Beyond Bitcoin: How the Blockchain Can Power a New Generation of Enterprise Software

This is a guest post by Jesus Rodriguez.

Bitcoin has become one of the most intriguing and revolutionary technologies created in the last few years. From a functional standpoint, the cryptocurrency has challenged the most fundamental principles of the world’s financial systems by providing a decentralized, secured and trusted model to process financial transactions. To enable its magic, Bitcoin relies on an architecture powered by a groundbreaking technology known as the blockchain.

While bitcoin has clearly become the most important implementation, it is just one of many practical applications that can be powered by the blockchain. From the conceptual standpoint, the blockchain provides a series of capabilities that can change some of the well-established architectures in the enterprise digital world.

How can the blockchain redefine enterprise?

The decentralized, autonomous, trusted and secured capabilities of the blockchain can redefine the foundational patterns of enterprise applications. While the principles of the blockchain are well-understood patterns in enterprise solutions, until now we have lacked practical implementations that validate its functionality at an enterprise scale. The blockchain opens a new set of opportunities to enterprise scenarios that weren’t possible before. However, in order for blockchain solutions to be embraced in enterprise, they will have to develop a series of key capabilities to get past traditional IT compliance and regulatory practices.

What’s needed to adopt the blockchain in enterprise?

Despite its unique value, the process of adopting blockchain solutions in enterprise is far from trivial. Like many other technology trends, blockchain solutions will have to develop a series of enterprise-ready capabilities to be adopted in mainstream business scenarios. Those enterprise-ready capabilities are called to address many requirements in areas such as management, operational readiness, or compliance, which are essential to adopt solutions on different industries. The following list includes some of the key capabilities required to adopt the blockchain in mainstream enterprise scenarios.

• Development Platform: The blockchain is a very complex architecture modeled in terms of transactional exchanges. To mitigate that complexity, we need programming frameworks and languages that allow average developers to build general-purpose applications against the blockchain.
• Monitoring Tools: To be adopted in enterprise settings, the blockchain community should produce solutions that can actively monitor the health of a blockchain network and recover from unexpected failures. These capabilities will allow organizations to monitor the runtime behavior of blockchain solutions.
• Private Cloud Deployments: Facilitating the deployment of the blockchain in private cloud topologies using mainstream enterprise infrastructures is a key element to facilitate the wide adoption of blockchain solutions in the enterprise. In that sense, the blockchain should work seamlessly with technologies such as Docker, VMWare vCloud, Open Stack among other mainstream enterprise infrastructure platforms.
• Standards: As organizations start adopting blockchain solutions, the need to have standards will become increasingly relevant. Standards will facilitate the interoperability between different blockchain platforms while also enabling important security and compliance requirements of enterprise solutions.
• Interoperability with Well-Established Enterprise Platforms: Like any other enterprise software trend, blockchain solutions will be required to integrate with established enterprise platforms like databases, line of business systems, etc. Enabling that interoperability will be essential to power the adoption of blockchain solutions in the enterprise.

10 Enterprise Scenarios that can be Redefined by the Blockchain

Decentralized IoT

The Internet of Things (IoT) is becoming one of the most important trends in modern enterprise software. While many IoT platforms are based on a centralized model in which a broker or hub control the interaction between devices, this model has proved to be impractical for many scenarios in which devices need to exchange data between themselves autonomously. That specific requirement has been the fundamental principle behind decentralized IoT platforms. Those decentralized models are fundamentally powered by a trusted ledger of exchanges between smart devices fundamental to power real-world IoT solutions.

The blockchain provides foundational capabilities of decentralized IoT platforms such as secured and trusted data exchange as well as record-keeping. In this type of IoT architecture, the blockchain will serve as the general ledger, keeping a trusted record of all the messages exchanged between smart devices in an IoT topology.

Keyless Signature

Public Key Infrastructure (PKI) has been one of the fundamental technologies powering data signatures. PKI models rely on a central authority to stamp and validate signatures on a data payload. While PKI models have been incredibly successful, the dependency on a central authority presents serious limitations for large-scale scenarios and is also vulnerable to attacks involving quantum computation.

The characteristics of the blockchain can help to overcome some of the limitations of PKI models with a keyless security infrastructure (KSI). A KSI model uses only hash-function cryptography, allowing verification to rely only on the security of hash functions and the availability of a public ledger commonly referred to as a blockchain.

Data Archiving

Archiving historical data in a secure and trusted manner has been a permanent challenge of enterprise IT. Companies like EMC have become one of the most iconic enterprise software companies in history by providing robust storage and archiving solutions. More recently, cloud platform vendors such as Amazon have provided alternative data archiving solutions. However, in both cases, data archiving solutions rely on a centralized storage model, which has well-known limitations in enterprise scenarios in areas such as security and privacy.

Decentralized and autonomous data archives models, such as the ones provided by the blockchain, can be an interesting alternative to centralized data storage solutions. This model will eliminate the dependency on a centralized authority and will allow distributed and trusted storage across nodes in a blockchain network. More importantly, using the blockchain as a data archive will allow any nodes to validate the authenticity of the archived data without relying on central hub.

Decentralized B2B Auditing

Business-to-business (B2B) exchange models are one of the foundations of modern commerce. In those scenarios, transaction tracking, auditing and reconciliation processes are essential capabilities of B2B processes. Traditional B2B platforms enable these capabilities by providing centralized transaction tracking models that will be used by the different B2B endpoints to log relevant events of a specific transaction. These centralized tracking models have proved to be impractical to address many of the typical challenges of B2B transaction tracking processes in areas such as auditing and reconciliation.

Leveraging the blockchain as a decentralized, secured and trusted transaction ledger could be a more effective model to address the challenges of B2B transaction tracking solutions. Using the blockchain, each party in a B2B process could autonomously track the events related to a B2B transaction without the need to rely on a centralized authority. Additionally, the security capabilities of the blockchain will facilitate the implementation of more sophisticated reconciliation and auditing processes.

Legal Proof of Existence or Proof of Possession

Validating the existence or the possession of signed documents is an incredibly relevant element of legal solutions. The challenge of traditional document validation models is that they relied on central authorities for storing and validating the documents, which presents some obvious security challenges, but also becomes more difficult as the documents become older.

The blockchain provides an alternative model to proof-of-existence and possession of legal documents. By leveraging the blockchain, a user can simply store the signature and timestamp associated with a document in the blockchain and validate it at any point using the native blockchain mechanisms.

Distributed File Storage

Cloud file storage solutions such as Box, Dropbox or One Drive are becoming regular citizens of modern enterprise environments. Despite its popularity, cloud file storage solutions typically face challenges in areas such as security, compliance and privacy in order to be adopted in enterprise environments. Those concerns are all rooted behind the fact that enterprises need to trust a third-party cloud system with their confidential documents.

Security Trade Settlement

Central Security Depositaries (CSDs) have been an essential element of modern equity and bond trading. In the U.S. equity market, following frequent bottlenecks during the late 1960s in the settlement of securities trades, CSDs smoothed the post-trade process for transferring share ownership by eliminating the exchange of paper certificates and recording transactions in central, computerized book-entry systems. The international CSDs Euroclear and Cedel (now Clearstream) played a similar role in the Eurobond market from the 1970s onward.

The centralized nature of CSDs is essential to successful bond and equity trades. However, the settlement process via CSDs is incredibly expensive and slow, averaging two or three days per trade settlement.

The blockchain offers an interesting alternative to traditional CSDs as a decentralized ledger that can keep records of transactions without relying on a central authority. The query capabilities of the blockchain will allow the settlement of trades in minutes or even seconds and at a fraction of the cost of the current CSD solutions.

Anti-Counterfeiting

Counterfeiting remains as one of the biggest challenges in modern commerce. Segments like luxury goods, pharmaceutical or electronics are constantly affected by counterfeiting. As a result, the demand for anti-counterfeiting remains one of the hottest topics in the digital commerce world. Unfortunately, most solutions in the market require a trust in the third-party authority, which introduces a logical friction between merchants and consumers.

The decentralized and security capabilities of the blockchain can enable an interesting alternative to traditional anti-counterfeiting platforms. In that sense, we can envision a model in which brands, merchants and marketplaces are part of a blockchain network with nodes storing information to validate the authenticity of specific products. In this model, brands don’t have to trust a central authority with their product authenticity information and can rely on the security and decentralized trust models of the blockchain.

eGoverment

Governments all over the world are investing deep resources to digitize many of their existing processes. Many of these processes deal with sensitive information that require sophisticated levels of traceability, privacy and security. Inevitably, the digital collaboration process relies on trust on centralized authorities.

The blockchain capabilities provide a robust option to enable the digital collaboration between government agencies and citizens. In this model, different government agencies can store records in blockchain nodes so that it can be accessed and verified by other government parties and citizens in a secure and trusted way.

P2P Commerce

Traditional ecommerce business models are based on the presence of a centralized entity that control activities such as order processing, inventory management, catalog access, etc. In order to buy and sell goods, ecommerce marketplaces need access to sensitive user information such as credit card information, user profile data etc. This information often becomes the target of cybersecurity attacks and many other security and regulatory challenges.

