks like 51% attack may be used for network-wide DoS

DEPTHDepth refers to a place in the blockchain A transaction with 6 confirmations can also be called “6 blocks deep ”

DETERMINISTIC WALLETA collective term for different ways to generate a sequence of private keys and/or public keys Deterministic wallet does not need a Key Pool The simplest form of a deterministic wallet is

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based on hashing a secret string concatenated with a key num-ber For each number the resulting hash is used as a private key (public key is derived from it) More complex schemes uses el-liptic curve arithmetic to derive sequences of public and private keys separately, which allows the generation of new addresses for every payment request without storing private keys on a web server More information on Bitcoin Wiki See also Wallet

DOSSee Denial of Service

DOUBLE SPENDA fraudulent attempt to spend the same transaction output twice There are two major ways to perform a double spend: reverting an unconfirmed transaction by making another one which has a higher chance of being included in a block (only works with merchants accepting zero-confirmation transactions) or by mining a parallel blockchain with a sec-ond transaction, to overtake the chain where the first trans-action was included

The Bitcoin proof-of-work scheme makes it incredibly dif-ficult to double spend transactions included in the block-chain The deeper transaction is recorded in the blockchain, the more expensive it is to “reverse” it See also 51% attack

DUSTA transaction output that is smaller than the typical fee re-quired to spend it This is not a strict part of the protocol, as any amount more than zero is valid BitcoinQT refuses to mine or relay “dust” transactions to avoid uselessly increas-ing the size of unspent transaction outputs (UTXO) index See also UTXO

ECDSAStands for Elliptic Curve Digital Signature Algorithm Used to verify transaction ownership when making a transfer of bitcoins See Signature

ELLIPTIC CURVE ARITHMETICA set of mathematical operations defined as a group of points on a 2D elliptic curve Bitcoin protocol uses predefined curve secp256k1 Here’s the simplest possible explanation of the operations: you can add and subtract points and multiply them by an integer Dividing by an integer is computationally infeasible (otherwise cryptographic signatures won’t work) The private key is a 256-bit integer and the public key is a product of a predefined point G (“generator”) by that inte-ger: A = G * a Associativity law allows implementing interest-ing cryptographic schemes like Diffie-Hellman key exchange (ECDH): two parties with private keys a and b may exchange their public keys A and B to compute a shared secret point C: C = A * b = B * a because (G * a) * b == (G * b) * a Then this point C can be used as an AES encryption key to protect their communication channel

EXTRA NONCEA number placed in coinbase script and incremented by a miner each time the nonce 32-bit integer overflows It is not necessary to continue mining when nonce overflows, one can also change the merkle tree of transactions or change a public key used for collecting a block reward See also nonce

FEESee Transaction Fee

FORKRefers either to a fork of a source code (see Altcoin) or, more often, to a split of the blockchain when two different parts of the network see different main chains In a sense, fork oc-curs every time two blocks of the same height are created at the same time Both blocks always have the different hashes (and therefore different difficulty), so when a node sees both of them, it will always choose the most difficult one However, before both blocks arrive at a majority of nodes, two parts of the network will see different blocks as tips of the main chain

Fork or hard fork also refer to a change of the protocol that may lead to a split of the network (by design or be-cause of a bug) On March 11, 2013, a smaller half of the net-work running version 0 7 of bitcoind, could not include a large (>900 Kb) block at height 225430, created by a min-er running version 0 8 or newer The block could not be in-cluded because of the bug in v0 7 which was fixed in v0 8 Since the majority of computing power did not have a prob-lem, it continued to build a chain on top of a problematic block When the issue was noticed, majority of 0 8 miners agreed to abandon 24 blocks incompatible with 0 7 min-ers and mine on top of 0 7 chain Except for one double spend experiment against OKPay, all transactions during the fork were properly included in both sides of the blockchain

