By Ian Demartino Amazon: — — —,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, And to all the freaks and geeks on the Internet for being the world’s greatest teachers. CONTENTS Foreword Keywords Who’s Who SECTION I: WHAT IS BITCOIN? Chapter 1: Bitcoin 101: Blockchain Technology Chapter 2: A Practical Guide on How to Buy, Save, and Spend Bitcoins Chapter 3: Precursors, History and Creation, Satoshi’s White Paper Chapter 4: Who Runs Bitcoin? Chapter 5: What Gives Bitcoin Its Value? Nov 16, 2017 - REVIEW OF MARITIME TRANSPORT 2017. Vessel groupings used in the Review of Maritime Transport. Malaysia and nickel ore mine closures in the Philippines. However, trade in some other minor bulk. E-commerce, cloud computing, big data, the Internet of Things, three-dimensional printing (also. Start mining Ethereum with cloud mining services. Ethereum mining is a concept that allows users to buy a share of cloud mining power in a data center. Chapter 6: Bitcoin: Anonymous or Pseudonymous? Chapter 7: Bitcoin and the Criminal Element Chapter 8: Mt. Gox: Bitcoin’s Defining Moment? Chapter 9: Other Bitcoin Scams and Common Tactics SECTION II: HOW TO INVEST IN BITCOIN Chapter 10: How to Buy Bitcoin with a Bank Account, Cash, or PayPal Chapter 11: Working for Bitcoin Chapter 12: Mining Chapter 13: HODL! Chapter 14: Day Trading Chapter 15: Altcoin Trading and Pump-and-Dumps Chapter 16: Peer-to-Peer Lending Chapter 17: Investing in Other Commodities Using Bitcoin SECTION III: WHAT CAN BITCOIN DO FOR ME? Keywords altcoin: Short for “alternative cryptocurrency”; another cryptocurrency similar to Bitcoin. There are more than a thousand altcoins currently in existence; most are nearly exact copies of more successful cryptocurrencies, but some very innovative ones have been produced as well. ASIC: Application-specific integrated circuit. A piece of hardware designed to do one thing and one thing only. In the cryptocurrency world, it mines for a specific algorithm (SHA256, Scrypt, etc.). BFGMiner: The second most-popular Bitcoin-mining software. Bitcoin/ bitcoin: Bitcoin with a capital B refers to Bitcoin the system, the network or the currency as a whole; bitcoin with a lowercase b refers to individual bitcoins, as in, “I have five bitcoins.” Bitcoin-Qt: Also called Bitcoin Core, it is the primary implementation of Bitcoin and what all other wallets and services are based on. If wallet A sends wallet B five bitcoins and then wallet B sends five bitcoins to wallet C, it is easy enough to assume wallet A was sending wallet C five bitcoins using wallet B as an intermediary. Combining several Bitcoin users’ transactions makes it more difficult to track but not impossible. If wallet A, wallet B, and wallet C send bitcoins to a mixing service (wallet D) and then pass that money onto wallets E and F but don’t want outside sources knowing who sent what to whom, simply sending their bitcoin to wallet D is not enough. If wallet A puts two bitcoins, wallet B puts six bitcoins, and wallet C puts nine bitcoins into the CoinJoin wallet—and then two bitcoins are sent to wallet E in one transaction, another six are sent to wallet E in a second transaction, and nine bitcoins are sent to wallet F—then we can safely assume that wallet A sent two bitcoins to wallet E, wallet B sent six to wallet E and wallet C sent nine to wallet F. By Paul Vigna, Michael J. By Nathaniel Popper Amazon: — — —,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, Central Intelligence Agency Coinapult, 174, 338 Coinbase ( Bitcoin service). See also Ehrsam, Fred about the founding and operation, 203–204, 211–213 investment by Andreessen Horowitz, 293–295 maintaining private keys, 281 regulation of virtual currencies, 271 regulatory compliance, 236–237 response to Mt. By Dominic Frisby Amazon: — — —,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, And you can pay for things with them via electronic banking, by cheque, credit card, or in cash. But where on earth do you get bitcoins? There are three ways. You can get paid in bitcoins. You can buy bitcoins. And last of all (the very unconventional bit), you can make bitcoins. Yes, you can, literally, create money. You earn bitcoins by doing or selling something in exchange for bitcoins – just as you would earn normal money. If I do this job for you, you pay me in bitcoins. You buy bitcoins just as you would buy and sell foreign currency – from the Bitcoin equivalent of a bureau de change, known as a Bitcoin exchange, or directly from an individual. You hand over your dollars, pounds or whatever currency you’re using and you receive bitcoins. To create bitcoins, you run the Bitcoin software on your computer. It’s called ‘mining’ – more on that later. Accessed June 16, 2014. ‘ Bitcoin Forum.’ Bitcoin Forum –Index. Accessed June 16, 2014. Here’s What Warren Buffett Is Saying.’ CNBC. March 14, 2013. Accessed June 16, 2014. ‘ Bitcoin Project Milestones’. Bitcoin Project Milestones. Accessed June 16, 2014. ‘ Bitcoin Wiki.’ Bitcoin. Accessed June 16, 2014. ‘ BitcoinTalk.’ BitcoinTalk.com. Accessed June 16, 2014. Branwen, Gwern. ‘ Bitcoin – worse is better.’ Gwern.net. July 20, 2010. Branwen, Gwern. ‘Silk Road: theory & practice.’ Gwern.net. Brito, Jerry. ‘Online cash Bitcoin could challenge governments, banks.’ Time. April 16, 2011. What actually happens when you send an email through Gmail to, say, someone with a Yahoo address is that a Google server reaches out to a Yahoo server and transmits a text file; then the Yahoo server says to its user, ‘you’ve got mail’. So, a protocol is an agreed system by which information is shared across a network. Bitcoin – with a capital ‘B’ – is another protocol. The function of the protocol is to send and receive payment information. With Bitcoin, your computer reaches out to another user’s computer, gives it some binary gibberish proving you control X number of coins at this address and want them to increase the balance at that address. The unit of money on the Bitcoin protocol is the ‘ bitcoin’ (with a small ‘b’). As the dollar is the unit of money on the US banking network, so bitcoin is the unit of money on the Bitcoin system. So, Bitcoin is two things – a protocol and a unit of money. How do you get bitcoins? Using dollars or pounds is easy. You get paid in them. They’re in your bank account (hopefully). By Andreas M. Antonopoulos Amazon: — — —,,,,,,,,,,,,,,,,,,,,,,,,,,,, That’s the essence of a master-slave relationship. ' Bitcoin is fundamentally different because in bitcoin, you don’t owe anyone anything and no one owes you anything. It’s not a system based on debt.' Bitcoin is fundamentally different because in bitcoin, you don’t owe anyone anything and no one owes you anything. It’s not a system based on debt. It’s a system based on ownership of this abstract token. Absolute ownership. We have an expression in the United States, which is “possession is nine-tenths of the law.” In bitcoin, possession is ten-tenths of the law. If you control the bitcoin keys, it’s your bitcoin. If you don’t control the bitcoin keys, it’s not your bitcoin. You’re back to a master-slave relationship. 'In bitcoin, possession is ten-tenths of the law. If you control the bitcoin keys, it’s your bitcoin. If you don’t control the bitcoin keys, it’s not your bitcoin.' There is a beautiful site called bitcoinobituaries.com where you can read the pronouncements of the death of bitcoin since 2009 — regularly, like clockwork every three to six months, major newspapers, scientists, etc., saying, 'That’s it. Bitcoin is dead.' In fact, this has now become an amazing recruitment opportunity because all you have to do is wait for people to hear that bitcoin died, the CEO of Bitcoin was arrested, or bitcoin was shut down by Putin, and then, four months later, someone says, 'You know there are some interesting new applications on bitcoin.' And they go, “ Bitcoin is still there?' “ Bitcoin is still there” is the marketing slogan of this community. If we can just keep doing “ bitcoin is still there,” people are surprised, they’re confounded. It doesn’t match their expectations. It’s not possible that bitcoin is still there because very serious people with very serious titles, working for very rich companies, told them that bitcoin was not going to be there. When people hear that message, maybe the next day they come to one of these meetups and they meet a dentist who owns bitcoin, an architect who owns bitcoin, a taxi driver who uses bitcoin to send money back to their family—normal people who use bitcoin to give themselves financial power and financial freedom. Every time that message is broken by cognitive dissonance, bitcoin wins. All bitcoin really has to do is survive. So far, it’s doing pretty well. Currencies Evolve In the new network-centric world, currencies occupy evolutionary niches. They evolve, like species, based on the stimulus they have from their environment. Bitcoin is a dynamic system with software developers that can change it. The question is, in which direction will bitcoin evolve? Which environmental niche will it attempt to fit in? And how will that be affected by the actions of the powerful? If they attack bitcoin, it evolves to defend itself against predators, just like any species. By Melanie Swan Amazon: — — —,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, Broader Perspective blog, March 2, 2014. 108 Prisco, G. “ Bitcoin Governance 2.0: Let’s Block-chain Them.” CryptoCoins News, updated October 13, 2014. 109 Hofman, A. “Couple to Get Married on the Bitcoin Blockchain at Disney Bitcoin Conference.” Bitcoin Magazine, September 23, 2014. Bitcoin-blockchain-disney- bitcoin-conference/. 110 Marty, B. “Couple Make History with World’s First Bitcoin Wedding.” PanAm Post, October 7, 2014. 111 Ploshay, E. “A Word from Jeffrey Tucker: Bitcoin Is Not a Monetary System.” Bitcoin Magazine, January 3, 2014. 