The architecture of the blockchain can enable the first effective peer-to-peer (P2P) ecommerce network in which buyers and sellers can interact directly without the need of a central authority. The absence of a central marketplace eliminates many of the restrictions of ecommerce models such as fees, regulated transactions, etc.

Summary

The blockchain represents one of the most important advancements in computer science of the last few years. The ability to enable decentralized, secure, trusted and highly scalable architectures opens the door to a new group of enterprise software solutions on a large number of industries. Blockchain-powered solutions have the opportunity to challenge some of the fundamental architecture principles of enterprise solutions in areas such as security, data storage, trust, etc. Similar to Bitcoin, we should expect to see spectacular platforms in the enterprise software space powered by the blockchain.

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Andreas Antonopolous: ‘50 Currencies Today Have a Value Less Than Goat S**t’ (Op-Ed)

Every market niche has a great orator. Joel Osteen within religion, Alex Jones for geopolitics, and Bitcoin has Andreas Antonopoulos

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Bitcoin Used to Pay Utility and Credit Card Bills in the Philippines and Australia

Over the past year, bitcoin startups in the Philippines and Australia have begun to target day-to-day expenses and remittances; markets that are in desperate need of instantaneous, secure and cost-effective payment systems.

Startups including Australia-based Living Room of Satoshi and Manila-based Rebit.ph, also known as the parent company of Bills Ninja, have been trying to educate the global population to use bitcoin in day-to-day expenses, such as paying utility bills and settling bank payments.

Paying Bills with Ease

Earlier this year, Rebit.ph acquired bitcoin bills payment platform Bills Ninja, to allow its users to settle rental, tuition, and electricity and credit card bills abroad. The service has been used by Filipino expats working in countries including Canada, UAE, Singapore, Hong Kong, Austrailia and Canada.

“Using Bitcoin, we've made it easier for Rebit users to send targeted remittances. A good number of remittances coming from overseas Filipino workers are intended for bills payments anyway. By enabling our users with this service, we've made it more convenient by eliminating that second step for them,” Rebit.ph CEO John Bailon told Bitcoin Magazine.

An official with Satoshi Citadel, the parent company and investor of Rebit.ph told Bitcoin Magazine that the Philippines-to-Canada, -Hong Kong and -Singapore remittance markets are huge, and that there are hundreds of thousands of Filipino employees working in these countries to support their families in their homeland.

Quite often, these expat workers pay utility bills such as water and electricity and credit card bills directly from these countries, using the Rebit.ph platform or the Coins.ph platform, which is currently ranked among the top 300 most popular websites in the Philippines.

Coins.ph, a competitor of Rebit.ph has seen a huge success through its partnerships with local banks, remittance outlets and financial institutions. The platform enables users to pay utility bills and cash out bitcoin at any of its supported outlets, including thousands of ATMs from the nationwide Security Bank and remittance outlets from Lhuiller and Palawan Pawn Shop.

However, Bailon told Bitcoin Magazine that its platform is different from services such as Coins.ph, because of its over-the-counter transactions for remittances and bills payments.

“Coins.ph allows people to load funds into and draw from their mobile money wallet, while Rebit is closer to the current user experience of an electronic over-the-counter transactions for remittances and bills payments,” Bailon explained.

Currently, many local residents and employees prefer to pay bills at local establishments and institutions. However, the Rebit.ph team says that the local residents are starting to recognize the advantages of bitcoin and bitcoin bills payment systems.

“There needs to be a paradigm shift in consumer behavior when it comes to electronic bills payments. Most Filipinos still pay their bills in-person at establishments even though they actually have access to more convenient methods. We're getting there, and when more and more people start to realize the convenience of electronic bills payments, Rebit is here to allow them to do it over the blockchain,” said Bailon.

Living Room of Satoshi

Living Room of Satoshi, Australia-based bills payment platform allows anyone to pay any Australian bill using bitcoin. The platform has been providing bitcoin bills payment service in all sectors, including shopping, entertainment, banking, Internet, electricity/gas, rent, tax, insurance and water.

The platform has been welcomed and used by Australian residents across the country. In a recent interview with Bitcoin Magazine, Australian farm Buda Foods founder and CEO Mark Burgunder said:

“We currently have a great service available here called Living Room of Satoshi that allows us to make bill payments and electronic transfers to almost any bank account in Australia using bitcoins. We've been using this service on a number of occasions already with the largest purchases so far having been for chicken feed and for mobile electric fencing.”

Many bitcoin enthusiasts and startups in the Philippines and Australia believe that the key to mainstream success for bitcoin is to educate the general population about its advantages, and encourage people to use bitcoin for day-to-day expenses.

Photo www.tOrange.us

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Building a Risk Market for the Digital Age Using Bitcoin

This is a guest post by Michael Folkson.

The Internet was originally developed as a network for information exchange. Now, a multitude of entrepreneurs and software developers are building the Internet for value exchange. The next logical progression is to build the Internet for risk exchange.

Just as units of currency can be transferred to a third party, insurance contracts transfer risk exposures to a third party. Blockchain technology has the potential to radically transform how the insurance industry operates and how risk exposures are shared and distributed.

While Bitcoin offers a protocol for peer-to-peer value transmission bypassing the traditional banking system, an insurance industry leveraging a public blockchain presents an opportunity for individuals and entities to retain, share or transfer risk exposures without the requirement for risk exposures to sit on an insurance company’s balance sheet.

Science fiction frequently offers inspiration for what an industry could look like in the future. The short speculative fiction titled "Know When to Hold ’Em" by K.G. Jewell is a somewhat dystopian vision of futuristic insurance, but it does explain how the user interface of a peer-to-peer insurance market could operate.

In the story, the lead character, Jonas, acts as an insurer on the platform MicroRisk. Among the microrisks he chooses to provide insurance coverage for are vacation sickness, exam results, fashion (two individuals wearing the same outfit at an event) and being stood up on a first date. He is required to post collateral into his MicroRisk account before insuring a risk and is able to audit claims before paying out on them. The policyholder’s premium and the insurer’s collateral are frozen in escrow until the contract closed.

Some of these risks may be difficult to price due to limited data and increased moral hazard. However, the story does stir the imagination when envisaging what personal risks could be insured if the requirement to go through a conventional insurance company was lifted.

The transfer and distribution of risk dates back to at least to the second millennium B.C. In approximately 1750 B.C. Mediterranean sailing merchants paid their lender an additional sum to agree to terminate their liability conditional on the shipment being stolen or lost at sea.

There are a number of participants in today’s insurance industry. Brokers act as intermediaries to connect insurance buyers and sellers. Underwriters determine the premiums that should be charged in conjunction with the actuaries who also estimate the reserves required to meet future claims on an ongoing basis. Claims adjusters verify the legitimacy of insurance claims and assess the size of the payout.

There are many parallels between the banking and insurance industries with both sectors rewarded for accepting risk exposures. Rather than lending out funds and (hopefully) receiving them back at a future point in time, insurance companies receive funds in advance and return them contingent on future events.

The peer-to-peer lending model has thrived in recent years with companies such as Lending Club, Prosper and Zopa facilitating more than $1 billion of loans between individuals.

Its success is at least partly explained by re-establishing a direct link between investors and specific credit risk exposures at a time of economic uncertainty, sovereign debt crises and complex too-big-to-fail banking institutions. These direct credit risk exposures allow an investor to diversify her overall portfolio, and there are minimal infrastructure costs in comparison to traditional retail banks.

Similarly, a peer-to-peer insurance platform re-establishes a direct link between investors and specific insurance risk exposures. Today’s insurance companies are so large, complex and heavily regulated that the direct link between an investor and specific insurance risks has eroded. If an investor wants exposure to insurance risk to diversify her portfolio, she has little option but to invest in the shares of an insurance group and be exposed to multiple insurance risks in addition to asset risks such as sovereign bonds.

It is extremely difficult to match an investor’s risk appetite with specific insurance risks such as personal or commercial, home, car, health or travel. Moreover, it is impossible for an investor to opt out of specific risk exposures. The only insurance risks investors can get direct exposure to are credit and catastrophe risk through the issue of catastrophe bonds.

The peer-to-peer insurance model offers investors an opportunity to generate higher investment returns, transparency with regards to risk exposures and the satisfaction of directly insuring individuals or businesses rather than investing in a faceless insurance company. It offers policyholders access to cheaper premiums, faster claim payments and insurance coverage that might not be available through traditional channels.

Satoshi Nakamoto’s primary achievement of preventing users spending the same bitcoin on multiple occasions ("double spending") without a reliance on a trusted third party is a historic feat. However, it is worth emphasizing the obvious that the protocol does not wholly eradicate reliance on trusted third parties for all financial contracts.

For example, escrow mechanisms that are easily built using the Bitcoin protocol may still require dispute resolution if there is a disagreement over whether the goods or services delivered are of sufficient quality.

Nevertheless an escrow transaction built on a Bitcoin-like blockchain could be a template for how future insurance contracts are constructed. The insurance buyer and the insurance seller could transfer the premium and the collateral respectively into a multi-signature (2-of-3) Bitcoin wallet. The third signatory to the wallet would be the arbiter. Funds would be released from the wallet conditional on two parties signing the transaction, preventing the buyer, seller or arbiter from fraudulently seizing the funds.

