Saturday, May 30, 2015
6 Unconventional Uses of the Blockchain
Friday, May 29, 2015
Citi Names GetGems App the ‘Most Visionary Social Solution’ In Mobile Challenge
Bitcoin Gets ‘Slashdotted’ and the Creation of Mt. Gox
From DIGITAL GOLD by Nathaniel Popper
Headphones on and an oversize can of MadCroc energy drink by his side, Martti sat at his dorm room desk, giddy. Slashdot, a go-to news site for computer geeks the world over, was going to post an article about Martti’s pet project. Bitcoin, largely ignored over the last year, was on the verge of receiving global attention.
The campaign to get Bitcoin real press coverage had begun a few weeks earlier, not long after Martti finished his three-month internship at Siemens. A new version of Bitcoin, version 0.3, was being prepared for release by Satoshi, and the regulars on the forum saw a perfect opportunity to get the word out. Martti agreed with a handful of other users that Slashdot would be the best place to do this.
“Slashdot with its millions of tech-savvy readers would be awesome, perhaps the best imaginable!” Martti wrote on the forum. “I just hope the server can stand getting ‘slashdotted.’ ”
A small crew went back and forth about the right language to submit to the Slashdot editors. Satoshi got his hackles up when someone suggested Bitcoin be sold as “outside the reach of any government.”
“I am definitely not making any such taunt or assertion,” Satoshi wrote.
He quickly apologized for being a wet blanket: “Writing a description for this thing for general audiences is bloody hard. There’s nothing to relate it to.”
After Martti suggested his own changes, the final version made the more modest assertion that “the community is hopeful the currency will remain outside the reach of any government.”
When the item went online, shortly after midnight in Helsinki, it wasn’t anything more than the single paragraph the Bitcoin team had submitted.
“How’s this for a disruptive technology?” it began. “Bitcoin is a peer-to-peer, network-based digital currency with no central bank, and no transaction fees.”
Despite the modesty of the item, the Internet chat channel that Martti had established for the Bitcoin community quickly lit up. NewLibertyStandard wrote: “front page!!!”
Regulars like Laszlo made a point of being on the Bitcoin chat channel, to answer questions and serve as a tour guide of sorts for any newbies who checked in after reading the story. In his dorm room, Martti posted a message on Facebook: “If I was a smoker, I would have smoked two packs already.”
Martti watched as the counters, which tracked the number of users on the forum and the chat channel, ticked steadily upward. Messages crowded his forum in-box; and the Bitcoin website, running on servers that could not handle more than one hundred viewers at a time, began to slow. Within an hour, the limit was reached and the whole site went down. Martti scrambled to scale up the site’s capacity with the company that rented him space. But this, and the derogatory comments that showed up under the Slashdot item, did not dampen his enthusiasm. This was what he’d been waiting for for months.
Chapter 5
July 12, 2010
When he awoke late, the morning after the Slashdot posting, Martti Malmi saw that the attention was not a hit-and- run phenomenon. People weren’t just taking a look at the site and moving on. They were also downloading and running the Bitcoin software. The number of downloads would jump from around three thousand in June to over twenty thousand in July. The day after the Slashdot piece appeared, Gavin Andresen’s Bitcoin faucet gave away 5,000 Bitcoins and was running empty. As he begged for donations, he marveled at the strength of the network:
Over the last two days of Bitcoin being “slashdotted” I haven’t heard of ANY problems with Bitcoin transactions getting lost, or of the network crashing due to the load, or any problem at all with the core functionality.
But while the Bitcoin software itself was working well, new users quickly ran up against the limitations of the Bitcoin ecosystem. Those who immediately wanted to acquire more Bitcoins than were available from Gavin’s faucet were left with only a few meager options, one of them a creaky, unreliable service that Martti had set up a few months earlier.
Jed McCaleb was one of the people who encountered this weakness. A native of Arkansas, Jed had been raised by his single mother, who made a living as a journalist. From a young age, Jed had been something of a math and science prodigy, and this allowed him to make it to Berkeley for college. Jed, though, had trouble sticking with things, and he soon dropped out of Berkeley and moved to New York. There he and a partner set up what became one of the main successors to Napster. His software, eDonkey, made it possible for individuals to trade large files like movies and it proved so successful that the Recording Industry Association of America sued Jed and his business partner. They eventually paid $30 million to settle the case and shut eDonkey down, but they also earned a few million along the way.
Despite being a soft-spoke introvert, Jed had a cool way about him that helped him make friends and girlfriends. When one of his romantic flings ended up pregnant, he and the woman, MiSoon, decided somewhat spontaneously to keep the baby and make a go of it. They used some of Jed’s earnings to buy an estate with a pool an hour or so north of New York City, just as they were expecting a second baby. In the sprawling, mostly empty house, Jed threw himself into an online game he had created called The Far Wilds, which had attracted only a few aficionados. He spent endless hours in a first-floor bedroom, which he had turned into a den. Books about neuroscience and artificial intelligence piled up around him—as did old food, attracting bugs that MiSoon initially tried to get rid of, but later came to accept as one of the side effects of Jed’s brilliant mind.