112 McMillan, R. PayPal had been known for being on the edge of financial innovation, but it then became more corporate focused and lost the possibility of providing early market leadership with regard to Bitcoin. By Chris Clark Amazon: — — —,,,,, doi=10.1.1.83.7634 [18] Nick Szabos, 'Bit gold,' December 27, 2008. [19] 'Protocol specification,' Bitcoin Wiki, May 5, 2013. Bitcoin.it/wiki/Protocol_specification#Addresses [20] Leslie Lamport, Robert Shostak, Marshall Pease, 'The Byzantine Generals Problem,' ACM Transactions on Programming Languages and Systems 4 (3) (1982): 382401. [21] 'Why was 21 million picked as the number of bitcoins to be created?' Bitcoin Stack Exchange, March 7, 2013. Bitcoin.stackexchange.com/questions/8439/why-was-21-million-picked-as-the-number-of- bitcoins-to-be-created [22] 'Technical background of Bitcoin addresses,' Bitcoin Wiki, March 14, 2013. Bitcoin.it/wiki/Technical_background_of_ Bitcoin_addresses [23] 'Why are Bitcoin addresses hashes of public keys?' Bitcoin Stack Exchange, May 8, 2012. [24] Raulo, 'Optimal pool abuse strategy,' February 4, 2011. Notes 1Monetary inflation is a sustained increase in the supply of money, which typically results in price inflation. If you are a business owner and just want to accept bitcoins, you can fill your wallet by publishing a Bitcoin address and requesting that customers send funds to that address. Mining, the means by which bitcoins are initially put into circulation, provides another way of obtaining bitcoins. When mining, you get paid bitcoins to run a computer that processes transactions for the bitcoin network. Mining will be discussed more in Chapter 9. * * * Figure 2.2: The 'Receive coins' tab of the Bitcoin-Qt client where you can manage your addresses. * * * 2.3 Sending Payments Once you have bitcoins in your wallet, you will be able to see the balance in your wallet on the Overview tab of the Bitcoin client. You can then use the Bitcoin client to send funds to any other Bitcoin user. All you need is one of their addresses. Bitcoin Stack Exchange, May 8, 2012. Bitcoin.stackexchange.com/questions/3600/why-are- bitcoin-addresses-hashes-of-public-keys [24] Raulo, 'Optimal pool abuse strategy,' February 4, 2011. Bitcoin.atspace.com/poolcheating.pdf Notes 1Monetary inflation is a sustained increase in the supply of money, which typically results in price inflation. It is a serious risk factor for fiat currencies because governments often produce money excessively, causing perpetual price inflation. By Don Tapscott, Alex Tapscott Amazon: — — —,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, Early adopters have tended to hold on to bitcoin as they hold on to gold, hoping that its value will increase in the long run, and therefore treating bitcoin as an asset rather than as a medium of exchange. According to economic theorists, low or no inflation motivates holders to hoard rather than spend their bitcoin. Still, if more trusted bitcoin exchanges facilitate consumers’ movement in and out of bitcoin, then the frequency and volume of trading could increase. If more merchants accept bitcoin as a medium of payment, then people who’ve been sitting on bitcoins may start to use their store for purchases, thereby freeing up more bitcoins. If merchants begin to issue bitcoin-denominated gift cards, then more people should be exposed to cryptocurrencies and become more comfortable transacting in bitcoin. And so, hypothetically, people will have fewer reasons to hoard bitcoin. And so, hypothetically, people will have fewer reasons to hoard bitcoin. Advocates of the bitcoin protocol argue that, because bitcoins are divisible to eight decimal places—the smallest unit is called a Satoshi, worth one hundredth of a millionth of a bitcoin—the smallest denominations will buy more if demand for bitcoin increases. There’s also the possibility of tweaking the protocols to allow for greater divisibility, say, picopayments (trillionths of a bitcoin) and to remine stranded bitcoin after a period of dormancy. A fifth dimension is high latency: for the bitcoin blockchain network, the process of clearing and settling transactions takes about ten minutes, which is far faster end to end than most payment mechanisms. But clearing transactions at the point of sale instantaneously is not the issue; the real problem is that ten minutes is simply too long for the Internet of Things where devices need to interact continuously. Buying Art Through the Bitcoin Blockchain: How It Works To purchase the piece, Don opened his bitcoin wallet app. He used it to create a message that specified the amount of bitcoin representing the purchase price of the piece, designated Artlery’s public key as the recipient of that bitcoin, and used his private key to “sign” or authenticate the message. Don double-checked all the fields because, unlike traditional payment methods, there was no reversing this bitcoin transaction. Then he broadcast the message not to his Canadian bank but to the entire network of computers running the full bitcoin blockchain. Some people refer to these computers as nodes, where some nodes are donating their processing power to solve the math problem associated with creating a block. As we’ve explained, the bitcoin community refers to them as miners and to their problem-solving work as mining, as in gold mining. By Alec Ross Amazon: — — —,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, As of the 2014 holiday season: Jillian Kumagai, “More Than 21,000 Retailers Accept Bitcoin Payments,” Mashable, November 15, 2014, bitcoin-retailers-infographic/?utm_cid=mash-com-Tw-main-link; Jon Matonis, “Top 10 Bitcoin Merchant Sites,” Forbes, May 24, 2013, bitcoin-merchant-sites/; Benzinga, “What Companies Accept Bitcoin?” Nasdaq, February 4, 2014, bitcoin-cm323438; Jonas Chokun, “Who Accepts Bitcoins?” Bitcoin Values, bitcoins-payment-companies-stores-take- bitcoins.html. On October 31, 2008, a research paper: Benjamin Wallace, “The Rise and Fall of Bitcoin,” Wired, November 23, 2011, bitcoin/. It called for the creation: Satoshi Nakamoto, “Bitcoin: A Peer-to-Peer Electronic Cash System,” Bitcoin, November 1, 2008, It called for the creation: Satoshi Nakamoto, “ Bitcoin: A Peer-to-Peer Electronic Cash System,” Bitcoin, November 1, 2008, bitcoin.org/ bitcoin.pdf. Banks must be trusted: Joshua Davis, “The Crypto-Currency,” New Yorker, October 10, 2011, The goal is for 21 million: “How Does Bitcoin Work?” Economist, April 11, 2013, bitcoin-work. At that point, no more: Alice Truong, “Top 10 Bitcoin Myths Debunked,” CoinDesk, June 4, 2013, bitcoin-myths-debunked/. Bitcoin, as a global payment system: Marc Andreessen, “Why Bitcoin Matters,” New York Times, January 21, 2014, bitcoin-matters/?_php=true&_type=blogs&_r=0. Prominent economist Nouriel Roubini sent out a string of tweets attacking the notion that Bitcoin is a currency. As Roubini tweeted: “Apart from a base 4 criminal activities, Bitcoin is not a currency as it is not a unit of account or a means of payments or store of value.” He went on to explain his rationale in further tweets: “ Bitcoin is not a unit of account as no price of goods and services is set in Bitcoin unit nor it ever will. So it isn’t a currency.” “ Bitcoin isn’t a store of value as little wealth is in Bitcoin and no assets in it. Also given price volatility it is a lousy store of value.” “ Bitcoin isn’t means of payment as few transactions in Bitcoin. And given its volatility all who accept it convert it right back into $/€/¥.” Roubini went even further, calling Bitcoin a scam and a fringe movement: “So Bitcoin isn’t a currency. It is btw a Ponzi game and a conduit for criminal/illegal activities. By Chris Skinner Amazon: — — —,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, Nevertheless, I have invested in Bitcoins and suggest you do too, as it is very likely that they will be a major store of value for years to come in the near term. Bitcoin’s timeline[29] 2008–2009 In 2008, Satoshi Nakamoto posted a paper describing the Bitcoin protocol on the internet. In 2009, the Bitcoin network came into existence with the release of the first open source Bitcoin client and the issuance of the first Bitcoins. 2010 The prices for the first Bitcoin transactions were negotiated by individuals on the Bitcointalk forums. One notable transaction involved a 10,000 BTC pizza. On 6 August, a major vulnerability in the Bitcoin protocol was spotted. Transactions weren't properly verified before they were included in the transaction log or 'block chain' which allowed for users to bypass Bitcoin's economic restrictions and create an indefinite number of Bitcoins On 15 August, the major vulnerability was exploited. The most recent attempt to provide a good alternative that gained significant traction is Bitcoin. Bitcoin is a digital currency designed to be controlled through encryption rather than a centralised authority. Operating in exactly the same way as cash, Bitcoins are fully exchangeable as an anonymous form of currency in real-time across the internet and, shortly, at Point-of-Sale. The core features of Bitcoin are that they can be: Sent to anyone with a Bitcoin address; Accessed from anywhere with an Internet connection; Anybody can start buying, selling or accepting Bitcoins regardless of their location; Completely distributed with no bank or payment processor between users (this decentralization is the basis for Bitcoin’s security and freedom); and Transactions are free (for now, this will change). Bitcoin is a fully encrypted, digital currency which, when you have some, can be used globally as easily as cash. In late-2011, the exchange rate of Bitcoin crashed from over $30 in June to below $2 in October. In January 2012, Bitcoin was featured as the main subject within a fictionalized trial on the CBS legal drama The Good Wife in the third season episode ' Bitcoin for Dummies'. The host of CNBC's Mad Money, Jim Cramer, played himself in a courtroom scene where he testifies that he doesn’t consider Bitcoin a true currency, saying “There’s no central bank to regulate it; it’s digital and functions completely peer to peer.” In October 2012, BitPay reported having over 1,000 merchants accepting Bitcoin under its payment processing service. 