Just as the execution of a standard escrow contract will rely on an arbiter to resolve disputes between the buyer and the seller, the execution of an insurance contract relies on claims adjusters to verify that incoming claims are valid and if necessary estimate the monetary value of the claim.

This service will vary from reviewing evidence submitted by the claimant to physically inspecting the scene of the insured event depending on the magnitude of the claim. It is currently difficult to automate this function, and artificial intelligence is not yet advanced enough to rebuff all human attempts of fraudulent submissions.

Decentralized platforms heavily rely on the efficacy and dependability of reputation systems. The upside of bypassing centralized services such as eBay, Kickstarter or Uber is that no third party can charge excessive fees, impose restrictive policies, prohibit bitcoin payments or present a single point of failure in the storing of users’ personal data.

However, the downside is that no organization is responsible for maintaining the integrity of the system. Instead a mixture of user feedback, reputation scoring and financial incentives must be combined to construct robust reputation systems. The alternative is to build quasi-decentralized systems that may be an improvement on centralized systems but don’t accrue all the benefits of purely decentralized systems.

For example, the various activities of an insurance company could be unbundled so that some activities are automated while others are outsourced to external providers. It may be the case that quasi-decentralized systems will need to be built as an intermediate step or that optimal systems will never be purely decentralized. However, it makes sense to fully explore all the options and capabilities of this technology before falling back on how current systems already operate.

Although private blockchains (or ‘permissioned distributed ledger systems’) are useful for keeping databases in sync in a more trusted environment, they are an incremental innovation when compared to the potential of public blockchains. Just as Bitcoin opens the floodgates for peer-to-peer transactions and permissionless innovation, peer-to-peer insurance leveraging a smart contracts protocol could provide a platform for matching insurance buyers and insurance sellers for any risk they agree to exchange.

This marketplace would be a radical paradigm shift from today’s centralized and spatially anchored insurance industry. The blockchain provides the opportunity to build a more innovative, expansive and transparent industry that evolves to the needs and requirements of its users.

Photo Pictures of Money / Flickr (CC)

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R3 Blockchain Development Initiative Grows to 22 Banks Worldwide

The international R3 blockchain project to develop blockchain commercial applications and standards for the financial world just got a whole lot weightier as 13 new global banks joined the distributed or “shared” ledger initiative.

R3, the international financial innovation firm, based in New York, London and San Francisco, is a multidisciplinary team including experts from the worlds of electronic banking, new tech startups, and cryptography and digital currencies development, aiming to “define, design and deliver the next generation of financial technology.”

The 13 new banks joining the project are:

• Bank of America
• BNY Mellon
• Mitsubishi UFJ Financial Group
• Citi
• Commerzbank
• Deutsche Bank
• HSBC
• Morgan Stanley
• National Australia Bank
• Royal Bank of Canada
• SEB
• Societe Generale
• Toronto-Dominion Bank

These banks join current project members Barclays, BBVA, Commonwealth Bank of Australia, Credit Suisse, Goldman Sachs, J.P. Morgan, Royal Bank of Scotland, State Street and UBS.

“The addition of this new group of banks demonstrates widespread support for innovative distributed ledger solutions across the global financial services community, and we're delighted to have them on board," R3 CEO and former ICAP Electronic Broking CEO David Rutter said in a press release.

"We have placed an emphasis on working with the market from day one, and our partners recognize that a collaborative model is the best way to quickly, efficiently and cost-effectively deliver these new technologies to global financial markets," Rutter said.

As Bitcoin Magazine previously reported , Rutter has recruited Nichola Hunter, former ICAP trading executive; Richard Brown, a technology expert formerly with IBM UK; and Tim Swanson, a U.S.-based cryptocurrencies consultant, to work in a collaborative lab environment or "sandbox" to test and validate blockchain applications, prototypes and protocols.

This major project brings together not only the experts, but also the considerable resources of 22 big banks to collaborate on “research, experimentation, design and engineering to help advance state-of-the-art enterprise-scale shared ledger solutions to meet banking requirements for security, reliability, performance, scalability and audit.”

Photo Clément Bardot / Wikimedia(CC)

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Transaction Remote Release, a Tor-Inspired Proposed Change to Bitcoin Protocol for Anonymous Transactions

It’s well known that bitcoin transactions are not anonymous. Every transaction and the full transaction history of any bitcoin address are permanently recorded in the tamper-proof public blockchain and open to analysis. A bitcoin addresses isn’t explicitly associated to its owner, but blockchain network analysis can often de-anonymize bitcoin users.

Bitcoin Magazine recently reported that two companies, Chainalysis and Elliptic , sell sophisticated blockchain network analysis tools and services to trace bitcoin transactions back to their participants, and de-anonymize users. Such services often anger libertarian early adopters, but the direction of the evolutionary trend in the Bitcoin space is clear – governments and financial institutions are gradually warming up to blockchain technology as a means to achieve faster, cheaper and better recorded transactions, but consider privacy and anonymity as bugs that need to be fixed.

Recommended privacy practices, from simple measures such as using fresh Bitcoin addresses for new transactions to strong privacy measures such as dark wallets and mixing services, reduce the risk of being de-anonymized, but there are documented attack strategies that often permit identifying bitcoin users by IP. Using the Tor network provides additional privacy protection by masking the user’s IP, but ways to work around Tor privacy have been found.

Now two researchers from the ATR Defense Science & Technology Lab at Shenzhen University, in China, have published a white paper titled “Transaction Remote Release (TRR): A New Anonymization Technology for Bitcoin .” The researchers propose a new anonymization technology called Transaction Remote Release (TRR). Inspired by Tor, TRR is able to render several typical attack strategies ineffective. “Furthermore, the performance of encryption and decryption of TRR is good and the growth rate of the cipher is very limited,” say the researchers. “Hence, TRR is suited for practical applications.”

“In the Bitcoin protocol, the only way that the attackers can connect the Bitcoin address with an IP address is in the process of releasing and spreading a new transaction,” note the researchers. Therefore, they propose to encrypt the new transaction and obfuscate the source IP of the sender.

TRR is inspired by the idea of encryption and decryption layer by layer as used in Tor. A client encrypts a new transaction, layer by layer, using the public key from different TRR nodes. Then it establishes an independent connection to other TRR nodes, one by one, without using the spreading mechanism of the Bitcoin network.

When a TRR node receives data, it will decrypt it using its private key. Then it transmits the remaining data to the next node. When the last TRR node is reached, it will release the transaction to the Bitcoin network. Every node knows its previous node and next node. Only the client and the last node know the content of the transaction but the last node does not know the IP address of the client.

The researchers analyze several possible de-anonymization attack strategies, including Bitcoin protocol sniffers, the Sybil attack, Sybil attack plus entry nodes, fake Bitcoin nodes and fake TRR nodes attack, and conclude that TRR can help clients gain strong anonymity.

"In addition, the experiments show that the performance of the TRR multi-layered encryption and decryption algorithm is satisfactory in practice and the growth rate of cipher text is very limited,” note the researchers in the conclusion.

The researchers acknowledge that the current TRR proposal is vulnerable to DoS attacks based on fake TRR requests, and state that further research to eliminate this weakness is ongoing.

But another weakness is that implementing TRR would require changes to the Bitcoin protocol. That is a serious weakness, because it seems evident that, in the privacy-as-bug climate that is developing around Bitcoin, there is just no way modifications to Bitcoin Core explicitly aimed at anonymity could ever be accepted.

Therefore, it might make more sense to consider implementing TRR in a privacy-enhanced sidechain. The modifications to Bitcoin Core required for implementing sidechains are justified by general considerations much more acceptable from a mainstream perspective. Sidechain Elements , the first experimental code base for sidechains released by Blockstream, includes confidential transactions, and a sidechain implementation of TRR could be a workable way to sneak privacy in.

The popular website Daily Dot covered the TRR white paper and noted that TRR first emerged in 2014 during the development of DarkNetCoin, a niche cryptocurrency focused on anonymity. Unfortunately the conclusion of the Daily Dot article, “Bitcoin did not respond to a request for comment about TRR,” reveals that the mainstream press still has basic things to learn about Bitcoin.

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Vaultoro Seeks to Provide a Store of Value to the Underbanked World Using Gold and Bitcoin

Previously reported by Bitcoin Magazine , bitcoin and gold exchange Vaultoro has reached $1 million in gold trading volume, recording an average monthly trading growth rate of 91 percent and rapid increase of its user base. Following its milestone, Vaultoro plans to expand its team and services internationally, to become the “key ingredient for the 2.6 billon under-banked” individuals all around the globe.

Gold has been the international store of value for thousands of years. Unlike bitcoin or fiat money, gold has proved to be a stable universal currency with very low volatility. Based on the five-year gold chart taken from Infomine.com , the gold price in January 1, 2010 stood at around $1,100. At this time of writing, the price of gold is around $1,130, recording a mere $30 difference over the last five years.

Brothers Joshua and Philip Scigala developed Vaultoro to allow the underbanked population to escape the volatility of bitcoin and store their wealth in physical gold.

“We built Vaultoro so people anywhere in the world can hedge the bitcoin price volatility without going back to fiat but by instantly parking any value in gold. Gold gets its value from the markets and not by government dictate. It is also globally recognized as a store of value. It has lasted more than 3,000 years, whereas no paper fiat currency has lasted more than 200 without collapsing with terrible consequences for the holder,” Joshua Scigala told Bitcoin Magazine.

