Wednesday, May 6, 2015
MAY 6 DIGEST: Ripple Labs Fined $700K, CoinCard Announces World's First Crypto-Based Credit Card
CEO Paul Puey: “Airbitz Wouldn't Break Down Under a True Crypto-Economy”
An Anatomy of Bitcoin Ponzis
FinCEN Fines Ripple Labs US$700K in Civil Enforcement Action
Tuesday, May 5, 2015
Bitcoin Startup LazyPay Competes In Virgin Mobile’s Pitch To Rich Competition
Bitcoin startup LazyPay has a chance to win a share of the £1,000,000 in prize money for the winner of Virgin Mobile’s Pitch To Rich competition. The London-based Bitcoin wallet, exchange and payment processor is the only digital currency startup competing in the event.
The annual competition tries to find the brightest and best entrepreneurs in all of Britain. Startups can compete in three different categories: New Things, Start-Up and Grow. Competing startups can receive up to £250,000 in marketing support, 12 months of business support and advice from billionaire and Virgin Group CEO, Richard Branson.
“With the support of Sir Richard (who has been a high-profile advocate for bitcoin), we hope to grow the number of merchants who accept digital currencies. And make bitcoin become a part of everyday life,” read a LazyPay blog post.
Competition Details
The competition, which started earlier this month, is in its beginning stage. Thousands of startups have already registered and the public has begun voting for which startups they think is the best. The fifty startups with the most votes in each category by May 5th will advance to the shortlist.
The startups that make it to the shortlist stage of the competition will participate in a series of phone interviews and workshops. Pitch To Rich officials will choose the top ten from each category to advance to the semi-finals. There, will they pitch their startup in front of a panel of judges that will include Branson himself.
If LazyPay wins, the young startup hopes to use the prizes to boost their payment processing services in England and the rest of Europe.
“We’ll be targeting London first and then the rest of the UK and Europe. There is a real appetite for bitcoin merchant services and we’re on a mission to help bitcoin reach the tipping point we all know is around the corner. Our goal is to sign up at least 100 pre-registered merchants before the apps official launch this summer,” said LazyPay in a statement.
Richard Branson And Bitcoin
The veteran businessman and international mogul is no stranger to digital currency. Branson started accepting Bitcoin for tickets to his space travel service, Virgin Galactic, back in November of 2013. He also invested in the bitcoin merchant payment processor BitPay last year.
When asked about the digital currency last year on Bloomberg TV Branson replied, “[Bitcoin] is working. There will be other currencies like it that may be even better, but in the meantime there’s a big industry around Bitcoin.”
Ripple Labs Fined $700,000 by FinCEN, Will Institute Transaction Monitoring Across Ripple Protocol
Earlier today, Ripple Labs Inc. was fined $700,000 for “willfully violating several requirements of the Bank Secrecy Act (BSA).” The Financial Crimes Enforcement Network (FinCEN) stated that the company issued its own currency (XRP) and failed to implement adequate anti-money laundering measures, in addition to operating as a money services business without the proper authorization from the federal regulatory body. FinCEN worked with the US Attorney’s Office for the Northern District of California to coordinate the civil money penalty against Ripple Labs Inc and XRP II, LLC, which is owned by Ripple Labs.
Sale of XRP to Roger Ver
A statement of facts included in FinCEN’s assessment of the violations describes multiple situations where XPR II “failed to file, or untimely filed, suspicious activity reports.” One such scenario involved noted bitcoin entrepreneur and evangelist Roger Ver. The report alleges that Ver purchased $250,000 worth of XRP from XRP II without filling out a KYC (know your customer) form. The report notes:
“On September 30, 2013, XRP II negotiated an approximately $250,000.00 transaction by email for a sale of XRP virtual currency with [Roger Ver]. XRP II provided [Ver] with a ‘know your customer’ (‘KYC’) form and asked that it be returned along with appropriate identification in order to move forward with the transaction. [Ver] replied that another source would provide the XRP virtual currency and did not ‘require anywhere near as much paperwork’ and essentially threatened to go elsewhere. Within hours, XRP II agreed by email to dispense with its KYC requirement and move forward with the transaction.”
Implications for the Ripple protocol going forward
This course of action from FinCEN could have implications for the level of anonymity offered by Ripple in the future. In fact, “enhancements to [the] Ripple protocol” are outlined in a document explaining an agreement by Ripple Labs and XRP II to ensure compliance with AML/CFT obligations. The report states:
“Within 60 days, Ripple Labs, XRP II, and the Ripple Trade MSB will improve, and upon request provide any information requested by FinCEN or the U.S. Attorney’s Office as to the use and improvement of, existing analytical tools applicable to the Ripple protocol, including: (1) reporting regarding any counterparty using the Ripple protocol; (2) reporting as to the flow of funds within the Ripple protocol; and (3) reporting regarding the degree of separation.”