2013 In February 2013, the Bitcoin-based payment processor Coinbase reported selling $1 million in Bitcoins in a single month at over $22 per Bitcoin. In March, the US government’s Financial Crimes Enforcement Network (FinCEN) established regulatory guidelines for 'decentralized virtual currencies' such as Bitcoin, classifying American 'Bitcoin miners' who sell their generated Bitcoins as Money Service Businesses (or MSBs), that may be subject to registration and other legal obligations. By Jamie Bartlett Amazon: — — —,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, No one person or group is in charge of Bitcoin: everyone is. Bitcoin was introduced to the world in 2009 via a public post on an exclusive emailing list for cryptographers. It quickly developed a following, and soon became the currency of choice for the online drugs market Silk Road. A growing number of people started to exchange Bitcoin for dollars, which pushed its exchange rate from under $0.001 in October 2009 to $100 in April 2013. In October that year, a US Federal Reserve spokesman hinted that Bitcoin might one day become a ‘viable currency’, and the following month the value of a single Bitcoin jumped to over $1,000. Millions of dollars’ worth of Bitcoin are now traded every day. In some parts of the world you can live almost entirely on Bitcoin. Bitcoin’s dramatic rise to prominence resulted in an explosion of investment, exchange companies, and even ATM machines. Although Amir’s technical know-how and experience are admired, his ideals and motivations have put him on the fringes of what has become an increasingly respectable Bitcoin community. Dark Wallet has pitted itself directly against organisations seeking to capitalise and control Bitcoin and its market. ‘Many prominent Bitcoin developers are actively in collusion with members of law enforcement and seeking approval from government legislators,’ reads the Dark Wallet blurb. ‘We believe this is not in Bitcoin users’ self-interest, and instead serves wealthy business interests that make up the self-titled Bitcoin Foundation.’ In a 2014 interview with Newsweek, the chief Bitcoin Foundation scientist, Gavin Andresen, said that he thinks of Bitcoin as ‘a just-plain-better, more efficient, less-subject-to-political-whims money. Not as an all-powerful black-market tool that will be used by anarchists to overthrow the System.’ He is frequently offered lucrative jobs in the tech sector, but lives instead in what he calls a ‘techno-industrial colony’ in Calafou, Spain. He’s been working on Bitcoin software day and night for over four years now, and arguably knows more about this strange new currency than almost anyone else alive. He is here to tell us about his latest Bitcoin project – something he calls the ‘Dark Wallet’. The reason Amir and so many others like him are excited by Bitcoin is that it’s a form of internet money with potentially far-reaching consequences. A Bitcoin is nothing more than a unique string of numbers. It has no independent value, and is not tied to any real-world currency. Its strength and value come from the fact that people believe in it and use it. Anyone can download a Bitcoin wallet on to their computer, buy Bitcoins with traditional currency from a currency exchange, and use them to buy or sell a growing number of products or services as easily as sending an email. Radical Technologies: The Design of Everyday Life by Adam Greenfield,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, Visa has been around, in one form or another, since 1958; if besting a completely unknown competitor by a mere factor of 3,000 is all that it has to show for its half-century head start, that doesn’t strike me as saying a great deal. 19.Zack Whittaker, “Hackers can remotely steal fingerprints from Android phones,” ZDNet, August 5, 2015. 20.Fergal Reid and Martin Harrigan, “ Bitcoin Is Not Anonymous,” An Analysis of Anonymity in the Bitcoin System (blog), September 30, 2011, anonymity-in- bitcoin.blogspot.co.uk/2011/07/ bitcoin-is-not-anonymous.html. Bitcoin Project. “Protect your privacy,” undated, bitcoin.org/en/protect-your-privacy. 22.An additional complication has to do with the distinction between ASICs and general-purpose computing engines. Unlike the processors in smartphones, tablets, laptops or desktop machines, by definition, an ASIC-based mining rig is optimized for one and only one task: mining Bitcoin. When its utility in this role is at an end, it is useless for anything else. Such devices have among the shortest utilization cycles of any commercial information-processing hardware, at significant environmental cost. 24.Charles H. London: Penguin, 2008. 5Cryptocurrency 1.It’s important to note that blockchain operations aren’t really distributed in the sense generally meant by “distributed computation,” in which different chunks of a large problem are farmed out to a network of independent processors, and later annealed. The Bitcoin blockchain, by contrast, is replicated identically across all of the network’s nodes. The trade-off is that all of these copies are verifiably identical with one another, at the cost of other advantages of true distributed processing, chiefly speed. 2.As is customary among Bitcoin enthusiasts, in what follows I’ll simply refer to this party—whatever their actual number, gender or nationality—as a presumptively Japanese, presumptively male individual named Satoshi. 3.Satoshi Nakamoto, “ Bitcoin: A Peer-to-Peer Electronic Cash System,” October 31, 2008, Bitcoin.org/ bitcoin.pdf. 4.Very carefully. Joshua Davis notes, in an article for the New Yorker, that the highly regarded security consultant Dan Kaminsky made strenuous efforts to attack the Bitcoin codebase, and found his gambits anticipated and countered at every turn. “Banking Blockade,” June 28, 2011, wikileaks.org/Banking-Blockade.html. 7.Hashcash, hashcash.org. 8.David Chaum, “Blind Signatures for Untraceable Payments,” Advances in Cryptology Proceedings of Crypto 82, 1983, pp. 9.See Dolartoday, dolartoday.com/indicadores/. 10.In practice, this is not a trivial undertaking. By February 2016, the full Bitcoin blockchain had grown to the point that it weighed in at some 60GB; it took almost a full day for me to download, at typical residential data-transmission speeds, and occupied more or less the entire memory my laptop had available. Bitcoin Project. “Some things you need to know,” undated, bitcoin.org/en/you-need-to-know. 12.My account here is deeply indebted to Chris Pacia’s tutorial, which despite the rather patronizing title is the only one of many Bitcoin explainers I’ve come across that explores this stage of the process in such detail, chrispacia.wordpress.com/2013/09/02/ bitcoin-mining-explained-like-youre-five-part-1-incentives/. 13.Among the Bitcoin community, the collapse of the Mt Gox exchange is legendary. See Yessi Bello Perez, “Mt Gox: History of a Failed Bitcoin Exchange,” CoinDesk, August 4, 2015. 14.Jose Pagliery, “The Tipping Point of Bitcoin Micropayments,” CoinDesk, November 15, 2014. 15.Gulliver, “Booking flights with Bitcoin: Taking off,” Economist, February 26, 2015. 16.17.Pete Rizzo, “Is Bitcoin’s Merchant Appeal Fading? Machine, Platform, Crowd: Harnessing Our Digital Future by Andrew McAfee, Erik Brynjolfsson,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, Chapter 12 THE DREAM OF DECENTRALIZING ALL THE THINGS 278 “practical men, who believe themselves”: John Maynard Keynes, The General Theory of Employment, Interest, and Money (London: Palgrave Macmillan, 1936), 383–84. 278 “Indeed,” Keynes wrote: Ibid. 279 On October 31, 2008: Paul Vigna and Michael J. Casey, The Age of Cryptocurrency: How Bitcoin and Digital Money Are Challenging the Global Economic Order (New York: St. Martin’s Press, 2015), 41. 279 a short paper titled “ Bitcoin”: Satoshi Nakamoto, “ Bitcoin: A Peer-to-Peer Electronic Cash System,” October 31, 2008, bitcoin.org/ bitcoin.pdf. 283 “the steady addition of a constant amount”: Ibid. 285 Laszlo Hanyecz: Bitcoinwhoswho, “A Living Currency: An Interview with ‘Jercos,’ Party to First Bitcoin Pizza Transaction,” Bitcoin Who’s Who (blog), January 30, 2016, bitcoin-pizza-transaction. Gox, a Tokyo-based firm: Yessi Bello Perez, “Mt Gox: The History of a Failed Bitcoin Exchange,” CoinDesk, August 4, 2015, 286 that the exchange “had weaknesses” in its system and that “bitcoins vanished”: Robert McMillan, “The Inside Story of Mt. Spode, “The Great Cryptocurrency Heist,” Aeon, February 14, 2017, 305 “In [minority members’] view”: Ibid. 305 “Ethereum Classic”: Ibid. 306 “The Resolution of the Bitcoin Experiment”: Mike Hearn, “The Resolution of the Bitcoin Experiment,” Mike’s blog, January 14, 2016, bitcoin-experiment-dabb30201f7#.rvh0ditgj. 306 “It has failed because the community has failed”: Ibid. 306 the performance of the Bitcoin system suffered: Daniel Palmer, “Scalability Debate Continues as Bitcoin XT Proposal Stalls,” CoinDesk, January 11, 2016, bitcoin-xt-proposal-stalls. 306 Chinese exchanges accounted for 42%: Nathaniel Popper, “How China Took Center Stage in Bitcoin’s Civil War,” New York Times, June 29, 2016, bitcoin-china.html. 306 an estimated 70% of all Bitcoin-mining gear: Danny Vincent, “We Looked inside a Secret Chinese Bitcoin Mine,” BBC News, May 4, 2016, 308 “a kid in Africa with a smartphone”: Brandon Griggs, “Futurist: We’ll Someday Accept Computers as Human,” CNN, March 12, 2012, 309 “The Nature of the Firm”: R. Gox, a Tokyo-based firm: Yessi Bello Perez, “Mt Gox: The History of a Failed Bitcoin Exchange,” CoinDesk, August 4, 2015, bitcoin-exchange. 286 that the exchange “had weaknesses” in its system and that “ bitcoins vanished”: Robert McMillan, “The Inside Story of Mt. Gox, Bitcoin’s $460 Million Disaster,” Wired, March 3, 2014, bitcoin-exchange. 286 approximately $470 million in Bitcoins: Robin Sidel, Eleanor Warnock, and Takashi Mochizuki, “Almost Half a Billion Worth of Bitcoins Vanish,” Wall Street Journal, February 28, 2014, 286 $27 million in cash: Jake Adelstein and Nathalie-Kyoko Stucky, “Behind the Biggest Bitcoin Heist in History: Inside the Implosion of Mt. Gox,” Daily Beast, May 19, 2016, bitcoin-heist-in-history-inside-the-implosion-of-mt-gox.html. 287 By January 2015 the processing capability: Michael J. By William Mougayar Amazon: — — —,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, On a cold early January 2014 evening, Vitalik came down the stairs at Bitcoin Decentral in an old narrow building on Spadina Avenue, an hour prior to the start of one of the weekly Toronto Bitcoin Meetups, organized by Anthony Di lorio. I spoke to him for the first time, trying to understand something that was described to me, as “beyond Bitcoin.” For six months prior to that, I had been trying to understand Bitcoin, and this Ethereum technology was news to me. Soon after my conversation started, the room was filling with people entering the building, ready for the Meetup to start. There was a special buzz around because Vitalik had just published his white paper1 on a new blockchain platform that was supposed to be better than Bitcoin, and destined to become the next big thing. Curious and intrigued, I proceeded to bombard Vitalik with questions about Ethereum and its architecture. Cryptographic proof is the trusted method that blockchains utilize to confirm the validity and finality of transactions between parties. The blockchain will redefine the role of existing intermediaries (if they accept to