When Jed came across the Slashdot post about Bitcoin he was immediately intrigued. It seemed to fulfill many of the ideals behind Napster and eDonkey—taking power from authorities and giving it to individuals. But when Jed tried to buy some actual Bitcoins, he ran into the limitations of the few existing sites that sold them.
MiSoon was nursing their newborn son when she wandered into Jed’s study one night and encountered his frustration.
“There’s this really cool thing called Bitcoin— it’s like this nerd, libertarian thing,” Jed told MiSoon, in his hushed, intense voice. “But it’s so lame. I can’t buy any at night.”
Jed said he wanted to build a site himself where he could buy coins at any hour. When MiSoon arose the next morning, it was done. With some experience in amateur foreign-currency trading, Jed knew the basics of what an exchange required. But he had never actually set up a website before, having previously worked more on the sophisticated back-end software. His new Bitcoin exchange was something of a fun experiment.
He and MiSoon discussed possible names for the site. He mentioned an old domain name that he owned and was not using—mtgox.com. Jed had bought the site in 2007, for use as an online exchange to buy and sell the cards used in the role-playing game Magic: The Gathering hence the acronym for Magic: The Gathering Online Exchange. It had operated for just a few months before Jed shut it down and the site had been vacant since.
“Yeah, you should use that,” MiSoon replied. “That’s kind of weird and easy to remember. Why not if you already have it registered?”
Seven days after the Slashdot post, Jed casually advertised his new site on the Bitcoin forum:
Hi Everyone,
I just put up a new Bitcoin exchange.
Please let me know what you think.
Mt. Gox was a significant departure from the exchanges that already existed, primarily because Jed offered to take money from customers into his PayPal account and thereby risk violating the PayPal prohibition on buying and selling currencies. This meant that Jed could receive funds from almost anywhere in the world. What’s more, customers didn’t have to send Jed money each time they wanted to do a trade. Instead, they could hold money—both dollars and Bitcoins— in Jed’s account and then trade in either direction at any time as long as they had sufficient funds, much as in a traditional brokerage account.
These advances made it significantly more convenient to buy and sell Bitcoins, but also brought new dangers that threatened to betray some of the currency’s basic principles. Satoshi had designed Bitcoin to eliminate the need for trusted central authorities. It was supposed to be a new money that people could hold on their own, without a bank, secured with a private key that only the user knew. Mt. Gox customers would be moving back to the old model in which a single institution—Jed’s company—held everyone’s money. If Jed offered good security measures, this might prove safer than holding coins on a home computer. But Jed was not a security expert, and if he did somehow lose the private keys to the exchange’s digital wallets, his customers had little recourse. Unlike the banks that Bitcoiners had bashed, Mt. Gox had no deposit insurance and no regulators overseeing the safety and soundness of Jed’s operation. The choice was between security and principles on one hand and convenience on the other.
From DIGITAL GOLD by Nathaniel Popper Copyright © 2015 by Nathaniel Popper. Reprinted courtesy of Harper, an imprint of HarperCollins Publishers.
Blockstream Starts Development on the Lightning Network
The authors of the much-discussed Bitcoin Sidechains paper “Enabling Blockchain Innovations with Pegged Sidechains,” released in October, have formed the company Blockstream to develop new ways to accelerate innovation in digital currencies, open assets and smart contracts. In November, Blockstream closed a $21 million seed funding round with nearly 40 investors, including well-known pioneers of the Internet and financial services sectors.
The Bitcoin Sidechains paper envisages an ecosystem of “sidechains” separate from the main Bitcoin blockchain but interoperable with it. A sidechain can carry bitcoin as currency, in which case users will be able to seamlessly transfer bitcoin between the sidechain and the main blockchain. At the same time, the sidechain can implement changes from Bitcoin Core. For example, a sidechain can implement more powerful scripting features or more watertight privacy.
For a readable explanation of sidechains, see “A simple explanation of Bitcoin ‘Sidechains,” by Richard Gendal Brown, executive architect for banking innovation at IBM UK.
“[A]t any point, whoever is holding these coins on the sidechain can send them back to the Bitcoin network by creating a special transaction on the sidechain that immobilizes the bitcoins on the sidechain,” explains Gendal Brown. “They’ll disappear from the sidechain and become available again on the Bitcoin network, under the control of whoever last owned them on the sidechain.”
The deployment of sidechains interoperable with Bitcoin requires the implementation of suitable hooks in Bitcoin Core. That will inevitably take some time, but it’s worth noting that some Blockstream team members are also Bitcoin Core developers.
In February, developers Joseph Poon and Thaddeus Dryja released a first draft version another much-discussed paper, proposing a decentralized Bitcoin Lightning Network where related transactions can take place instantly on “micropayment channels” off-chain, and only the final settlement is processed by the blockchain. According to the authors, lightning networks would enable bitcoin scalability, efficient micropayments, and near-instant transactions.
The implementation of lightning networks would also require appropriate tweaks to Bitcoin core. Some developers have noted that there is a certain degree of affinity between sidechains and lightning networks.