“We see Vaultoro being a key ingredient for the 2.5 billion underbanked in the world to be able to accept payment from all around the world with bitcoin, hold that value in assigned gold and then spend it within seconds using bitcoin again,” added Scigala.

Currently, Vaultoro stores all of its physical gold in a Swiss high-security vault, 100 percent insured against theft, fire and other eventualities. Unlike most of fiat-to-gold bitcoin exchanges, Vaultoro will deliver gold bars in physical form to their users at any time.

Vaultoro to Launch a Point of Sales App

Online merchants, especially in Latin America and Southeast Asia have fallen victim to the highly volatile nature of bitcoin and time and time again. Today, there are very few platforms that enable users to hedge the value of bitcoin to another asset.

With an aim to serve small and medium-sized bitcoin merchants in underbanked regions, Vaultoro plans to launch a point of sales application that “will allow merchants to choose their hedge, meaning a 50/50 split or a 10/90 split between bitcoin they get in and gold they hold. We are looking at possible partnerships with ATMs and mobile payment providers in these regions so they can hook up to our system via API and use gold and bitcoin directly or indirectly through us,” Scigala told Bitcoin Magazine.

“Lock-in Service”

A few bitcoin platforms such as Coinapult offer a bitcoin “lock-in” service that allows users to lock in the price of bitcoin to the price of another asset has been popular in the United States and Latin America. The Vaultoro team found the idea of a gold-to-bitcoin lock-in service interesting, but they believe that the lock-in feature would contradict the fundamental philosophy that wealth is backed by real physical assets.

“When someone trades into gold on Vaultoro they actually buy physical gold that is secured as their property in their name. The gold is held in what’s called a bailment contract meaning we secure someone else’s property (just like self-storage facilities hold your furniture). By offering to lock in someone’s bitcoin to a certain price we would be moving away from the fundamental philosophy that wealth is backed by real physical assets and not by a promise to lock a price and deliver on that,” said Scigala.

Instead, the Vaultoro team may look into diamonds or other physical assets that are even more stable than gold.

Investments

Currently, Vaultoro is considering a funding round to maintain its services and expand its team. The Vaultoro team is exploring a few options including crowdfunding campaigns and venture capital investments.

“Any other investment we would take on would not only be to raise money but also to gain expertise and knowledge by bringing onboard people that will help us grow our vision long term,” Scigala said. “A vision of open markets, a vision where we stop taking money from poor people in rich countries and giving it to rich people in poor countries, but rather give poor people in poor countries the tools to lift themselves out of poverty by enabling them to join a global market of goods and services through a bank and state independent monetary system we all know and love as Bitcoin.”

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Deutsche Bank: The Blockchain is a ‘Truly Disruptive Idea’

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Bank of America Files Patent Application for Cryptocurrency-Mediated Wire Transfers

Bank of America (BoA) has filed a patent application titled “System and Method for Wire Transfers Using Cryptocurrency .” The application was filed in March and published on September 17 by the U.S. Patents and Trademarks Office.

The BoA filing describes an alternative to traditional wire transfers. The funds are first transferred to a cryptocurrency exchange, then converted to a cryptocurrency such as bitcoin, then sent to another exchange, and finally converted into another currency for the recipient. In other words, BoA wants to patent the concept of using a cryptocurrency as a transparent intermediate step for fiat currency transfers.

“A system includes a memory and a processor,” reads the abstract of the filing. “The processor is coupled to the memory and causes the system to receive an electronic request for a fund transfer and initiate a debit of a first amount of a first currency from a customer account. In response to determining using cryptocurrency is optimal, the processor can transfer the first amount of the first currency into an account associated with a first cryptocurrency exchange and initiate the purchase of a first quantity of a cryptocurrency from the first cryptocurrency exchange. The processor can transfer the first quantity of the cryptocurrency to a second cryptocurrency exchange and initiate the sale of the first quantity of the cryptocurrency at the second cryptocurrency exchange. The processor is further able to initiate the transfer of at least a portion of the resulting currency to a recipient.”

The system includes means to determine which transfer method – including cryptocurrency – is optimal in a given case. The decision strategy is based on time factors, price factors, exchange rates, fees charged by third parties, volatility and other relevant information. If using cryptocurrency is found to be optimal, the system includes means to determine which cryptocurrency or exchange should be used. For example, the system “may choose a particular cryptocurrency exchange because the cryptocurrency is priced favorably (e.g., cheap if purchasing, expensive if selling) or because the cryptocurrency exchange has a relationship with the enterprise.”

BoA claims that the system described in the patent application can reduce or eliminate disadvantages and problems associated with traditional wire transfers. The application notes that enterprises handle a large number of foreign wire transfer requests on a daily basis, and foreign transactions are becoming more common. The BoA filing is focused on making cross-border transactions faster: “It may be desirable to conduct a foreign wire transfer in less time than what current foreign wire transfer systems allow.”

The proposed BoA system can bypass traditional wire services, reduce the dependency on third party networks, and increase the reliability of fund transfers. Cryptocurrency-mediated transfers permit completing a foreign fund transfer in less time than traditional wire transfers, avoiding delays that may be caused by third party systems and services. Furthermore, transferring funds using a cryptocurrency reduces the need to transfer customer data to third-party systems, thus increasing control and security of customer data.

As usual with patents, the application tries to cover all possible technical implementations and use cases, and defines cryptocurrencies in a generic way. “A cryptocurrency is typically a peer-to-peer, decentralized, digital currency whose implementation relies on the principles of cryptography to validate transactions and generate the currency itself,” reads the filing. “Some examples of cryptocurrencies are: Bitcoin, Litecoin, Ripple, Peercoin, and Dogecoin. In some instances, a cryptocurrency, such as MintChip, may be backed by a government (e.g., Canada).”

Today, many banks and financial operators are warming up to the potential of digital currencies to reduce the time and cost of fund transfers, especially cross-border transfers. The BoA patent application tries to cover both existing and future cryptocurrencies, and all systems that use a cryptocurrency as a transparent intermediate step for fund transfers in fiat currencies. It seems likely that BoA is trying to claim ownership of cryptocurrency-mediated fund transfers, which might become commonplace soon. Of course, the move has been criticized by Bitcoin users, for example in this Bitcointalk discussion thread .

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Bitcoin Tracker One ETN Offers Liquidity to European Investors

Financial disruption from the inside

Regulation makes it impossible today for most institutional investors to invest in Bitcoin. However, there are many new players trying to circumvent regulatory boundaries, or innovate from inside, instead of trying to change the regulations altogether. Innovation, instead of regulatory change, is a faster, cheaper and easier approach to change in many innovators' and entrepreneurs' eyes.

One of those companies is XBT Provider. In May, it launched the world’s first Bitcoin-based asset “Bitcoin Tracker One” and just recently announced its second product, a Euro-denominated Bitcoin-based security, Bitcoin Tracker EUR, available through Nasdaq Nordic on October 5.

"We are proud to offer a Euro-denominated instrument to meet demand from investors worldwide,” said Alexander Marsh, CEO of XBT Provider.

The demand for Bitcoin has seen very high growth since its inception in 2009 but this demand has been accessible only for private individuals or investors who have had the flexibility to invest outside of regulated exchanges. Looking at the demand from institutional investors, this might rapidly be changing and, according to Marsh, “Bitcoin Tracker One has during periods been among the top three most-traded ETNs on Nasdaq Nordic since launch.”

Attractive investment to diversify portfolio

Through the opening of Bitcoin-based assets accessible on the regular stock exchange, XBT Provider is looking to get institutional investors to understand the benefit of having Bitcoin in their portfolios, but more education is needed. “One of the advantages of diversifying your portfolio with bitcoin is that it’s still uncorrelated with other assets.” Johan Wattenström, Partner at XBT Provider explains. “Additionally, a critical number of triggers and catalysts in the Bitcoin ecosystem are now in place for a further take-off in the price.”

The volatility that has followed Bitcoin has been seen as both a blessing and a curse. For the regular investor, volatility in an asset is often seen as something negative that has to be avoided to have a stable portfolio. However, volatility for the institutional investors, and crafty traders, is instead seen as something very positive since they can capture the upward price movements and make a profit from them.

Bitcoin no longer an untouchable asset

There are a few benefits for investors to invest in ETNs instead of directly in the underlying asset or in an ETF. First, ETNs can track one unique asset without needing to diversify its holdings such as an ETF often must. Additionally, it can increase liquidity in otherwise highly illiquid assets. Lastly, it can give investors access to assets that are otherwise too hard to manage or require too much prior knowledge to maintain properly.

This makes ETNs a very common choice for investors who would like to invest in niche assets without needing to spend time and resources learning and understanding the underlying asset's technical aspects.

From Sweden to the world

Bitcoin Tracker One is denominated in Swedish krona, which, being a minor currency in the global financial markets, has led to some still being hesitant to invest. Bitcoin Tracker EUR aims at changing this by making the steps for investing in bitcoin as few as possible. Being denominated in euros, it can lower fees and make bitcoin much more accessible to the global investor.