change), while creating new intermediaries, therefore it will disrupt the traditional boundaries of value. The blockchain has ten characteristics, and they all need to be understood in a holistic manner. Bitcoin: A Peer-to-Peer Electronic Cash System, bitcoin.org/en/ bitcoin-paper. Bitcoin “maximalism” refers to the opinion that solely supports Bitcoin at the expense of all other blockchain or cryptocurrency related projects, because maximalists believe we only a need a single blockchain, and single currency in order to achieve desired network effects benefits. The Untapped Potential of Corporate Narratives. Banks should not only see the blockchain as a cost savings lever. It is very much about finding new opportunities that can grow their top line. WHY CAN'T THERE BE A GLOBAL BANK? To a skeptic, it sounds like a rhetorical question, given that Bitcoin was destined to become the underpinning nerve for a new type of global financial system that is borderless. Bitcoin’s vision is a globally decentralized money network with users at the edges of it. We should ask the question—since Bitcoin is global and universal, why is not there a truly global Bitcoin bank? This is a tricky question, because Bitcoin’s philosophy is about decentralization, whereas a bank is everything about centrally managed relationships. However, a global bank with no restrictions on borders or transactions would be interesting to users that want to conduct global transactions wherever they are in the world with the same ease as using a credit card. Before Babylon, Beyond Bitcoin: From Money That We Understand to Money That Understands Us (Perspectives) by David Birch,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, Whether this is true or not, there is no clear evidence that Bitcoin (despite the media attention) is being used at all. While the public debate around Bitcoin has, from the earliest time, focused on the supposed anonymity of the payment system and therefore its use for black market purchases (Greenberg 2011), detailed analysis of data from the Bitcoin system by the Federal Reserve has shown that it has barely been used at all for payments for goods and services (let alone for guns and drugs), and further that the pattern of circulation of Bitcoins and the dynamics of the exchange rate are consistent with low usage of Bitcoin for retail transactions (Badev and Chen 2014). Despite the widespread interest, Bitcoins do not seem to be gaining much traction in the ‘real world’ of payments. Bitcoin is a decentralized, peer-to-peer means of exchange. To return to Mervyn King’s point about money being a ‘particular historical institution’ (King 2016b), there is no reason why money should continue to work the way it does in response to continuing technological change, and no reasonable person would expect it to. Is Bitcoin the future of money? If Bitcoin is not money now, might it be the future of money? I think not: Bitcoin is not the future of money, and the future of money is not Bitcoin. Why the interest then? A reasonable conjecture is that the interest in Bitcoin points to a latent demand for change and, usefully, generates and focuses debate about current monetary structures (Jansen 2013). Much of the interest isn’t, therefore, specifically in Bitcoin, to my mind, but rather in the feasibility of an alternative to the state-issued, interest-bearing fiat currency money system that has been in place for the last forty years. If that interest helps to facilitate debate about what society wants from money in the future, that is very helpful, but it does not imply that Bitcoin satisfies whatever requirements might emerge from that process. Bitcoin is a decentralized, peer-to-peer means of exchange. If you have a Bitcoin, which is just a string of numbers, you can send that Bitcoin (or a subdivision of it) to anyone else. (If you want to understand how Bitcoin works, a good place to start is the original paper on the topic: ‘ Bitcoin: a peer-to-peer electronic cash system’ by ‘Satoshi Nakamoto’.) I’m no expert on cryptography but there’s no reason I know of to question the basic idea: use a computationally difficult challenge to create strings of bits that it’s hard to make but easy to copy, then use digital signatures for transactions. I get my Bitcoin (a string of bits) and then to transfer them to you I add a digital signature and send them to you. Every time we do a transaction, we tell (essentially) everybody else that the bits now belong to you. The closest analogy to this – one that I used in my previous book – is the stone currency of the island of Yap in the South Pacific, as described by Milton Friedman (Friedman 1991). By Nigel Dodd Amazon: — — —,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, This is a transaction database shared by all nodes participating in the system. 25 But unlike credit and debit card transactions, where the bank or card company manages the ledger, Bitcoin ledgers consist of block chains. 26 See 27 For example, on April 15, 2013, an Asus laptop was available for 6.2271 BTC, which the website states was equivalent to US$629 (see 28 See “Bitcoin takes an important step toward becoming part of every web browser on the planet,” accessed May 10, 2013. 29 Around 70 percent of items sold on Silk Road are drugs; other items include erotica, books, and fake IDs. 30 See bitcoin-mining-is-a-real-world-environmental-disaster.html. 31 See bitcoin/?smid=tw-NytimesKrugman&seid=auto. 32 See 33 One version of Bitcoin malware used Skype to turn infected computers into “slaves” of a Bitcoin generator (see bitcoining). 34 The December 2013 crashes were linked to new Chinese government restrictions on Bitcoin transactions, see “China Bans Banks from Bitcoin Transactions,” Financial Times, December 5, 2013. China has the largest market in Bitcoins. Other major falls in Bitcoin’s value occurred from June 8 to 12, 2011 (when the price fell by 68 percent), on January 17, 2012 (36 percent), from August 17 to 19, 2012 (51 percent), between March 6 and 11, 2013 (33 percent), and on April 10, 2013 (61 percent). See Forbes’s “An illustrated history of Bitcoin crashes,” bitcoin-crashes/. 35 The total value of all Bitcoins in the world exceeded $1 billion for the first time in March 2013. 36 See Slate, “Fool’s Gold,” bitcoin_is_a_ponzi_scheme_the_internet_currency_will_collapse.html. 37 “ Bitcoin Is No Great Mystery,” see bitcoin-is-no-great-mystery.html, accessed April 15, 2013. 38 Sociologically, on the other hand, the image we have of the “average” Bitcoin user is rather predictable. According to a Bitcoin users’ survey that ran between February and April 2013 (with 1,087 responses), the “average” Bitcoin user is overwhelmingly male (95.2 percent) (for a discussion of Bitcoin and gender, see Scott 2014), 32.1 years old, libertarian or anarchocapitalist (44.3 percent), nonreligious (61.8 percent), with a full time job (44.7 percent), and is in a relationship (55.6 percent). This is one potential weakness of the system resulting from the hard limit on Bitcoin supply. The other failing—much more widely discussed—is an inevitable function of its success, that is to say, its proneness to bubbles and crashes. Since its launch, the Bitcoin network has grown rapidly to become the most widely used alternative money system. Various retailers of material goods, music download websites, game providers, gambling sites, software providers, and high-profile online businesses such as WordPress, Reddit, Namecheap, and Mega, accept Bitcoins. The bitcoinstore.com sells a wide range of consumer goods.27 There are Bitcoin gift cards, dedicated payment system and debit cards, and a series of exchanges (such as Bitcoin-Central and Bitcoin-24.com) in which Bitcoins can be traded for major currencies in real time. By Douglas Rushkoff Amazon: — — —,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, Satoshi Nakamoto, “ Bitcoin: A Peer-to-Peer Electronic Cash System,” bitcoin.org, October 31, 2008. Pedro Franco, Understanding Bitcoin: Cryptography, Engineering and Economics (New York: John Wiley & Sons, 2014). Antonopoulos, Mastering Bitcoin: Unlocking Digital Cryptocurrencies (Sebastopol, Calif.: O’Reilly Media, 2014). Franco, Understanding Bitcoin. Antonopoulos, Mastering Bitcoin. Rob Wile, “The Chinese Are in Love with Bitcoin and It’s Driving the Digital Currency’s Prices into the Stratosphere,” businessinsider.com, October 29, 2013. Rebecca Grant, “A Single Bitcoin Was Worth $10 a Year Ago—Today It’s Worth $1,000,” venturebeat.com, November 27, 2013. Robert McMillan, “The Inside Story of Mt. Gox, Bitcoin’s $460 Million Disaster,” wired.com, March 3, 2014. It is addressing the problem of how people can transact securely without a central mediator and do so anonymously. And Bitcoin is most assuredly secure. For the record, the much-publicized bitcoin robberies and cyberattacks have been on some of the bitcoin exchanges and online wallet systems—one of them adapted from a gaming Web site that was never intended to secure banking records.36 Even so, they have nothing to do with the Bitcoin blockchain itself, which is, for all intents and purposes, impenetrable. Bitcoin’s failure to overcome our business culture’s bias for hoarding and scarcity may be a temporary setback, or it could prove to be a fundamental flaw in the way the system was designed. The Bitcoin blockchain generates an arbitrarily limited supply of bitcoins. It may have been meant to counteract what sometimes seems like the profligate pumping of money into the economy by central banks. This is a money system that works through protocols—digital handshakes between peers—instead of establishing security through central authorities. Bitcoin is based on a database known as the “blockchain.” The blockchain is a public ledger of every bitcoin transaction ever. It doesn’t sit on a server at a bank or in the basement of a credit-card company’s headquarters; it lives on the computers of everyone in the Bitcoin network. When bitcoins are transacted, an algorithm corresponding to that transaction is “published” to the blockchain. The algorithm is just a description of the transaction itself, as in “2 bitcoins came from A and went to B.” Instead of a list of users and their bitcoin balances, the ledger simply lists the transactions in chronological order. It doesn’t follow people, it follows the money. It’s not a record of how much you have as much as a record of where the money came from and where it is going to.30, 31 To get a transaction into the ledger, two