FULL NODEA node which implements all of Bitcoin protocol and does not require trusting any external service to validate trans-actions It is able to download and validate the entire block-chain All full nodes implement the same peer-to-peer messaging protocol to exchange transactions and blocks, but that is not a requirement A full node may receive and vali-date data using any protocol and from any source However, the highest security is achieved by being able to communi-cate as fast as possible with as many nodes as possible

GENESIS BLOCKThe very first block in the blockchain with hard-coded con tents and an all-zero reference to a previous block Genesis block was released on 3rd of January, 2009 with a newspaper quote in its coinbase: “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks” as a proof that there are no secretly pre-mined blocks to overtake the blockchain in the future The message ironically refers to a reason for Bitcoin existence: a constant inflation of money supply by governments and banks

HALVINGRefers to reducing reward every 210,000 blocks (approximate-ly every 4 years) Since the genesis block to a block 209,999 in December 2012 the reward was 50 BTC By 2016 it will be 25 BTC, then 12 5 BTC and so on, until it’s only 1 satoshi around 2140, after which point no more bitcoins will ever be created Due to reward halving, the total supply of bitcoins is limited: only about 2100 trillion satoshis will ever be created

HARD FORKSome people use the term hard fork to stress that chang-ing Bitcoin protocol requires overwhelming majority to agree

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with it, or some noticeable part of the economy will contin-ue with original blockchain following the old rules See Fork and Soft Fork

HASH FUNCTIONBitcoin protocol mostly uses two cryptographic hash func-tions: SHA-256 and RIPEMD-160 First one is almost exclusive-ly used in the two round hashing (Hash256), while the latter one is only used in computing an address (see also Hash160) In addition to Hash256 and Hash160, scripts may also use SHA-1, SHA-256 and RIPEMD-160

HASH, HASH256When not speaking about arbitrary hash functions, Hash re-fers to two rounds of SHA-256 That is, you would compute an SHA-256 hash of your data and then an SHA-256 hash of that hash It is used in block header hashing, transaction hashing, making a merkle tree of transactions, or comput-ing a checksum of an address Known as BTCHash256() in CoreBitcoin, Hash() in BitcoinQT It is also available in scripts as OP_HASH256

HASH160SHA-256 hashed with RIPEMD-160 It is used to produce an address because it makes a smaller hash (20 bytes vs 32 bytes) than SHA-256, but still uses SHA-256 internally for se-curity BTCHash160() in CoreBitcoin, Hash160() in BitcoinQT It is also available in scripts as OP_HASH160

TO HASHTo compute a hash function of some data If hash function is not mentioned explicitly, it is the one defined by the con-text For instance, “to hash a transaction” means to compute Hash256 of binary representation of a transaction

HASHRATEA measure of mining hardware performance expressed in hashes per second As of September 5, the hash rate of all Bitcoin mining nodes combined is around 647,000 Gh/s For comparison, AMD Radeon graphics cards produce from 200 to 800 Mh/s depending on model

HASH TYPE (HASHTYPE)A single byte, appended to a transaction signature in the transaction input, which describes how the transaction should be hashed in order to verify that signature There are three types affecting outputs: ALL (default), SINGLE, NONE and one optional modifier ANYONECANPAY affecting the in-puts (can be combined with either of the first three) ALL re-quires all outputs to be hashed (thus, all outputs are signed) SINGLE clears all output scripts but the one with the same index as the input in question NONE clears all outputs thus allowing changing them at will ANYONECANPAY removes all inputs except the current one (allows anyone to contrib-ute independently) The actual behavior is more subtle than this overview, you should check the actual source code for more comments

HEIGHTSee Block Height

INPUTSee Transaction Input

KEYCould mean an ECDSA public or private key, or AES sym-metric encryption key AES is not used in the protocol itself (only to encrypt the ECDSA keys and other sensitive data), so usually the word key means an ECDSA key When talking about keys, people usually mean private keys as public key can always be derived from a private one See also Private Key and Public Key