Compared to bitcoin, Bitcoin Tracker One has seen incredible growth since its launch a few months ago and is currently holding more than 15,000 bitcoin. This opens up the question whether the next step to Bitcoin’s growth will come from the institutional side and not from the private investor. Additionally, it has followed the price of bitcoin on a 1:1 ratio consistently, which shows that, if managed properly, bitcoin can be considered as any other financial asset that institutional investors could consider investing in.

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NeuCoin Launches a New Digital Currency for Online and Mobile Gaming

NeuCoin, the international digital currencies project supported by three nonprofit foundations, has launched its digital currency for online games, videos and music and has already listed the coin on two exchanges with more to come.

NeuCoin is designed for use cases such as playing freemium games online or on mobile phones without needing a wallet address or QR code – the new NeuCoin will be payable right onthe game site whether it’s on iPhone or a tablet.

NeuCoin can also be traded and exchanged for bitcoin on Bittrex and Cryptsy exchanges and more exchanges will be carrying it in the near future.

Dan Kaufman, NeuCoin project cofounder told Bitcoin Magazine:

“The key points, in my opinion, are that NeuCoin isn't just another blockchain – it's a whole ecosystem of services – all aimed at making crypto more accessible and getting NeuCoin into the hands of millions of mainstream users, through games, social media and strategic distribution.”

NeuCoin’s Top Priority is Online/Mobile Games

Kaufman told Bitcoin Magazine that the project plans to focus on developing and releasing games as it’s current priority: “NeuCoin isn't just another coin – it's a whole ecosystem of consumer-facing services – all aimed at growth and acquiring lots of mainstream users from outside the crypto world. It’s about reaching new audiences in a fun way and putting crypto in the hands of millions of regular users through games and social media.”

Kaufman added:

“Having a meaningful user base of NeuCoin-holding players will be an important leverage point as we work with leading game publishers with large existing user bases to integrate NeuCoin.”

NeuCoin is developingtwo prototype online and mobile games (based on popular games) that will demonstrate how NeuCoin can be incorporated into the gaming experience.

“The first NeuCoin-integrated game, coming very soon, is basedon one of the most popular card games in the world and will show how to engageusers by letting them earn a few NeuCoins for playing, then using them to level up or challenge their friends. Instead of having to pay 5 bucks to buy “in-game tokens,” which is the way most games monetize, the player actually wins NeuCoins,” added Kaufman.

In addition, theproject is releasing MyNeuCoin – the new online wallet that allows users to manage their NeuCoins with just an email and password to access a “super easy, intuitive interface.”

And NeuCoin “Growth Accounts” let users transfer their NeuCoins into long-term “savings” accounts and earn NeuCoin rewards on their deposits.

Behind the scenes, users contributing NeuCoins to a proof-of-stake mining pool, and keeping most of the rewards. “This will be the first time in the crypto-space that regularconsumers get to participate in mining. We think it will help convert casual NeuCoin users into long-term members of the NeuCoin community.“

The NueCoin website has a consumer onboarding area that introduces and explains the digital currency to new users.

NeuCoin is also partnering with major music and video content providersto develop micro-payment solutions for tipping, pay-per-view, ad-free and micro-subscriptions, with user acquisition fuelled by freemium distribution of NeuCoin.

Image

Lian Chang / Flickr(CC)

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World Leaders Meet at United Nations; Control of the Internet on the Table

It was an exciting week in the northeastern United States as world leaders from China, Russia, and even The Vatican gathered to discuss the future of mankind at the United Nations headquarters in New

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Digital Currency Derivatives Exchanges Prepare for Regulation after CFTC Bitcoin Ruling

Only a week after ruling that bitcoin and other digital currencies are commodities, the U.S. Commodity Futures Trading Commission (CFTC) announced on Thursday that they have settled charges filed against TeraExchange LLC (Tera) for arranging a “non-deliverable forward contract” last October.

Neither of the parties entering the trade were looking to profit off of future bitcoin price changes, but rather to test Tera’s network. However, Tera subsequently released a press release that indicated the pre-arranged swap was a real trade, which would violate both the Swap Execution Facility (SEF) Core Principles found in the Commodity Exchange Act and CFTC regulations.

This was the first charge filed by the CFTC against a bitcoin exchange following last week’s announcement , which gave the CFTC jurisdiction over online bitcoin exchange and derivative markets.

Other digital currency platforms that offer similar services have prepared for this moment. LedgerX applied for both an SEF and Derivatives Clearing Organization license last year but has received only a temporary SEF registration at this point.

In a statement released September 10th, CEO Paul Chao said, “[LedgerX does] not intend to launch with only [an] SEF license… Only with both SEF and DCO licenses from the CFTC can we clear and physically deliver the underlying commodity, offer an order-book trading venue, and attract institutional traders.”

LedgerX has even contracted Ancoa , a surveillance technology provider in order to identify “manipulative behaviors and suspicious trading practices” on the LedgerX platform, according to a statement released earlier this year.

While this type of regulation might seem counterintuitive, as it forces exchanges to push back release dates, industry players welcome the oversight. In a private interview, Alt-Options co-founder Marco Cuesta conveyed that “[the CFTC’s] regulation does positively impact the bitcoin derivative market, since its purpose is to protect clients and their assets. As regulation for the Bitcoin derivative market becomes more aligned with that of traditional financial markets, there should be wider adoption, which is good for the industry.”

Image via CFTC

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FBI Agent Threatens to Kill Silk Road Architect, Ulbricht’s Family for Bitcoin

Diamond, which is believed to be an online alias of an unknown corrupt FBI agent, has been threatening to kill Silk Road Architect Variety Jones and torture Ross Ulbricht’s mother and sister

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Bitcoin Derivatives Company LedgerX Appoints Ex-CFTC Commissioner Wetjen to Board

LedgerX, an institutional bitcoin trading and clearing platform, announced this week that Mark Wetjen, the ex-commissioner of the U.S. Commodity Futures Trading Comission (CFTC), will join its board.

Nominated by President Barack Obama in 2011 and unanimously confirmed by the Senate as one of the five CFTC commissioners, Wetjen both helped to implement the first trading mandate for certain types of interest rate and credit default swaps and pushed the CFTC to undertake approximately 95 enforcement cases under the Dodd-Frank Act and Commodity Exchange Act.

He also served as the acting chairman and sponsor of the CFTC’s Global Markets Advisory Committee, which advises the CFTC on issues relating to the “the integrity and competitiveness of U.S. markets and U.S. firms engaged in global business.”

LedgerX already recruited a CFTC Commissioner to their team: James E. Newsome, Ph.D., an Independent Director at LedgerX, served at the CFTC from 2000 until 2004, when he assumed the role of President and CEO of the New York Mercantile Exchange, which was acquired for $11.2 billion in 2008 by the CME Group, the parent company of the Chicago Mercantile Exchange.

LedgerX applied for both a Swap Execution Facility (SEF) and Derivatives Clearing Organization (DCO) license last year with the CFTC but has received only a temporary SEF registration at this point. LedgerX CEO Paul Chou has publicly stated that “only with both SEF and DCO licenses from the CFTC can we clear and physically deliver the underlying commodity, offer an order-book trading venue and attract institutional traders.”

Following last week’s announcement from the CFTC declaring bitcoin a commodity, the Wetjen’s appointment will certainly help LedgerX navigate the CFTC’s SEF and DCO license application process in order to become a sanctioned bitcoin trading and clearing platform.

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Bitcoin Hardware Wallet KeepKey Launches and Begins Shipping

In a rare move in the Bitcoin space, KeepKey has simultaneously begun to take orders for and to ship their flagship bitcoin hardware wallet. As of Wednesday, customers are able to purchase the USB device for USD$239 on Amazon, or directly from the KeepKey website using bitcoin. Worldwide shipping is included in the cost.

The KeepKey hardware wallet is designed to store and secure bitcoin while protecting them from virtual attacks such as malware and viruses. The device generates and stores bitcoin private keys, never sharing them with the connected computer. Another key feature is a large OLED screen that displays every transaction before it can be approved, thus allowing users to verify that they are sending funds to the correct address and reducing the chance of error.

“Our guiding principle is to empower individuals and organizations with bank-grade bitcoin security,” says Darin Stanchfield, the founder of the company. “This is what our device does, and it is simple to use. Other products that are available require a high level of sophistication to operate. With KeepKey, it is very difficult to do the wrong thing,”

KeepKey currently works with Google Chrome using the KeepKey Wallet Extension . It is also supported by popular bitcoin wallets, including Electrum and MultiBit .

“Our security model was designed to ensure that the user always has complete control over their private keys,” said Ken Heutmaker, a software engineer at KeepKey. “We feel that relying on trusted third parties degrades the security and privacy that the bitcoin ecosystem offers.”

As for KeepKey’s decision not to take pre-orders in order to fund the hardware wallet’s development, Stanchfield cites his own personal experience with being “burned” by other companies who have pre-sold items and then not been able to deliver.

“A customer takes enough risk when they buy any product,” Stanchfield said to Bitcoin Magazine . “We don’t think they should assume the risk of funding manufacturing, too. We made this promise to ourselves early on in development of KeepKey. Fortunately, we have had the finances to pursue this route to get KeepKey to market.”