users must first agree to the exchange. American Kingpin by Nick Bilton,,,,,,,,,,,,,,,,,, And so, for a year, the idea sat on a shelf in Ross’s mind. That was, until now. Ross had come across a technology that had recently emerged called Bitcoin. It was being billed as a new form of digital cash that was, from the research he had done, completely untraceable. Anyone in the world could use it to buy and sell anything without leaving digital fingerprints behind. The people (or person) who had created this new technology were anonymous, but the idea was simple: While you needed dollars to buy things in America, pounds in England, yen in Japan, or rupees in India, this new Bitcoin currency was meant to be used all around the world and specifically on the Internet. And just like cash, it was untraceable. To get some Bitcoins, you could exchange them online in the same way you could go to the airport and exchange dollars for euros. And there, for sale on the Silk Road, were the magic mushrooms Ross had grown a few months earlier, listed for sale as if he were hawking a used bicycle or a box of Girl Scout cookies on Craigslist. He then explained how to buy Bitcoins, the currency needed to buy drugs on the site. It was like buying coins at a video arcade. You exchanged your cash for tokens, and then you got to play. Just as at an arcade, at the end of the day, no one knew who had used those tokens because they all looked the same. ( Bitcoin wasn’t just meant for illegal purchases, either; you could use the digital cash to buy things on dozens of legitimate Web sites around the world.) “Give me your credit card,” Ross said as he navigated to an online Bitcoin exchange, where Julia could interchange her real dollars for digital gold. They typed in her credit card information and watched as the page loaded. Unlike seizing some contraband at a port or orchestrating a controlled delivery in the street to arrest someone, online drugs were a true Wild West with no existing protocols. It took several layers of approval, numerous meetings, and copious paperwork before Jared was finally allowed to commence his binge-shopping on the Amazon of drugs. Then there was the challenge of buying the Bitcoins. He was allocated $1,001 for his shopping excursion. So he took the cash, deposited it in a bank, then went to a Bitcoin exchange Web site where he could swap the dollars for Bitcoins. It wasn’t as easy as picking up drugs with cash on the street or finding a used bicycle on Craigslist, but it was still surprisingly painless considering what he was buying. During his first expedition to the Silk Road, Jared had three goals. The first was to trace drugs back to their dealers. The second was to match listings on the Web site to actual physical drugs and packaging, enabling him to build a profile of what mail from the Silk Road looked like, as he had done with the khat back at Customs and Border Protection. By Arun Sundararajan Amazon: — — —,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, The right place to start is by understanding Bitcoin. Understanding Decentralized Peer-to-Peer Exchange In the simplest possible terms, bitcoin is a digital currency. (I refer to the currency using lowercase “b,” and the platform, technology, or ecosystem using uppercase “B.”) You can acquire bitcoin by exchanging it for your dollars, euros, or yen, by providing someone with a product or service that they pay you for in bitcoin, or by “mining” bitcoin (more on this later). Your acquisition and subsequent possession of this bitcoin exists as one or more entries in a public ledger (the blockchain) in which you are identified by a secure anonymized “key.” Each time you use your bitcoin, the new transaction is recorded as yet another entry in the ledger. A lot of the attention paid to Bitcoin has focused on its success in creating currency without a government backer, about how bitcoin value measured in traditional money fluctuates a lot over time (although its exchange rate has stabilized considerably in 2015), and perhaps also about the use of bitcoin for commerce that many governments consider illegal. A lot of the attention paid to Bitcoin has focused on its success in creating currency without a government backer, about how bitcoin value measured in traditional money fluctuates a lot over time (although its exchange rate has stabilized considerably in 2015), and perhaps also about the use of bitcoin for commerce that many governments consider illegal. Instead of rehashing those topics, I focus here on thinking about Bitcoin as one of many applications of a new set of enabling technologies. I also discuss two other related applications: OpenBazaar and La’Zooz. Through this discussion, some of the key elements of the economics and technology of decentralized peer-to-peer marketplaces will become more transparent. Bitcoin Many of the critical pieces of a decentralized peer-to-peer market are part of Bitcoin. Let’s say that you want to send your friend Clay digital money. Furthermore, a ledger that has to be distributed across every client can grow awfully large over time, and scalability of blockchain-based applications remains an open question. Payment systems like Bitcoin, because of the way they delay settlement, may need to be rebuilt to handle the real-time payments that credit cards and mobile payment systems like PayPal manage with ease today. Part of the solution to both of these challenges will come from the creation of a greater fraction of “off-the-book” transactions, but this creates a new layer of intermediation. Off-the-book transactions also create new risks. Some of you may recall Mt.Gox, the exchange that held its users’ bitcoin in its own centralized Bitcoin accounts while maintaining a parallel off-the-blockchain system of keeping track of which users had how much bitcoin. Mt.Gox ceased operations in 2014 following the 2013 loss of the equivalent of $450 million of its users’ bitcoin because of what appeared to be a hacker having gained access to its Bitcoin accounts. By Robin Chase Amazon: — — —,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, Michael Carney, “GitHub CEO Explains Why the Company Took So Damn Long to Raise Venture Capital,” pando.com, June 20, 2013, 20. “Benevolent Dictator for Life,” Wikipedia, 21. “Crypto-Currency Market Capitalizations,” 22. “Who Controls the Bitcoin Network?,” Bitcoin website, bitcoin.org/en/faq#who-controls-the- bitcoin-network. Bitsmith, “Inside a Chinese Bitcoin Mine,” The Coinsman, August 11, 2014, www.thecoinsman.com/2014/08/ bitcoin/inside-chinese- bitcoin-mine. “Government as Impresario: Emergent Public Goods and Public Private Partnerships 2.0,” talk given by Nicholas Gruen as part of a luncheon series at the Berkman Center for Internet and Society, January 14, 2014, 25. Some platforms are of little (or no?) value until they get big enough. Bitcoin figured out how to cross this chasm and how to finance this crossing. The size of the reward for publishing/mining declines over time, going from high to low. Cleverly, Bitcoin paid people who took the most risk—who participated in the beginning—more Bitcoins for mining than to people who did this same task later. Paying more early on attracts people when the platform has the least value. The reward structure effectively borrows value from the future (when an established Bitcoin currency will have value) to finance the infrastructure building of the nascent and risky idea (when there is very little value). This is genius. Lastly, because what the Bitcoin people have earned will only be valuable if the whole Bitcoin enterprise succeeds, these early participants have every incentive to spread the good word and do what they can to make sure that it does. All of the transactions on the public ledger are there for all to see, and open source. In the potentiality of block-chain visionaries, the most useful programs, contracts, and methods will be the ones that are most copied, eventually becoming standards. The Bitcoin.org website explains how this is accomplished with Bitcoin: Nobody owns the Bitcoin network. [It] is controlled by all Bitcoin users around the world. While developers are improving the software, they can’t force a change in the Bitcoin protocol because all users are free to choose what software and version they use. In order to stay compatible with each other, all users need to use software complying with the same rules. Bitcoin can only work correctly with a complete consensus among all users. Therefore, all users and developers have a strong incentive to protect this consensus.22 While the block-chain protocol has necessarily evolved over the last six years, the evolution is driven by consensus, with the most suitable and widely adopted changes being the ones that win out over the alternatives. The Blockchain Alternative: Rethinking Macroeconomic Policy and Economic Theory by Kariappa Bheemaiah,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, Miners who do these two functions—verifying the transaction and recording it on the blockchain—are then rewarded with bitcoins for their effort. This is how bitcoins are “mined.” Since the number of bitcoins is fixed to 21 million, it is like mining the bitcoins out of a reservoir. Hence the term miner. Although these series of operations seem relatively straightforward, they include elements of cryptography, computer science, game theory, and classical economics. The above breakdown is certainly not enough to pierce the complexities of how blockchains work, but is portrays how this decentralized and distributed value exchange system works. More importantly, it helps us realize that the for the first time since the inception of banking, we now have a system to help us transact without the aid of banks. Just as TCP/IP led to the creation of more subject-specific protocols, the advent of bitcoin has led to the creation of other value exchange protocols. References Chapter 2 Table A-1 provides a list of books that offer technical and/or business application insights. All books have been referred to in the writing of this book Table A-1. Technical and business reference list Name Author Area of focus Mastering Bitcoin: Unlocking Digital Cryptocurrencies Andreas Antonopoulos Technical book that gives readers an understanding of how bitcoin works. Useful for computer scientists and advanced readers. Understanding Bitcoin: Cryptography, Engineering and Economics Pedro Franco Technical book that gives readers an understanding of how bitcoin works and