KEY POOLSome wallet applications that create new private keys ran-domly keep a pool of unused pre-generated keys (BitcoinQT keeps 100 keys by default) When a new key is needed for change address or a new payment request, the application provides the oldest key from the pool and replaces it with a fresh one The purpose of the pool is to ensure that recently used keys are always backed up on external storage Without a key pool you could create a new key, receive a payment on its address and then have your hard disk die before backing up this key A key pool guarantees that this key was already backed up several days before being used Deterministic wal-lets do not use a key pool because they only need to back up a single secret key

LIGHTWEIGHT CLIENTComparing to a full node, lightweight node does not store the whole blockchain and thus cannot fully verify any trans-action There are two kinds of lightweight nodes: those fully trusting an external service to determine wallet balance and validity of transactions (e g blockchain info) and the apps implementing Simplified Payment Verification (SPV) SPV cli-ents do not need to trust any particular service, but are more vulnerable to a 51% attack than full nodes See Simplified Payment Verification

LOCK TIME (LOCKTIME)A 32-bit field in a transaction that means either a block height at which the transaction becomes valid, or a UNIX time-stamp Zero means transaction is valid in any block A num-ber less than 500,000,000 is interpreted as a block number (the limit will be hit after year 11,000), otherwise a timestamp

MAINNETMain Bitcoin network and its blockchain The term is mostly used in comparison to testnet

MAIN CHAINA part of the blockchain which a node considers the most difficult (see difficulty) All nodes store all valid blocks, in-cluding orphans, and recompute the total difficulty when re-ceiving another block If the newly arrived block or blocks do not extend existing main chain, but create another one from some previous block, it is called reorganization

MERKLE TREEMerkle tree is an abstract data structure that organizes a list of data items in a tree of their hashes (like in Git, Mercurial or ZFS) In Bitcoin, the merkle tree is used only to organize

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transactions within a block (the block header contains only one hash of a tree) so that full nodes may prune fully spent transactions to save disk space SPV clients store only block headers and validate transactions if they are provided with a list of all intermediate hashes

MEMPOOLA technical term for a collection of unconfirmed transactions stored by a node until they either expire or get included in the main chain When reorganization happens, transactions from orphaned blocks either become invalid (if already included in the main chain) or moved to a pool of unconfirmed trans-actions  By default, bitcoind nodes throw away un confirmed transactions after 24 hours

MININGA process of finding valid hashes of a block header by iter-ating millions of variants of block headers (using nonce and extra nonce) in order to find a hash lower than the target (see also difficulty) The process needs to determine a single global history of all transactions (grouped in blocks) Mining consumes time and electricity and nowadays the difficulty is so big, that energy-wise it’s not even profitable to mine using video graphics cards Mining is paid for by transaction fees and by block rewards (newly generated coins, hence the term “mining”)

MINING POOLA service that allows separate owners of mining hardware to split the reward proportionally to submitted work Since probability of finding a valid block hash is proportional to miner’s hashrate, small individual miners may work for months before finding a big per-block reward Mining pools allow more steady stream of smaller income Pool owner de-termines the block contents and distributes ranges of nonce values between its workers Normally, mining pools are cen-tralized P2Pool is a fully decentralized pool

MINERA person, a software or a hardware that performs mining

MIXINGA process of exchanging coins with other persons in order to increase privacy of one’s history Sometimes it is associated with money laundering, but strictly speaking it is orthogonal to laundering In traditional banking, a bank protects customer’s privacy by hiding transactions from all third parties In Bitcoin any merchant may do a statistical analysis of one’s entire pay-ment history and determine, for instance, how many bitcoins one owns While it’s still possible to implement KYC (Know Your Customer) rules on a level of every merchant, mixing al-lows you to separate information about one’s history between the merchants