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Three Bitcoin Finalists Vie for BBVA Open Talent Competition Honors in Barcelona

On September 22nd, the winners of the European division of the BBVA Open Talent Competition were announced in Barcelona, Spain. This year, three of the 15 finalists come from the Bitcoin and blockchain sector: Everledger , Safello and Vaultoro .

The purpose of the competition is to discover and support up-and-coming innovators in financial technology who are poised to “disrupt [the banking] industry in e-commerce, security, mobile payments, data and others.”

The two winners are selected from each of three territories: Europe, Latin America and the United States and the rest of the world. Those six companies not only take home $30,000 each, but also benefit from extensive mentoring and networking support from BBVA in the form of a two-week intensive course.

This year, Everledger was named one of the two European winners.

Based in the U.K., Everledger is a permanent ledger for diamond certification and related transaction history. Using blockchain technology, it acts as a fraud-detection system, overlaying big data from closed sources such as insurers and law enforcement.

“BBVA Open Talent provides an inflection point in the growth curve of Everledger and validates our role in the financial services ecosystem,” Everledger’s CEO Leanne Kemp told Bitcoin Magazine .

“Everledger is a business that will make a difference: At our very core we focus on the ongoing presence of blood diamonds, combatting fraud, theft and counterfeit luxury goods — a problem for consumers, law enforcement and insurers that tops £50 billion a year,” she said. “Blockchain provides a distributed global solution to a fragmented, scattered and complex global problem. With the support from the Barclays Accelerator, and now as a finalist in the BBVA Open Talent Competition, we are having conversations to create new financial and insurance products for diamonds.”

Joshua Scigala, co-founder of Vaultoro, was enthusiastic about the BBVA’s inclusion of his U.K.-based bitcoin and gold exchange.

“We are really proud to be a finalist in the BBVA awards,” Scigala told Bitcoin Magazine . “The developing world skipped the landline and went direct to mobile phones. They are now doing the same with traditional branch banking because it’s just too uneconomical to set up. Vaultoro enables anyone to easily enter the global economy securely by utilizing the native Internet currency, bitcoin, and removing the extreme volatility by combining the security of assigned gold bullion. This will go very far towards ending poverty by including a potential 5 billion people who have no real access to banking.”

Vaultoro is a real-time Bitcoin gold exchange that allows its users to convert their bitcoin instantly to gold and back, alleviating volatility risk for bitcoin users. Its “bank-independent trading” allows users to trade gold in amounts as small as 0.001 gram.

The third bitcoin finalist, Safello, is a Swedish-based exchange that works with a wide network of European banks providing direct payment options, allowing customers to buy and sell bitcoin instantly, thereby avoiding exposure to market volatility.

“What’s most noticeable about this Open Challenge is the sheer amount Bitcoin selected,” Frank Schuil, CEO of Safello, told Bitcoin Magazine . “It shows the dedication from BBVA to embrace blockchain technology. With regards to our selection, of course our recent announcement with Barclays is sparking interest from other financial institutions. The fact that we are essentially building a new type of bank on top of blockchain technology is sparking interest.”

Everledger joins BitNexo , winner of the Latin American regional competition, as the second Bitcoin-based company to take home a BBVA award this year.

“In BitNexo’s mission to bring simplicity, speed and savings to cross border payments for SMBs through the use of blockchain technology, we had the honor of sharing the stage with 13 other amazing FinTech Startups from all around Latin America,” said Darren Camas, CEO and co-founder of BitNexo in a blog post . “To say I was impressed with the level of competition is an understatement.”

Information about all 15 finalists can be found on the BBVA Open Talent competition website .

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Australian Regulators Investigating Banks for Closing Accounts of Bitcoin Companies

The Australian Competition and Consumer Commission has confirmed the launch of a formal investigation about the abrupt termination of banking support for many bitcoin companies in the country.

“It appears to me to be an amazing coincidence that a number of large banks have all of a sudden decided to deny services to fledgling Bitcoin and digital currency operators. They are clearly competitors to their business model, albeit small ones at this stage, and there are clear laws that we’ve got against businesses refusing to supply other businesses if they do so for an anti-competitive purpose.” said Senator Matthew Canavan , who encouraged the ACCC chairman Rodd Sims to lead an investigation on the incident.

Canavan requested an investigation to question the banks’ motive and reasoning behind the blacklisting of bitcoin companies.

“I think the ACCC should be asking the banks some serious questions about why they’ve done this and on what legal grounds they believe that they should not be providing services to Bitcoin operators,” said Canavan.

It has been reported that 17 bitcoin companies in Australia have had their bank accounts closed down, and have been cut off completely from all banking support.

“I’ve been blacklisted from Commonwealth Bank, National Australia Bank, Westpac, St George, Bank of Melbourne, Bank SA, Bank of Queensland, Rams and BT Superfund,” said Bitcoin trader Michaela Juric .

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Bank of England Chief Economist: Blockchain-based Digital Currency Issued by Central Banks Could Replace Cash

In a talk given at the Portadown Chamber of Commerce in Northern Ireland on September 18, Andrew G Haldane , Chief Economist at the Bank of England (BoE), has hinted at the possibility that the U.K. government might issue a digital currency. Though the disclaimer “The views are not necessarily those of the Bank of England or the Monetary Policy Committee” ensures plausible deniability, Haldane’s talk seems to indicate that the BoE is at least seriously considering the possibility.

Haldane is chief economist at the BoE and executive director of monetary analysis and statistics. Listed by Time Magazine in 2014 as one of the 100 most influential people in the world, Haldane is a member of BoE’s Monetary Policy Committee and oversees research and statistics across the bank.

Haldane focuses on the inability of central banks to set negative interest rates to stimulate economic growth, which hinders the effectiveness of monetary policy and is known as the Zero Lower Bound (ZLB) problem.

“A central bank cannot reduce nominal interest rates below zero,” explained a 2014IMF working paper cited by Haldane. “This constraint arises from the existence of an asset, cash, with a guaranteed return of zero. A negative interest rate would mean that someone lends $100 and receives less than $100 in the future. Such a loan would never occur, because the lender could do better by putting cash in a safe deposit box.”

Therefore, Haldane suggests looking for technological means for implementing a negative interest rate on physical currency. More than a century ago, German economist Silvio Gesell proposed a stamp tax on currency to generate a negative interest rate. Modern variants of the stamp tax on currency have been proposed – for example, by randomly invalidating banknotes by serial number.

Another possibility is to abolish paper currency, which would also represent a way to fight criminal activities that rely on cash exchange.

Yet another possibility would be to issue government-backed currency in an electronic rather than paper form.

“This would preserve the social convention of a state-issued unit of account and medium of exchange, albeit with currency now held in digital rather than physical wallets,” says Haldane. “But it would allow negative interest rates to be levied on currency easily and speedily, so relaxing the ZLB constraint.”

Haldane observes that the technology underpinning digital currencies has changed rapidly over the past few years, due to the emergence of Bitcoin and crypto-currencies.

“What I think is now reasonably clear is that the distributed payment technology embodied in Bitcoin has real potential,” says Haldane. “On the face of it, it solves a deep problem in monetary economics: how to establish trust – the essence of money – in a distributed network. Bitcoin’s “blockchain” technology appears to offer an imaginative solution to that distributed trust problem.”

Whether a variant of this technology could support central bank-issued digital currency, and whether the public would accept it as a substitute for paper currency, are, according to Haldane, open questions that do not have easy answers.

“That is why work on central bank-issued digital currencies forms a core part of the bank’s current research agenda,” concludes Haldane. “Although the hurdles to implementation are high, so too is the potential prize if the ZLB constraint could be slackened. Perhaps central bank money is ripe for its own great technological leap forward, prompted by the pressing demands of the ZLB.”

In a previous presentation, Haldane stated that digital currencies are “harder money” than a gold standard, because “sustained adoption would see ongoing deflation.” A few months ago the Bank of England published a research paper titled “Innovations in payment technologies and the emergence of digital currencies .”

“The distributed ledger is a genuine technological innovation that demonstrates that digital records can be held securely without any central authority,” reads the conclusion of the paper. A recent U.K. Treasury document titled “Digital Currencies: Response to the Call for Information ” shows that the British government is interested in supporting and understanding blockchain-based digital fintech, and understands the potential benefits it could bring to society.

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Sig3 Launches an Automated Policy-Based Transaction Cosigner for Multisig Bitcoin Transactions

Bitcoin startup Sig3 has introduced an independent third-party automated co-signer which automatically co-signs transactions based on the policies and criteria implemented by its users.

With Sig3, users can customize and set their own policies to determine the criteria for transaction authorization and verification. Based on the policies implemented by the user, Sig3 automatically co-signs the transaction, adding another layer of security on top of the multi-sig transaction.

“Sig3 is at the intersection of security and usability. We’re redefining what it means to transact simply and securely with bitcoin. In order to have a truly secure and well functioning blockchain application, developers need to incorporate multi-sig technology and multi-sig services like Sig3 need to provide a user friendly interface to increase adoption,” said Sig3 CEO Brian Nelson in an email to Bitcoin Magazine.