“Other approaches seek to modify Bitcoin protocols in various ways,” wrote Robert McGrath. “For example, Sidechains aim to create alternative blockchains hanging off the main blockchain, which would help limit the costs of the main blockchain. Another variant is the Lightning network, which aims to allow some transactions to be performed “on the side,” and on send the results to the main blockchain.”
Rusty Russel, an Australian developer known for his work on the Linux kernel, wrote a series of blog posts about interesting features of lightning networks. “The key revelation of the paper is that we can have a network of arbitrarily complicated transactions, such that they aren’t on the blockchain (and thus are fast, cheap and extremely scalable), but at every point are ready to be dropped onto the blockchain for resolution if there’s a problem,” he said. “This is genuinely revolutionary.”
Now it appears that the development efforts for sidechains and lightning networks are coming together. Russel, who joined Blockstream a few weeks ago, is working on lightning networks, and one of his first actions was to set up a Blockstream-hosted mailing list for “Discussion of the development of the Lightning Network, a caching layer for bitcoin.” The new mailing list archives are freely accessible.
“They hired me,” Russel said on Reddit. “We agreed I’d be working on developing lightning. I set up a mailing list and am developing a toy prototype to explore the ideas. Will put on github once that’s ready (two weeks?) but it’s a long long way from anything someone could use. I’m excited about lightning, but it’s a marathon, not a sprint.”
Two Bitcoin Companies Make the Fox Business List of 30 Hot Fintech Startups
Fox Business published a list of 30 top fintech startups to watch in the Bay Area. The list includes two Bitcoin companies that offer simple and effective solutions for important real-world problems.
BTCjam allows users to invest their bitcoin and earn a high rate of return. This process is secure and allows investors to participate in peer-to-peer lending. BTCjam is also a great place for those seeking loans, and especially for the residents of developing countries without a national credit scoring system who are subject to aggressive predatory lending practices when they need to borrow money from traditional lenders.
Using cryptocurrencies such as bitcoin, and tapping foreign lenders, helps BTCjam avoid regulatory issues, TechCrunch reported in 2014.
“We are one of the first real use cases for bitcoin,” said founder Celso Cardoso Pitta Jr. “Today people circle around buying and selling of bitcoin, but I don’t think bitcoin increases in value because it’s a commodity or a currency. It needs to be useful.”
BTCjam is a marketplace where people from around the world connect to borrow and lend using bitcoin. By the end of 2014, the company had facilitated bitcoin loans in excess of $10 million dollars in value with more than 100,000 users worldwide. BTCjam created an online credit scoring system to qualify borrowers from all over the world and allow them to build a transparent credit profile on the platform.
“Our disruptive credit model is providing a new path to financial freedom for users from over 200 countries around the world,” states the BTCjam website. The investors, who loan their money to qualified borrowers, can earn interest up to 19.3 percent. Therefore, the BTCjam solution seems a win-win for both borrowers and investors – provided, of course, the borrowers repay their loans.
Credit ratings on BTCJam are determined by many variables. Borrowers can improve their score by having their identity, address, credit score and social accounts verified, and developing a good credit history on BTCJam. The company recently announced its new feature AutoInvest, which automatically diversifies an investment budget into select loans that meet an investor’s selected portfolio criteria and risk preferences.
Epiphyte (a name that will be familiar to readers of Neal Stephenson’s Cryptonomicon) provides enterprise software solutions for financial service providers to securely integrate with cryptofinancial networks. The company’s software allows financial service providers to convert the currency of one nation to bitcoin, make an international transfer, and change the bitcoin into the currency of the destination country. Epiphyte, a winner of the Innotribe Startup Challenge in October 2015, claims that its software operates well with crypto-financial networks and bridges the traditional financial services with the latest in bitcoin technology.
Epiphyte’s solution avoids traditional money movement avenues and instead converts currency to bitcoin, moves the coins, then cashes them out on the other end in the local tender. The bitcoin are moved for a fraction of the cost of traditional money transfers using exchanges such as Coinbase and BitPay, which take on the currency risk.
Banks, for example, will be able to integrate with cryptocurrencies over traditional protocols such as SWIFT. Epiphyte’s first product provides banks with a low-risk way to provide services to their customers. The company is rolling out a pilot implementation of this product.
The value proposition of the company is to help banks to provide lower-cost international remittance services by leveraging the innovative solutions provided by Bitcoin startups, which, again, is a win-win for banks and Bitcoin companies, and, of course, for consumers.
Actress Lucy Liu Goes Blockchain at Branson’s Caribbean Island Conference
Commonwealth Bank of Australia to Integrate Ripple for Instant Settlements
MAY 29 DIGEST: US Govt Says Ross Ulbricht Owes Them Nearly $184M, Apple Mentions Bitcoin in Patent Application
Eris Industries Leaves UK After Orwellian Bill Reintroduced
‘Using Smart Bitcoin like Dumb Assets is akin to buying a Ferrari and pushing it Around Town’
Thursday, May 28, 2015
The Community Responds on the Day Before the Sentencing of Ross Ulbricht
Russia Blacklists Another Bitcoin Website, but BitNovosti Finds Workaround
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