Most important reasons for mixing are: 1) receiving a sala-ry as a single big monthly payment and then spending it in small transactions (“café sees thousands of dollars when you pay just $4”); and 2) making a single payment and re-vealing connection of many small private spendings (“car dealer sees how much you are addicted to coffee”) In both cases your employer, a café and a car dealer may comply with KYC/AML laws and report your identity and transferred

amounts, but neither of them need to know about each oth-er Mixing bitcoins after receiving a salary and mixing them before making a big payment solves this privacy problem

M-OF-N MULTI-SIGNATURE TRANSACTIONA transaction that can be spent using M signatures when N public keys are required (M is less or equal to N) Multi-signature transactions that only contain one OP_CHECKMULTISIG op-code and N is 3, 2 or 1 are considered standard

NODENode, or client, is a computer on the network that speaks Bitcoin message protocol (exchanging transactions and blocks) There are full nodes that are capable of validating the entire blockchain and lightweight nodes, with reduced func-tionality Wallet applications that speak to a server are not con-sidered nodes

NONCEStands for “number used once ” A 32-bit number in a block header which is iterated during a search for proof-of-work Each time the nonce is changed, the hash of the block header is recalculated If nonce overflows before valid proof-of-work is found, an extra nonce is incremented and placed in the coin-base script Alternatively, one may change a merkle tree of transactions or a timestamp

NON-STANDARD TRANSACTIONAny valid transaction that is not standard Non-standard transactions are not relayed or mined by default BitcoinQT nodes, but are relayed and mined on testnet However, if any-one puts such transaction in a block, it will be accepted by all nodes In practice it means that unusual transactions will take more time to get included in the blockchain If some kind of non-standard transaction becomes useful and pop-ular, it may get named standard and adopted by users (like it) See also Standard Transaction

OPCODE8-bit code of a script operation Codes from 0x01 to 0x4B (decimal 75) are interpreted as a length of data to be pushed on the stack of the interpreter (data bytes follow the op-code) Other codes either do something interesting, are dis-abled and cause transaction verification to fail, or do nothing (reserved for future use) See also Script

ORPHAN, ORPHANED BLOCKA valid block that is no longer a part of a main chain Usually happens when two or more blocks of the same height are produced at the same time When one of them becomes a part of the main chain, others are considered “orphaned ” Orphans also may happen when the blockchain is forked due to an attack (see 51% attack) or a bug Then a chain of sev-eral blocks may become abandoned Usually a transaction is included in all blocks of the same height, so its confirmation is not delayed and there is no double spend See also Fork

OUTPUTSee Transaction Output

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P2SHSee Pay-to-Script Hash

PAY-TO-SCRIPT HASHA type of script and address that allows sending bitcoins to arbitrary complex scripts using a compact hash of that script This allows payer to pay much smaller transaction fees and not wait long for a non-standard transaction to get included in the blockchain Then the actual script matching the hash must be provided by the payee when redeeming the funds P2SH addresses are encoded in Base58Check just like regu-lar public keys and start with number “3 ”

PAPER WALLETA form of cold storage where a private key for Bitcoin address is printed on a piece of paper (with or without encryption) and then all traces of the key are removed from the comput-er where it was generated To redeem bitcoins, a key must be imported in the wallet application so it can sign a transaction See also Casascius Coins

PROOF-OF-WORK (POW)A number that is provably hard to compute That is, it takes measurable amount of time and/or computational power (energy) to produce In Bitcoin it is a hash of a block header A block is considered valid only if its hash is lower than the current target (roughly, starts with a certain amount of zero bits) Each block refers to a previous block thus accumulat-ing previous proof-of-work and forming a blockchain

Proof-of-work is not the only requirement, but it’s an import-ant one to make sure that it is economically infeasible to pro-duce an alternative history of transactions with the same accumulated work Each client can independently consider the most difficult chain of valid blocks as the “true” history of transactions, without need to trust any source that provides the blocks

Note that owning a very large amount of computational pow-er does not override other rules enforced by every client Ill-formed blocks or blocks containing invalid transactions are rejected no matter how difficult they were to produce