The platform is currently integrated with Copay, an open-source multi-signature wallet from leading bitcoin processor BitPay. With Copay, users will be able to send secure transactions by distributing three private keys between Copay, Sig3 and themselves. Since all three private keys held by the user, Copay and Sig3 are required to send or settle a transaction, it creates a whole new level of security limited with other multi-signature platforms available in the market.

“Sig3’s goal is to make transacting with bitcoin as easy as it used to be, but with the security of the future,” explains the Sig3 team.

The startup has begun developing an API for developers and for easier integration process. Sig3 will also be integrating more multi-signature wallets to its platform, to provide its users with a variety of options.

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BitGo Processes Over $1 Billion in Bitcoin Transactions in Third Quarter

Leading bitcoin security platform and multi-signature / P2SH (pay-to-script hash) bitcoin wallet provider BitGo has transacted more than $1 billion worth of bitcoin transactions in a single quarter.

“BitGo was the first to pioneer the secure, multi-signature wallet platform for bitcoin,” said BitGo CEO and co-founder Mike Belshe. “Security is never a finished feature, so we’re continually raising the bar. As we reach this billion-dollar milestone, we’re happy know so many customers are seeing the value of our solution.”

The BitGo wallet platform and API have not experienced a single breach or theft of bitcoin since its launch in 2013. The company has been focused on creating the world’s most secure bitcoin wallet, prioritizing security and multi-signature solutions.

The platform’s API services and products designed for both developers and institutions enable users to create hundreds of thousands of addresses, with a real-time view of digital asset transactions and settlements.

“For the sake of accuracy, our metrics do not count change address outputs. As an example, if a user sends someone $13 from a wallet with $17 in it, we only count the $13 transaction and not the transfer of $4 back into the wallet.” said Regina Scolaro, Director of Marketing for BitGo. “We have chosen to use this methodology because we believe that in order to get a true sense of activity within the Bitcoin space, this should be the standard measurement.”

Furthermore, the BitGo platform has secured its bitcoin wallets with multi-signature pay-to-script hash technology, also known as P2SH, allowing users to send bitcoin to addresses secured in various unusual ways without knowing much about the security details, thus creating completely unique transactions and settlements.

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Storj Network Passes 1 Petabyte Storage Space

Decentralized cloud storage provider Storj Labs Inc. has announced that its second round of network testing called “Test Group B” has reached the 1 petabyte milestone of managed storage space.

Test Group B is an in-depth test of the platform’s storage client DriveShare , a software that enables users to earn money by sharing extra hard drive space. The Storj Test Group B has reached 1,173 terabytes in storage space and currently supports 293 users online.

“We’re extremely pleased by the support and validation we’ve received from our community,” said CEO Shawn Wilkinson in a statement. “We’re excited to release the world’s first crowdsourced cloud storage platform.”

The Test Group B network test is set to run until late October, with increased rewards and test group participants. In recognition of the 1 petabyte milestone, Storj Labs has increased the testing rewards pool from 100,000 Storjcoin X (SJCX) to 1 million SJCX, which is currently worth around $16,000.

DriveShare is an open-source software powered by the Storj network that is a part of the startup’s successful crowdsale campaign. The DriveShare client allows users to rent out unused hard drive or cloud storage space at the rates of Dropbox, Mega, Box and many other cloud platforms.

Photo Ludovic.ferre / Wikimedia (CC)

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Bitcoin and Gold Exchange Vaultoro Reaches $1 Million in Gold Trading Volume

Real-time bitcoin-to-gold exchange and banking 2.0 Vaultoro has reached a significant $1 million milestone in gold trading volume, recording an average monthly trading growth rate of 91 percent.

The exchange has seen a rapid increase of its user-base, especially in developing countries such as India, which are severely underbanked or unbanked.

“The developing world skipped the landline and went direct to mobile phones. They are now doing the same with traditional branch banking because it’s just too uneconomical to set up,” said Vaultoro CEO and co­founder Joshua Scigala in a statement.

“Vaultoro enables anyone to easily enter the global economy securely and privately by utilizing the native Internet currency bitcoin and removing the extreme volatility by combining the security of assigned gold bullion. This will go a long way towards ending poverty by including a potential 5 billion people who have been left behind by traditional banking,” Scigala added.

Crowdfunding Campaign

In conjunction with the announcement, Vaultoro has launched an equity crowdfunding campaign on BNK TO THE FUTURE, to maintain its growth and to expand its services throughout underbanked regions in Asia and Latin America.

The startup has offered 25 percent equity for $785,000 , enabling anyone to fund the project and profit from the platform. Currently, Vaultoro has raised $236,000 from 149 international backers. With the new financing, the startup plans to redevelop its mobile application, and offer a multi-lingual platform for its users.

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Bitcoin According to Regulators: Money, Currency, Property, and Now a Commodity

Bitcoin is now officially a commodity according to U.S. regulators, Bloomberg Business reports . The Commodity Futures Trading Commission (CFTC) announced on Thursday that it had filed and settled charges against a Bitcoin exchange for facilitating the trading of option contracts on its platform.

“In this order, the CFTC for the first time finds that Bitcoin and other virtual currencies are properly defined as commodities,” notes the CFTC press release .

The U.S. Commodity Futures Trading Commission is an independent agency of the U.S. government created in 1974, which regulates futures and option markets that are subject to the Commodity Exchange Act . By this action, the CFTC asserts its authority to provide oversight of the trading of cryptocurrency futures and options, which will now be subject to the agency’s regulations.

“While there is a lot of excitement surrounding bitcoin and other virtual currencies, innovation does not excuse those acting in this space from following the same rules applicable to all participants in the commodity derivatives markets,” said CFTC’s Director of Enforcement Aitan Goelman.

The CFTC action targets Bitcoin exchange Coinflip, which operated the Bitcoin financial derivatives market Derivabit, and its chief executive officer Francisco Riordan, for “conducting activity related to commodity options transactions without complying with the Commodity Exchange Act (CEA) and CFTC Regulations, specifically, by operating a facility for the trading or processing of commodity options without complying with the CEA or CFTC Regulations otherwise applicable to swaps or conducting the activity pursuant to the CFTC’s exemption for trade options.”

The website derivabit.com hasn’t been active since mid-2014. A September 2014site snapshot on Internet Archive advertised Derivabit services as “Financial derivatives to manage exposure to Bitcoin volatility – Buy & sell option contracts to control your Bitcoin risk” and listed ongoing trades. Later snapshots just said “Not Currently Accepting Customers,” and the domain was announced for sale on Bitcointalk with the source code in January 2015. More information on Derivabit services is available in this discussion thread on Hacker News .

The CFTC press release notes that Coinflip and Riordan cooperated with the Division of Enforcement’s investigation.

“The cease and desist was a fair settlement,” said Riordan to Bloomberg Business , and added that customer funds had been refunded in July 2014, before the CFTC made contact with the company: “There wasn’t enough trade volume for the site to sustain itself.”

A follow-up Bloomberg Business article lists reactions and comments to the CFTC claim from notable members of the Bitcoin community.

“There are so many regulators in the U.S., and they all want more jurisdiction, which leads to a constant stream of bizarre rulings,” said Bitcoin developer Mike Hearn. “None of them has much work to do because there’s not a whole lot of financial innovation happening in the States. So when they find a small one-man startup they can’t resist giving themselves work to do – so they go in and whack it, especially in California.”

Heard added that he is not terribly surprised and not terribly worried.

“I think the CFTC has a very weak case here and it’s a very creative reinterpretation of what the word commodity means,” he said. “The ruling will be challenged, and judges will apply common sense and decide it to be a currency.”

Some commentators said that compliance with the Commodity Exchange Act and applicable CFTC regulations would be too costly for many Bitcoin startups, with the predictable result that many innovative U.S. companies will be forced to move offshore.

Others, in agreement with Hearn, noted that the CFTC claim is inconsistent with related decisions by regulatory agencies in the United States and other countries.

Journalist David Seaman summarized the situation in a tweet : “To commodities regulators, Bitcoin is a commodity. To bank regulators, it’s a bank. To stock regulators, it’s a stock. Everyone wants ‘in.’”

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U.S. Runs Out of Internet Addresses; Pressure on ISPs to Bridge Protocols

The American Registry for Internet Numbers (ARIN), the organization which assigns IP addresses to devices connected to the internet, recently announced that it has run out of IPv4 addresses

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World’s First Decentralized Fintech Exchange OpenLedger Launches

Leading Danish bitcoin cryptocurrency exchange CCEDK has introduced the world’s first decentralized multi-lingual fintech exchange Open Ledger, allowing users to convert bitcoin to fiat-pegged SmartCo

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BitFury Invests $100 Million into Republic of Georgia for Mega-Data Center

Global bitcoin blockchain infrastructure provider and transaction processing company BitFury is planning to invest US$100 million to build its second data center in Georgia’s capital Tbilisi and the f

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BitPay in Peril? Massive Layoffs Follow Recent Price Hike

Bitcoin’s leading global merchant processor, BitPay, has reportedly begun massive layoffs to cut costs at their Atlanta headquarters.

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Digital Currency Derivatives Exchanges Prepare for Regulation after CFTC Bitcoin Ruling

Only a week after ruling that bitcoin and other digital currencies are commodities, the U.S. Commodity Futures Trading Commission (CFTC) announced on Thursday that they have settled charges filed against TeraExchange LLC (Tera) for arranging a “non-deliverable forward contract” last October.