the economic implications of the technology. Useful for students, business persons, and advanced readers. Value Web Chris Skinner General book that offers a holistic view of how FinTech and Blockchain firms are using technology to create a new internet of value. While the purpose of the book it to shed more light on the implications of the widespread use of Blockchain technology, the growing diversity within the currency space cannot be fully excluded from the discussion. As the blockchain gains more traction in formal financial circles, its first manifestation in the form of Bitcoin is increasingly being excluded from the dialogue. This seems to be contrary to the symbiotic link between the two. What is more surprising is the fact that this tendency to separate bitcoin from blockchain is a repeat of what happened when the Internet first came into existence. As banks try to harness the power of the blockchain by creating private blockchains, we find ourselves witnessing the same execution of events as when private companies tried to create intranets instead of simply using the Internet. Whether you are a fan of the bitcoin or the blockchain or both, having a nuanced or biased view on the subject needs to be developed using the scientific method. By Pieter Hintjens Amazon: — — —,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, If a large attacker were to control more than half of the verification network, they could generate unlimited BitCoins and destroy the currency by inflation. It depends on conventional broadband, so is vulnerable to surveillance. BitCoin transactions are public and individual BitCoin holders' transactions can be identified. It depends on a 'digital wallet' held on a computer, which is vulnerable to malware attacks and physical seizure. The history of money on the Internet and the power of the banking industry suggest that BitCoin will come under serious attack in coming years. We can expect to see the same attacks that we've seen often before: Financial blockades, prosecutions, and technical attacks on BitCoin exchanges. Association of BitCoin users with terrorists and child pornographers. Surveillance of BitCoin transactions to break expectations of anonymity. Cut down one Napster, and a dozen spring up in its place. Better, the Spider calculates, to buy time and find a way to control BitCoin, and make a profit from it. BitCoin is a surprisingly strong model in some ways, yet it still has several vulnerabilities. It will depend on exchanges for converting BitCoin to other currencies until it gains (if it ever does) a sufficient internal market. BitCoin transactions -- the blockchain -- are essentially public, and it's been shown that you can tie transactions back to individual identities. Lastly, and most importantly, the whole system depends on a distributed network of 'miners,' who recalculate transactions, and in the process generate new BitCoin. BitCoin depends on its miners to remain honest. If an attacker controls 51% or more of the miners, they can generate bogus transactions and crash the currency. The same year that e-gold died, its successor popped up in the form of BitCoin, the first credible crypto-currency. While e-gold based its denomination on the tangible value of gold coins, BitCoin is backed by nothing more than mathematics. This has led people to accuse it of being a pyramid scheme, destined for collapse. BitCoin works by 'mining' new coins as a side effect of doing the cryptographic bookkeeping for other people, processing the so-called 'transaction chains.' In the beginning, when transaction chains were short, they were easy to process, and people could mine thousands of coins on their PCs. Today, as chains are long, it takes more effort to mine coins. Every year, the number of coins that can be mined falls, so at some point there will be no new BitCoins. The BitCoin design and open source software was written by a prudently anonymous team calling themselves 'Satoshi Nakamoto.' By Kenneth S Rogoff Amazon: — — —,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, Another major concern under a Bitcoin currency standard (or any digital currency) is inflation. It is true that the supply of bitcoins has been capped at 21 million coins, a limit that is expected to be reached sometime in the twenty-second century. Some people worry that this cap will eventually imply deflation, if world growth continues but the supply of bitcoins is fixed. They should be much more worried about inflation than about deflation. Because Bitcoin does not have a monopoly on the underlying technology, imitators can appear, and indeed they already have. Over time, Bitcoin 1.0’s first-mover advantage may fade, especially if Bitcoin 2.0 or Bitcoin 3.0 offers a superior mechanism (e.g., much lower maintenance costs and more surefire anonymity). If so, the problem will be inflation, not deflation. Can the government really copy the new technologies to create a superior clearing mechanism for its own electronic currency? Already, markets are forming to exploit this capacity, for example, in applications surrounding Ethereum.4 That distributed-ledger technology could in theory someday produce a superior currency, however, hardly means that the world is already there in practice. One problem is that the value of Bitcoin 1.0 fluctuates wildly (figure 14.1), so it hardly fulfills the function of a stable store of value. In principle, it could become more stable if it gained more widespread monetary acceptance. Figure 14.2 shows that the price of gold in terms of dollars was much more stable under the gold standard, even in real (purchasing-power) terms. Whether this could happen without a government that aimed to stabilize the value of Bitcoin 1.0 is at best a conjecture. Figure 14.1: Market price of bitcoins (US dollars). Source: Blockchain.info. Figure 14.2: Real gold price (US dollars). Source: 1850–1920, National Mining Association; 1921–2015, Bloomberg. Another major concern under a Bitcoin currency standard (or any digital currency) is inflation. The basic idea, in a nutshell, is to create a system in which diverse private-sector individuals (or entities) are incentivized to maintain independent ledgers of transaction trees (or blockchains), and new transactions cannot clear the books without achieving a critical mass of third-party acceptance. A fair dose of encryption technology is also included, and in Bitcoin, for example, individuals are allowed to use aliases with passcode-protected accounts to make it difficult to determine their identities. A lot of truly fascinating science supports the different systems, and one can find many excellent treatments.2 Governments around the world have already begun regulating cryptocurrencies more aggressively. In the United States, Bitcoin wallets must now comply with anti-money-laundering rules, and the Internal Revenue Service has begun to issue rulings on how Bitcoin earnings should be taxed. The European Union, too, is in the process of intensifying its regulations. Where governments have the greatest leverage is in regulating how financial institutions interact with cryptocurrencies. By Mike Power Amazon: — — —,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, A new kind of currency is making official control of this area even harder. Bitcoin is an electronic cash system, produced using cryptography. It is a peer-to-peer currency, made by users, meaning that no central authority issues money or tracks transactions. For every legal bitcoin user, selling web design services or carrying out coding jobs for which they are paid in the currency, there are many more using bitcoins to buy drugs on the Silk Road. Bitcoin is today the preferred choice of hundreds of online drug dealers. You can buy bitcoins using cash or other currencies in hundreds of ways, with varying levels of anonymity. Using bitcoins can be, depending on how you use them, almost completely anonymous. Originally, bitcoins were produced by ‘miners’ – a figurative term for computer owners who donated their processor time to the project and were rewarded with coins for their efforts. Liberty Gold is a virtual metal-backed currency from Costa Rica, purchasable automatically from anonymous servers with Western Union cash payments, whereby participants swap the transaction number for invisible currencies which they can then swap into other currencies. You could for a short period in 2011 even buy bitcoin by SMS: users would buy a simcard from Poland, or Belgium, or one of a dozen other countries, charge it with cash, send a text and receive their coins to their handset. ‘Mixing’ services too, can tumble the coins in and out of thousands of other bitcoin transactions and accounts, making a dense web of mathematics even denser still. When most investigators can’t even understand the basics of encryption, the likelihood that they or a jury member will reach an understanding of bitcoin is minimal. And when most small-scale drug transactions are small, under £100, who’s watching? The answer, so far, is that no one has been busted using evidence from the bitcoin blockchain. Bitcoin addresses, where you receive and store coins, are randomly generated strings of letters and numbers, and there’s no ID check system – and you can create another in moments. The system was then flooded with speculators, forcing MtGox to limit withdrawals to US$1,000 worth of bitcoins a day to stem the flow and prop up the dollar-value of the currency.6 Network analysts Fergal Reid and Martin Harrigan of University College Dublin wrote a 2012 paper baldly titled ‘ Bitcoin is Not Anonymous’. In it they demonstrated what the high-tech coining community knew – that the blockchain recorded all transactions. Reid posted in a comment thread following the release of his paper, ‘You don’t get anonymity automatically from the system. A lot of people out there think you do.’7 But the determined user can retain anonymity easily enough in the US at least, by entering a bank and paying cash into an exchanger’s account, for bitcoins are now traded just as dollars and euros are. (They now have a value that is decided by the market. The total bitcoin market capitalization stood at £72 million in November 2012 – with around 10 million coins valued by the secondary market at around £7.50 each.). The Production of Money: How to Break the Power of Banks by Ann Pettifor,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, It helps create activity – artistic, scientific, practical or therapeutic. The