PRIVATE KEY (PRIVKEY)A 256-bit number used in ECDSA algorithm to create trans-action signatures in order to prove ownership of a certain quantity of bitcoins Can also be used in arbitrary elliptic curve arithmetic operations Private keys are stored within wallet applications and are usually encrypted with a pass phrase Private keys may be completely random (see Key Pool) or generated from a single secret number (“seed”) See also Deterministic Wallet

PUBLIC KEY (PUBKEY)A 2D point on an elliptic curve secp256k1 that is produced by multiplying a predefined “generator” point by a private key Usually it is represented by a pair of 256-bit numbers (“uncompressed public key”), but can also be compressed to just one 256-bit number (at the slight expense of CPU time to decode an uncompressed number) A special hash of a public key is called address Typical Bitcoin transactions

contain public keys or addresses in the output scripts and signatures in the input scripts

REFERENCE IMPLEMENTATIONBitcoinQT (or bitcoind) is the most used full node imple-mentation, so it is considered a reference for other im-plementations If an alternative implementation is not compatible with BitcoinQT it may be forked, that is, it will not see the same main chain as the rest of the network run-ning BitcoinQT

RELAYING TRANSACTIONSConnected Bitcoin nodes relay new transactions between each other on best-effort basis in order to send them to the mining nodes Some transactions may not be relayed by all nodes E g non-standard transactions, or transactions with-out a minimum fee Bitcoin message protocol is not the only way to send the transaction One may also send it directly to a miner, or mine it yourself, or send it directly to the pay-ee and make them relay it or mine it

REORG, REORGANIZATIONAn event in the node when one or more blocks in the main chain become orphaned Usually, newly received blocks extend the existing main chain Sometimes (4 – 6 times a week) a cou-ple of blocks of the same height are produced almost simulta-neously, and for a short period of time, some nodes may see one block as a tip of the main chain which will be eventually replaced by a more difficult block(s) Each transaction in the orphaned blocks either become invalid (if already included in the main chain block) or become unconfirmed and moved to the mempool In case of a major bug or a 51% attack, reorgani-zation may involve reorganizing more than one block

REWARDAmount of newly generated bitcoins that a miner may claim in a new block The first transaction in the block allows min-er to claim currently allowed reward as well as all transaction fees from all transactions in the block Reward is halved every 210,000 blocks, approximately every 4 years As of September 5, 2013, the reward is 25 BTC (the first halving occurred in December 2012) For security reasons, rewards cannot be spent before 100 blocks are built on top of the current block

SATOSHIThe first name of Bitcoin’s creator Satoshi Nakamoto and also the name of the smallest unit used in transactions 1 bit-coin (BTC) is equal to 100 million satoshis

SATOSHI NAKAMOTOThe pseudonym of the author of the initial Bitcoin imple-mentation  There are many speculations on who and how many people worked on Bitcoin, of which nationality or age, but no one has any evidence to say anything definitive on the matter

SCRIPTA compact turing-incomplete programming language used in transaction inputs and outputs Scripts are interpreted by a Forth-like stack machine: each operation manipulates data on the stack Most scripts follow the standard pattern

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and verify the digital signature provided in the transaction input against a public key provided in the previous transac-tion’s output Both signatures and public keys are provided using scripts Scripts may contain complex conditions, but can never change the amount being transferred  Amount is stored in a separate field in a transaction output

SCRIPTSIGOriginal name in bitcoind for a transaction input script Typically, input scripts contain signatures to prove ownership of bitcoins sent by a previous transaction

SCRIPTPUBKEYOriginal name in bitcoind for a transaction output script Typically, output scripts contain public keys (or their hashes; see Address) that allow only owner of a corresponding pri-vate key to redeem the bitcoins in the output

SEQUENCEA 32-bit unsigned integer in a transaction input used to re-place older version of a transaction by a newer one Only used when locktime is not zero Transaction is not consid-ered valid until the sequence number is 0xFFFFFFFF By de-fault, the sequence is 0xFFFFFFFF