Neither of the parties entering the trade were looking to profit off of future bitcoin price changes, but rather to test Tera’s network. However, Tera subsequently released a press release that indicated the pre-arranged swap was a real trade, which would violate both the Swap Execution Facility (SEF) Core Principles found in the Commodity Exchange Act and CFTC regulations.

This was the first charge filed by the CFTC against a bitcoin exchange following last week’s announcement, which gave the CFTC jurisdiction over online bitcoin exchange and derivative markets.

Other digital currency platforms that offer similar services have prepared for this moment. LedgerX applied for both an SEF and Derivatives Clearing Organization license last year but has received only a temporary SEF registration at this point.

In a statement released September 10th, CEO Paul Chao said, “[LedgerX does] not intend to launch with only [an] SEF license… Only with both SEF and DCO licenses from the CFTC can we clear and physically deliver the underlying commodity, offer an order-book trading venue, and attract institutional traders.”

LedgerX has even contracted Ancoa, a surveillance technology provider in order to identify “manipulative behaviors and suspicious trading practices” on the LedgerX platform, according to a statement released earlier this year.

While this type of regulation might seem counterintuitive, as it forces exchanges to push back release dates, industry players welcome the oversight. In a private interview, Alt-Options co-founder Marco Cuesta conveyed that “[the CFTC’s] regulation does positively impact the bitcoin derivative market, since its purpose is to protect clients and their assets. As regulation for the Bitcoin derivative market becomes more aligned with that of traditional financial markets, there should be wider adoption, which is good for the industry.”

 

 

Image via CFTC

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Bitcoin Derivatives Company LedgerX Appoints Ex-CFTC Commissioner Wetjen to Board

LedgerX, an institutional bitcoin trading and clearing platform, announced this week that Mark Wetjen, the ex-commissioner of the U.S. Commodity Futures Trading Comission (CFTC), will join its board.

Nominated by President Barack Obama in 2011 and unanimously confirmed by the Senate as one of the five CFTC commissioners, Wetjen both helped to implement the first trading mandate for certain types of interest rate and credit default swaps and pushed the CFTC to undertake approximately 95 enforcement cases under the Dodd-Frank Act and Commodity Exchange Act.

He also served as the acting chairman and sponsor of the CFTC’s Global Markets Advisory Committee, which advises the CFTC on issues relating to the “the integrity and competitiveness of U.S. markets and U.S. firms engaged in global business.”

LedgerX already recruited a CFTC Commissioner to their team: James E. Newsome, Ph.D., an Independent Director at LedgerX, served at the CFTC from 2000 until 2004, when he assumed the role of President and CEO of the New York Mercantile Exchange, which was acquired for $11.2 billion in 2008 by the CME Group, the parent company of the Chicago Mercantile Exchange.

LedgerX applied for both a Swap Execution Facility (SEF) and Derivatives Clearing Organization (DCO) license last year with the CFTC but has received only a temporary SEF registration at this point. LedgerX CEO Paul Chou has publicly stated that “only with both SEF and DCO licenses from the CFTC can we clear and physically deliver the underlying commodity, offer an order-book trading venue and attract institutional traders.”

Following last week’s announcement from the CFTC declaring bitcoin a commodity, the Wetjen’s appointment will certainly help LedgerX navigate the CFTC’s SEF and DCO license application process in order to become a sanctioned bitcoin trading and clearing platform.

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Coinbase on Bitcoin Patents: ‘Don't Hate the Player, Hate the Game’

Coinbase CEO Brian Armstrong responded to the backlash against his company when it was revealed that it filed nine Bitcoin patent applications with the US Patent and Trademark Office (USPTO).

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Bitnik Reload: Automatically Re-Buy Bitcoin without ‘Vendor Bias’

Interview with Bitnik Reload Founder Peter Trcek

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Bitcoin Hardware Wallet KeepKey Launches and Begins Shipping

In a rare move in the Bitcoin space, KeepKey has simultaneously begun to take orders for and to ship their flagship bitcoin hardware wallet. As of Wednesday, customers are able to purchase the USB device for USD$239 on Amazon, or directly from the KeepKey website using bitcoin. Worldwide shipping is included in the cost.

The KeepKey hardware wallet is designed to store and secure bitcoin while protecting them from virtual attacks such as malware and viruses. The device generates and stores bitcoin private keys, never sharing them with the connected computer. Another key feature is a large OLED screen that displays every transaction before it can be approved, thus allowing users to verify that they are sending funds to the correct address and reducing the chance of error.

“Our guiding principle is to empower individuals and organizations with bank-grade bitcoin security,” says Darin Stanchfield, the founder of the company. “This is what our device does, and it is simple to use. Other products that are available require a high level of sophistication to operate. With KeepKey, it is very difficult to do the wrong thing,”

KeepKey currently works with Google Chrome using the KeepKey Wallet Extension. It is also supported by popular bitcoin wallets, including Electrum and MultiBit.

“Our security model was designed to ensure that the user always has complete control over their private keys,” said Ken Heutmaker, a software engineer at KeepKey. “We feel that relying on trusted third parties degrades the security and privacy that the bitcoin ecosystem offers.”

As for KeepKey’s decision not to take pre-orders in order to fund the hardware wallet’s development, Stanchfield cites his own personal experience with being “burned” by other companies who have pre-sold items and then not been able to deliver.

“A customer takes enough risk when they buy any product,” Stanchfield said to Bitcoin Magazine. “We don’t think they should assume the risk of funding manufacturing, too. We made this promise to ourselves early on in development of KeepKey. Fortunately, we have had the finances to pursue this route to get KeepKey to market.”

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Three Bitcoin Finalists Vie for BBVA Open Talent Competition Honors in Barcelona

On September 22nd, the winners of the European division of the BBVA Open Talent Competition were announced in Barcelona, Spain. This year, three of the 15 finalists come from the Bitcoin and blockchain sector: Everledger, Safello and Vaultoro.

The purpose of the competition is to discover and support up-and-coming innovators in financial technology who are poised to “disrupt [the banking] industry in e-commerce, security, mobile payments, data and others.”

The two winners are selected from each of three territories: Europe, Latin America and the United States and the rest of the world. Those six companies not only take home $30,000 each, but also benefit from extensive mentoring and networking support from BBVA in the form of a two-week intensive course.

This year, Everledger was named one of the two European winners.

Based in the U.K., Everledger is a permanent ledger for diamond certification and related transaction history. Using blockchain technology, it acts as a fraud-detection system, overlaying big data from closed sources such as insurers and law enforcement.

“BBVA Open Talent provides an inflection point in the growth curve of Everledger and validates our role in the financial services ecosystem,” Everledger’s CEO Leanne Kemp told Bitcoin Magazine.

“Everledger is a business that will make a difference: At our very core we focus on the ongoing presence of blood diamonds, combatting fraud, theft and counterfeit luxury goods — a problem for consumers, law enforcement and insurers that tops £50 billion a year,” she said. “Blockchain provides a distributed global solution to a fragmented, scattered and complex global problem. With the support from the Barclays Accelerator, and now as a finalist in the BBVA Open Talent Competition, we are having conversations to create new financial and insurance products for diamonds.”

Joshua Scigala, co-founder of Vaultoro, was enthusiastic about the BBVA’s inclusion of his U.K.-based bitcoin and gold exchange.

“We are really proud to be a finalist in the BBVA awards,” Scigala told Bitcoin Magazine. “The developing world skipped the landline and went direct to mobile phones. They are now doing the same with traditional branch banking because it’s just too uneconomical to set up. Vaultoro enables anyone to easily enter the global economy securely by utilizing the native Internet currency, bitcoin, and removing the extreme volatility by combining the security of assigned gold bullion. This will go very far towards ending poverty by including a potential 5 billion people who have no real access to banking.”

Vaultoro is a real-time Bitcoin gold exchange that allows its users to convert their bitcoin instantly to gold and back, alleviating volatility risk for bitcoin users. Its “bank-independent trading” allows users to trade gold in amounts as small as 0.001 gram.

The third bitcoin finalist, Safello, is a Swedish-based exchange that works with a wide network of European banks providing direct payment options, allowing customers to buy and sell bitcoin instantly, thereby avoiding exposure to market volatility.

“What’s most noticeable about this Open Challenge is the sheer amount Bitcoin selected,” Frank Schuil, CEO of Safello, told Bitcoin Magazine. “It shows the dedication from BBVA to embrace blockchain technology. With regards to our selection, of course our recent announcement with Barclays is sparking interest from other financial institutions. The fact that we are essentially building a new type of bank on top of blockchain technology is sparking interest.”

Everledger joins BitNexo, winner of the Latin American regional competition, as the second Bitcoin-based company to take home a BBVA award this year.

“In BitNexo’s mission to bring simplicity, speed and savings to cross border payments for SMBs through the use of blockchain technology, we had the honor of sharing the stage with 13 other amazing FinTech Startups from all around Latin America,” said Darren Camas, CEO and co-founder of BitNexo in a blog post. “To say I was impressed with the level of competition is an understatement.”

Information about all 15 finalists can be found on the BBVA Open Talent competition website.

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