bitcoin mania Bitcoins have introduced millions of people to a currency that appeared from nowhere and is, apparently, ‘cryptographic proof’. Whereas private banks can create money by a stroke of the keyboard, the creation of bitcoins involves vast amounts of computer processing power. This power is capable of deploying a complicated algorithm that approximates the effort of ‘mining’ coins.24 The bitcoins so mined have become the new gold and bit-coiners the new goldbugs. This new currency (which claims to be a commodity) is a form of peer-to-peer exchange. Its life began in the murky world of Silk Road, an online black market on the deep web, and has generated a great deal of excitement. It was created by an unknown computer scientist – the first bitcoin miner. It is now used for international payments, but also for speculative purposes. Like other virtual currencies, bitcoin has theoretical roots in the Austrian school of economics. Its advocates are keen followers of Friedrich von Hayek, and cite as inspiration his book, Denationalisation of Money, in which he calls for the production, distribution and management of money to be left to the ‘invisible hand’, so as to end the oversight of regulatory democracy.25 There are two things striking about this new currency. First, its creators (who are computer programmers) have apparently ensured that there can never be more than 21 million coins in existence. (Although bitcoins can be divided into smaller units: the millibitcoin, microbitcoin and satoshi. Satoshi is the smallest amount, representing 0.00000001 bitcoin, one hundred millionth of a bitcoin.) Bitcoin is therefore like gold: its value lies in its scarcity. One commentator notes that ‘bitcoin was conceived as a currency that did not require any trust between its users’.26 Equally, its scarcity means that, unlike the endless and myriad social and economic relationships created by credit, the capacity of bitcoin to generate economic activity is limited (to 21 million coins). The currency’s architects deliberately limited the amount of bitcoins in order ostensibly to prevent inflation. In reality, the purpose is to ratchet up the value of bitcoins, most of which are owned by originators of the scheme. In this sense, bitcoin miners are no different from goldbugs talking up the value of of a finite quantity of gold, from tulip growers talking up the price of rare tulips in the seventeenth century, or from Bernard Madoff talking up his fraudulent Ponzi scheme. However, some have hyped up the technology used by bitcoin – blockchain, a distributed database or ledger – and argued that it could revolutionise the distribution of wealth and provide transparent accounts of transactions. By Matt Ridley Amazon: — — —,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, Then, on 18 August 2008, a month before the financial crisis broke in earnest, a new domain name was registered anonymously: bitcoin.org. Two weeks later, somebody with the user name ‘Satoshi Nakamoto’ posted a nine-page paper outlining an idea for a peer-to-peer electronic cash system called bitcoin. The bitcoin system went live a few months later, on the day the British government reported its second bailout of the banks, an event referred to by Satoshi, who quoted a headline from The Times in his announcement of bitcoin’s birth. A month later Satoshi announced on the Peer-to-Peer Foundation website: ‘I’ve developed a new open source P2P e-cash system called Bitcoin. It’s completely decentralised, with no central server or trusted parties, because everything is based on crypto proof instead of trust. Give it a try, or take a look at the screenshots and design paper.’ His motivation was clear. Bitcoin was designed to maintain its value without any precious-metal backing, without any centralised issuer, and without any intrinsic value. The price shot up in the wake of the financial crisis in Cyprus in 2013, when private depositors woke up to the fact that their conventional money was not safe in banks, because the government of Cyprus announced that it would seize over 40 per cent of all savings over $100,000. As investors around the world digested the arbitrary power of governments, bitcoin’s price rose from about $120 in September 2013 to almost $1,200 in December of that year. It has since slowly declined. At the time of writing, about $6 billion worth of money is held in bitcoins. But it is still a long way from taking over as the world’s reserve currency. It does not yet work as a unit of account. The volatility and bubble-like behaviour of bitcoins are not encouraging for a world reserve currency, and nor is its relatively small supply. It is also still not easy to get many traders, even online, to accept bitcoins. The first bitcoin exchange, Mt. Gox, collapsed in a pile of fraud. Moreover, bitcoins have proved very popular with drug dealers, especially via an online exchange called Silk Road. It is hard to get your head around how bitcoin works. One of the pithiest explanations I have come across is in a recent launch by Ethereum, a business built to follow up on bitcoin: ‘The innovation provided by Satoshi is the idea of combining a very simple decentralised consensus protocol, based on nodes combining transactions into a “block” every ten minutes, creating an ever-growing blockchain, with proof of work as a mechanism through which nodes gain the right to participate in the system.’ If you think that’s hard to understand, you are not alone. I have yet to come across a description of blockchain technology in English, as opposed to mathematics, that is really clear. In outline, I know that bitcoin is effectively a public ledger – a compendium of transactions, stored by bitcoin users all over the world. Radicals Chasing Utopia: Inside the Rogue Movements Trying to Change the World by Jamie Bartlett,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, Afghanistan—and then a similar experience working in Libya with rebels fighting Gaddafi—turned her into a fully committed anarchist who thought state power was the root of most of the world’s problems.17 In 2013 a former US military employee told her about bitcoin, and she immediately thought that it was a way to circumnavigate the state entirely. Bitcoin, which was invented in 2009, is digital cash, just a string of numbers. Anyone can download a bitcoin wallet or QR code on to their computer or phone, buy bitcoins with traditional currency from a currency exchange and use them to buy or sell a growing number of products and services as easily as sending an email. Transactions are secure, fast and free, with no central authority controlling value or supply, and no middlemen taking a slice. You don’t even have to give your real name to start up an account. Bitcoin wrestles control of the money supply away from the state. There is a cap on the total number of bitcoins that can ever be produced: 21 million. New bitcoins are not minted by any central authority. New bitcoins are not minted by any central authority. Instead, anyone who dedicates their computing power to verifying the transactions competes to earn a very small number of new bitcoins each time they do so (this is called ‘mining’). As more bitcoins are created (approximately 14 million have been created so far), the remaining bitcoins require more computing power to mine.* The last bitcoin is expected to be mined around 2140. It wasn’t bitcoin itself that excited Susanne, but the way bitcoin stored information. It works because a copy of every transaction between users is stored on a public, chronologically ordered database, called the ‘blockchain’.18 A copy of that database is hosted on thousands of computers, and new transactions can only be added to that database once they’ve been verified by other computers that check them. Many people assume bitcoin to be completely decentralised, but if a miner, or a group of miners, controlled over half the computing power that works on verifying the transaction, it could feasibly force a change on the blockchain transaction list however it wished, create a fork of the blockchain, and all the other computers would start to work on the new version (the protocol is written so that all computers work from the longest blockchain). In bitcoin, a few large pools can register most of the new bitcoin blocks, which could push them to the 51 per cent threshold for mining power: which could result in a takeover. Indeed, in 2014 one mining rig took over 51 per cent of bitcoin’s hashing power for twelve straight hours. One of bitcoin’s goals was to be a free system, independent of anyone’s control. With small pools, no one has this kind of control. There is also an environmental problem. With no other way to establish whether miners are bona fide, the bitcoin architecture forces them to do a lot of hard computing; this ‘proof of work’, without which there can be no reward, insures that all concerned have skin in the game. By Marc Goodman Amazon: — — —,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, The system is designed to ensure no more than twenty-one million Bitcoins are ever generated, thereby preventing a central authority from flooding the market with new Bitcoins. Most people purchase Bitcoins on third-party exchanges with traditional currencies, such as dollars or euros, or with credit cards. The exchange rates against the dollar for Bitcoin fluctuate wildly and have ranged from fifty cents per coin around the time of its introduction to over $1,240 in November 2013. People can send Bitcoins to each other using computers or mobile apps, where coins are stored in “digital wallets.” Bitcoins can be directly exchanged between users anywhere in the world using unique alphanumeric identifiers, akin to e-mail addresses, and there are no transaction fees. Anytime a purchase takes place, it is recorded in a public ledger known as the “blockchain,” which ensures no duplicate transactions are permitted. Bitcoin is the world’s largest crypto currency, so-called because it uses “cryptography to regulate the creation and transfer of money, rather than relying on central authorities.”,” io9, March 26, 2012. 47 “I will sell my kidney”: Dan Bilefsky, “Black Market for Body Parts Spreads in Europe,” New York Times, June 28, 2012. 48 “Donate a kidney”: Denis Campbell and Nicola Davison, “Illegal Kidney Trade Booms as New Organ Is ‘Sold Every Hour,’ ” Guardian, May 27, 2012. 