SIGNATUREA sequence of bytes that proves that a piece of data is ac-knowledged by a person holding a certain public key Bitcoin uses ECDSA for signing transactions Amounts of bitcoins are sent through a chain of transactions: from one to another Every transaction must provide a signature matching a pub-lic key defined in the previous transaction This way, only the proper owner of a secret private key, associated with a given public key, can spend bitcoins further

SIMPLIFIED PAYMENT VERIFICATION (SPV)A scheme to validate transactions without storing the whole blockchain (only block headers) and without trusting any external service Every transaction must be present with all its parent and sibling hashes in a merkle tree up to the root SPV client trusts the most difficult chain of block headers and can validate if the transaction indeed belongs to a cer-tain block header Since SPV does not validate all transac-tions, a 51% attack may not only cause a double spend (like with full nodes), but also make a completely invalid payment with bitcoins created from nowhere However, this kind of at-tack is very costly and probably more expensive than a prod-uct in question Bitcoinj library implements SPV functionality

SECRET KEYEither the Private Key or an encryption key used in encrypt-ed wallets Bitcoin protocol does not use encryption any-where, so secret key typically means a private key used for signing transactions

SOFT FORKSometimes the soft fork refers to an important change of software behavior that is not a hard fork (e g changing min-ing fee policy) See also Hard Fork and Fork

SPAMIncorrect peer-to-peer messages (like sending invalid trans-actions) may be considered a denial of service attack (see DoS) Valid transactions sending very tiny amounts and/or having low mining fees are called Dust by some people The protocol itself does not define which transactions are not worth relaying or mining, it’s a decision of every individual node Any valid transaction in the blockchain must be accept-ed by the node if it wishes to accept the remaining blocks, so transaction censorship only means increased confirmation delays Individual payees may also blacklist certain addresses (refuse to accept payments from some addresses), but that’s too easy to work around using mixing

SPENT OUTPUTA transaction output can be spent only once: when another valid transaction makes a reference to this output from its own input When another transaction attempts to spend the same output, it will be rejected by the nodes already seeing the first transac-tion Blockchain as a proof-of-work scheme allows every node to agree on which transaction was indeed the first one The whole transaction is considered spent when all its outputs are spent

SPLITA split of a blockchain See Fork

SPVSee Simplified Payment Verification

STANDARD TRANSACTIONSome transactions are considered standard, meaning they are relayed and mined by most nodes More complex transactions could be buggy or cause DoS attacks on the network, so they are considered non-standard and not relayed or mined by most nodes Both standard and non-standard transactions are valid and once included in the blockchain, will be recognized by all nodes Standard transactions are: 1) sending to a public key; 2) sending to an address; 3) sending to a P2SH address; 4) send-ing to M-of-N multi-signature transaction where N is 3 or less

TARGETA 256-bit number that puts an upper limit for a block header hash to be valid The lower the target is, the higher the dif-ficulty to find a valid hash The maximum (easiest) target is 0x00000000FFFF0000000000000000000000000000000000000000000000000000 The difficulty and the target are adjusted every 2016 blocks (approx 2 weeks) to keep interval between the blocks close to 10 minutes

TESTNETA set of parameters used for testing a Bitcoin network Testnet is like mainnet, but has a different genesis block (it was reset several times, the latest testnet is testnet3) Testnet uses a slightly different address format to avoid confusion with main Bitcoin addresses and all nodes relaying and min-ing non-standard transactions

TESTNET3The latest version of testnet with another genesis block

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TIMESTAMPUNIX timestamp is a standard representation of time as a number of seconds since January 1st, 1970, GMT Usually stored in a 32-bit signed integer

TRANSACTIONA chunk of binary data that describes how bitcoins are moved from one owner to another Transactions are stored in the block-chain Every transaction (except for coinbase transactions) has a reference to one or more previous transactions (inputs) and one or more rules on how to spend these bitcoins further (out-puts) See Transaction Input and Transaction Output