The document also explains how AML transaction monitoring will be implemented across the entire Ripple protocol:
“Ripple Labs will institute AML programmatic transaction monitoring across the entire Ripple protocol, and will report the results of such monitoring to the U.S. Attorney’s Office, FinCEN, and any other law enforcement or regulatory agency 4 upon request. The monitoring and reporting must include, at a minimum: (a) risk rating of accounts based on the particular gateway used; (b) dynamic risk tools to facilitate investigation of suspicious activity, including counterparty reporting, flow of funds reporting, account flagging of suspicious accounts, and degrees of separation reporting; and (c) other reports of protocol-wide activity regarding any unlawful activity.”
Decentralized software vs distributed transaction ledgers
This action against Ripple Labs from FinCEN will undoubtedly be used by bitcoin proponents as proof that proof-of-work-powered, decentralized solutions (such as bitcoin) are still necessary. The course of action taken by FinCEN may be used as proof that the regulatory body will go after any point of failure in a distributed ledger system when complete decentralization is not achieved. This is not to say that Ripple can no longer provide value to its users; however, the fact that bitcoin and Ripple are to be used for different use cases should now be as clear as ever.
After 40 Years of Looking, Ron Paul Finds Bitcoin
A Brief History of Coin Crowdsales: Winners, Losers, and the Future of the Internet
Nepali State to Seize All Relief Funds from Bank Accounts
Bitreserve Targets India's Remittance and Mobile Payment Markets
BitStamp Exchange Activity Trackable due to Multisig Wallet Implementation
A recently discovered issue with the client-side SDK of Bitcoin software provider BitGo allows anyone to track all incoming and outgoing transactions taking place on the Bitcoin exchange BitStamp. It was discovered by Bitcoin security firm BlockTrail over the weekend.
BlockTrail CTO Ruben De Vries first encountered the issue while conducting analysis on the blockchain, “for our own internal purposes.” He found a group of addresses had the same output, allowing them to be tracked. De Vries identified it as the change address, that is the address created to send any remaining bitcoin leftover from a transaction.
“If one is able to correlate trends in deposits and withdraws to the price movement (for example, maybe a high velocity of BTC deposits might indicate upcoming sell pressure, uncovering big sellers, etc), then so long as this data was not in common knowledge, it could be greatly valuable to traders. But just like looking for a good domain name, you often enough find that someone smart was there before you – and so I am left wondering not if such information is already being used by traders with informational advantages, but rather to what extent,” wrote BlockTrail CEO Boaz Becher in a company blog post.
The Change Bug
According to Becher, the company was able to get an “interesting picture” of the BitStamp’s activity, including deposits, withdrawals and volume, by exploiting this issue. The company submitted a proposed fix to BitGo’s API implementation over the weekend but the fix still had not been implemented by BitGo as of Tuesday morning.
According to a comment posted online by BitGo CTO Ben Davenport, the Bitcoin API provider has been aware of this issue for a while and has not changed it yet because they “don’t consider it a huge deal.”
“I wouldn’t call this a bug, per se, but it’s a known issue that we plan to fix,” Davenport said. “The BitGo API is agnostic where the change output(s) are placed – this is just an issue with the client-side SDK.
“The primary reason we haven’t changed it sooner is that BitGoD (which Bitstamp uses), currently relies on the change output being last to determine which output of a transaction is change when listing transactions,” he continued. “This was needed due to missing functionality in our back-end transaction indexer which has been remedied in the last few weeks.”
The other reason this issue is not a bigger deal is because it is already easy to identify the exchange’s change address. BitGo makes the exchange’s wallets multi-sig and makes the output end with a “3.” Since adoption of multi-sig is still low, it is already fairly easy to identify the exchange’s addresses.
BitGo Security
This is the second bug found in BitGo’s API in the past week. Over the weekend, a Reddit user going by the user name, rstn, claimed to have lost 85 bitcoin when transferring 116 bitcoin with BitGo’s Legacy Wallet Recovery Tool. The erroneous tool made the transaction’s miner fee 85 bitcoin instead of the usual fractions of a bitcoin according to the user.
BitGo acted quickly and contacted AntPool, the mining pool that processed the transaction and had the bitcoin returned to the user in full. As part of the company’s ongoing bug bounty program, the BitGo has since fixed the bug and rewarded the user 25 extra bitcoin for bringing it to their attention.
The security of BitGo’s API remains intact, and its clients are insured by the A-rated XL Group for $250,000 of losses in the case of a hack or theft.
Photo by Marko Ahtisaari / CC BY 2.0
Peter Todd on BitGo’s Patenting of Multisig, MIT’s Funding of Core Development, and Innovation
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