TRANSACTION FEEAlso known as “miners’ fee,” an amount that an author of trans-action pays to a miner who will include the transaction in a block The fee is expressed as the difference between the sum of all input amounts and a sum of all output amounts Unlike tra-ditional payment systems, miners do not explicitly require fees and most miners allow free transactions All miners are com-peting between each other for the fees and all transactions are competing for a place in a block There are soft rules encoded in most clients that define minimum fees per kilobyte to relay or mine a transaction (mostly to prevent DoS and spam) Typically, the fee affects the priority of a transaction As of September 5, 2013 average fees are below 1 BTC per block See also Reward

TRANSACTION INPUTA part of a transaction that contains a reference to a previ-ous transaction’s output and a script that can prove owner-ship of that output  The script usually contains a signature and is called scriptSig Inputs spend previous outputs completely So if one needs to pay only a portion of some previous output, the transaction should include extra change output that sends the remaining portion back to its owner (on the same or dif-ferent address) Coinbase transactions contain only one input with a zeroed reference to a previous transaction and arbitrary data in place of script

TRANSACTION OUTPUTAn output contains an amount to be sent and a script that allows further spending The script typically contains a pub-lic key (or an address, a hash of a public key) and a signature verification opcode Only an owner of a corresponding pri-vate key is able to create another transaction that sends that amount on to someone else In every transaction, the sum of output amounts must be equal or less than the sum of all input amounts See also Change

TXSee Transaction

TXINSee Transaction Input

TXOUTSee Transaction Output

UNCONFIRMED TRANSACTIONTransaction that is not included in any block Also known as “0-confirmation” transaction  Unconfirmed transactions are re-layed by the nodes and stay in their mempools An unconfirmed transaction stays in the pool until the node decides to throw it

away, find it in the blockchain, or include it in the blockchain it-self (if it’s a miner) See also Confirmation Number.

UTXO SETA collection of Unspent Transaction Outputs Typically used in discussions on optimizing an ever-growing index of trans-action outputs that are not yet spent The index is important to efficiently validate newly created transactions Even if the rate of the new transactions remains constant, the time re-quired to locate and verify unspent outputs grows

Possible technical solutions include more efficient indexing algorithms and more performant hardware BitcoinQT, for ex-ample, keeps only an index of outputs matching user’s keys and scans the entire blockchain when validating other trans-actions A developer of one web wallet service mentioned that they maintain the entire index of UTXO and its size was around 100GB when the blockchain itself was only 8GB

Some people seek social methods to solve the problem For instance, by refusing to relay or mine transactions that are considered dust (containing outputs smaller than a transac-tion fee required to mine/relay them)

VARINTThis term may cause confusion as it means different things in different Bitcoin implementations See CompactSize

WALLETAn application or a service that keeps private keys for sign-ing transactions Wallet does not keep bitcoins themselves (they are recorded in blockchain) “Storing bitcoins” usually means storing the keys

WEB WALLETA web service providing wallet functionality: ability to store, send and receive bitcoins User has to trust counter-party to keep their bitcoins securely and ready to redeem at any time It is very easy to build your own web wallet, so most of them were prone to hacks or outright fraud The most se-cure and respected web wallet is Blockchain info Online ex-changes also provide wallet functionality, so they can also be considered web wallets It is not recommended to store large amounts of bitcoins in a web wallet

XBTInformal currency code for 1 Bitcoin (defined as 100,000,000 Satoshis) Some people proposed using it for 0 01 Bitcoin to avoid confusion with BTC  There were rumors that Bloomberg tests XBT as a ticker for 1 Bitcoin, but current-ly there is only ticker XBTFUND for SecondMarket’s Bitcoin Investment Trust See also BTC —S

GITHUB bitcoin Glossary by OLEG ANDREEV (oleganza@gmail.com) Twitter: @oleganza Send your Bitcoin tips to:

1CBtcGivXmHQ8ZqdPgeMfcpQNJrqTrSAcG.Cry

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