49 At least one seventeen-year-old: “9 on Trial in China over Teenager’s Sale of Kidney for iPad and iPhone,” CNN, Aug. 50 In a deeply disturbing report: European Cybercrime Centre, “Commercial Sexual Exploitation of Children Online,” Oct. 51 Organized criminal networks: Paul Gallagher, “Live Streamed Videos of Abuse and Pay-per-View Child Rape Among ‘Disturbing’ Cybercrime Trends, Europol Report Reveals,” Independent, Oct. 16, 2013; Paul Peachey, “Number of UK Paedophiles ‘Live-Streaming’ Child Abuse Films Soars, Warns CEOP,” Independent, July 1, 2013. 52 In one incident: Ann Cahill, “New Age of Cybercrime: Live Child Rapes, Sextortion, and Advanced Malware,” Irish Examiner, Feb. 53 The system is designed: “How Does Bitcoin Work?,” Economist, April 11, 2013. 54 Bitcoin is the world’s largest: Nick Farrell, “Understanding Bitcoin and Crypto Currency,” Tech Radar, April 7, 2014. 55 Because Bitcoin can be spent: Joshua Brustein, “ Bitcoin May Not Be So Anonymous, After All,” Bloomberg Businessweek, Aug. 56 There are now more than seventy: Alan Yu, “How Virtual Currency Could Make It Easier to Move Money,” NPR.org, Jan. 57 Hackers have been able to steal: Robin Sidel, Eleanor Warnock, and Takashi Mochizuki, “Almost Half a Billion Worth of Bitcoins Vanish,” Wall Street Journal, March 1, 2014. 58 Beyond crypto currencies: Marc Santora, William K. Rashbaum, and Nicole Perlroth, “Liberty Reserve Operators Accused of Money Laundering,” New York Times, May 28, 2013. 59 Known as the “PayPal”: United States Attorney’s Office of Southern New York, “Liberty Reserve Information Technology Manager Pleads Guilty in Manhattan Federal Court,” United States Department of Justice press release, Sept. 60 The popularity of Darkcoin: Andy Greenberg, “Darkcoin, the Shadowy Cousin of Bitcoin, Is Booming,” Wired, May 21, 2014. 61 Operating under the motto: Andy Greenberg, “ ‘Dark Wallet’ Is About to Make Bitcoin Money Laundering Easier Than Ever,” Wired, April 29, 2014. 62 One such CaaS company: James Vincent, “Irish Man Arrested as ‘the Largest Facilitator of Child Porn on the Planet,’ ” Independent, Aug. 63 Hundreds of crime-trepreneur purveyors: Kevin Poulsen, “FBI Admits It Controlled Tor Servers Behind Mass Malware Attack,” Wired, Sept. 64 The trend is accelerating: Solutionary, an NTT Group Security Company, Security Engineering Research Team (SERT) Quarterly Threat Intelligence Report, 2013, 8, 65 For example, the hackers: Ibid. 66 Today, using the distributed computing power: “Cybercriminals Today Mirror Legitimate Business Processes,” 4. 67 This means that anyone: Simson Garfinkel, “The Criminal Cloud,” MIT Technology Review, Oct. 68 “private organisation”: Misha Glenny, DarkMarket: Cyberthieves, Cybercops, and You (New York: Knopf, 2011), 203. 69 China’s Hidden Lynx: Danny Yadron, “Symantec Fingers Most Advanced Chinese Hacker Group,” Digits (blog), Wall Street Journal, Sept. 70 Off duty, however: Kim Zetter, “State-Sponsored Hacker Gang Has a Side Gig in Fraud,” Wired, Sept. 71 Staffed 24/7: Kim Zetter, “Cops Pull Plug on Rent-a-Fraudster Service for Bank Thieves,” Wired, April 19, 2010. 72 As a result, less skilled criminals: Ablon, Libicki, and Golay, “Markets for Cybercrime Tools and Stolen Data,” 4. 73 Vendors offer one-stop shopping: Forward-Looking Threat Research Team, “Deepweb and Cybercrime,” 9; Ablon, Libicki, and Golay, “Markets for Cybercrime Tools and Stolen Data,” 4. 214 As an example: Taylor Armerding, “Dark Web: An Ever-More-Comfortable Haven for Cyber Criminals,” CSO Online, March 28, 2014. 74 Over the years: Donna Leinwand Leger and Anna Arutunyan, “How the Feds Brought Down a Notorious Russian Hacker,” USA Today, March 5, 2014. 75 When they did: Dan Raywood, “New Version of Bugat Trojan Was Payload in LinkedIn Spam and Not Zeus,” SC Magazine UK, Oct. 76 Once it found it: Robert McMillan, “New Russian Botnet Tries to Kill Rival,” Computerworld, Feb. 77 Like its rival Zeus: Kurt Eichenwald, “The $500,000,000 Cyber-Heist,” Newsweek, March 13, 2014. 78 The tool, perhaps one of the world’s most popular: Gregory J.., a trend that is accelerating thanks to new forms of illicit finance that greatly facilitate its clandestine business operations. Dark Coins Bitcoin’s got its issues. But it is not competing with perfection. DAN KAMINSKY, SECURITY RESEARCHER Technology is enabling new forms of money, and the growing digital economy holds great promise to provide new financial tools, especially to the world’s poor and unbanked. These emerging virtual currencies are often anonymous and none have received quite as much press as Bitcoin, a decentralized peer-to-peer digital form of money. Bitcoins were invented in 2009 by a mysterious person (or group of people) using the alias Satoshi Nakamoto, and the coins are created or “mined” by solving increasingly difficult mathematical equations, requiring extensive computing power. The system is designed to ensure no more than twenty-one million Bitcoins are ever generated, thereby preventing a central authority from flooding the market with new Bitcoins. By Parmy Olson Amazon: — — —,,,,,,,,,,,,,,,,,,,,,,, Another more direct route, which Topiary often used, was to simply transfer money between a few different Bitcoin addresses: Bitcoin address 1 → Bitcoin address 2 → Bitcoin address 3 → Liberty Reserve (a Costa Rican payment processor) account → Bitcoin address 4 → Bitcoin address 5 → second Liberty Reserve account → PayPal account → bank account. If even the hint of a thought occurred to him that there weren’t enough transfers, he would add several more paths. Then on Monday, June 6, Topiary checked the LulzSec Bitcoin account. Holy shit, he thought. He was looking at a single, anonymous donation of four hundred Bitcoins, worth approximately $7,800. It was more money than Topiary had ever had in his life. He went straight into the core group’s secure chat room. “WHAT THE FUCK guys?!” he said, then pasted the Bitcoin details. “NO WAY,” said AVunit. Topiary started requesting donations for LulzSec and used Twitter and Pastebin to provide the thirty-one-digit number that acted as the group’s new Bitcoin address. Anyone could anonymously donate to their anonymous account if he converted money into the Bitcoin currency and made a transfer. Bitcoin was a digital currency that used peer-to-peer networking to make anonymous payments. It became increasingly popular around the same time LulzSec started hacking. By May, the currency’s value was up by a dollar from where it had been at the start of the year, to $8.70. A few days after soliciting donations, Topiary jokingly thanked a “mysterious benefactor who sent us 0.02 BitCoins. Your kindness will be used to fund terror of the highest quality.” He used Twitter to drop hints about whom LulzSec would hit next. They started private messaging Topiary with their unique Bitcoin addresses so he could send them their shares. Topiary had no intention of keeping quiet about the money or cutting a bigger slice for himself. Everyone was funneling the money through various accounts to keep it from being traced. Who knew if the donation had come from the Feds or opportunistic military white hats? “Guys be safe with the Bitcoins please,” said AVunit. “Let it flow through a few gateways.Use one bit to get out of financial trouble and then sit on the rest.” “Okay, beginning the sends,” Topiary said. “All of you are now $1,000 richer.” “Excuse me while I light up a victory cigar,” said Pwnsauce. “I’m just going to stare at it,” said Kayla. “Let it grow as Bitcoin progresses.” So volatile and popular was the value of the Bitcoin crypto currency that by the following day one Bitcoin had risen to $26 in value, making their big donation worth $11,000. By Brett King Amazon: — — —,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, Instead of enabling merchants to process credit card payments from Visa or MasterCard, Bitcoin bypasses the system entirely in favour of device-to-device transactions using near-field communications technology. Bitcoin’s new currency doesn’t require a third-party processor or a plug-in dongle. Because of this, Bitcoin can afford to charge users much less per transaction. At the moment, the average Bitcoin transaction fee is 0.99 per cent, while Square and PayPal’s processing apps charge 2.75 per cent and 2.7 per cent per swipe of your credit card. Like any currency, Bitcoins can also be exchanged for US dollars through a processing service. As of 11 April 2011, the going rate was round $4.90 per Bitcoin. In Africa, where inflation is out of control, many merchants are choosing to hang on to their Bitcoins so that they don’t have to push around wheelbarrows full of $100-billion notes. They’re looking at a rival currency to hold their assets, and it isn’t always the US dollar or euro. There’s been a lot of discussion around the fact that Bitcoin’s anonymity enables the facilitation of illegal activities, money laundering and the like. Admittedly it is well suited to such abuse only because it is a totally open and community-regulated currency. However, suspicious transactions will still get flagged by the traditional banking system when cash is put into or taken out of the Bitcoin economy. So what’s holding Bitcoin back from shaking up the global economy and becoming a true rival currency, especially in the digital payments space? Security is the main concern. Unlike your credit card or existing bank accounts in the system, Bitcoin currently provides no protection or compensation in the event of fraud. Recently, a hacker managed to raid several Bitcoin accounts around the world and got away with $228,845.20 While current technology would enable tracking of IP activity around trades and the flow of Bitcoins, in the current instance of fraud, the weak link was the Bitcoin exchange, which didn’t have the monitoring tools in place to track the hack. “Increasingly, these virtual economies are leading to real money trades,” notes Hunter, one of a handful of academics closely following this trend. Bitcoin is an experimental new digital currency that enables instant payments to anyone, anywhere in the world. It uses peer-to-peer technology to operate, with no central authority, managing transactions and issuing money are carried out collectively by the network. Bitcoin is also the name of the open-source software that enables the use of this innovative virtual currency. Over the past few years, the peer-to-peer currency it has created has gained a surprising foothold in the global market. There are now multiple Bitcoin-processing apps for Android and the iPhone, as well as an online payment system similar to PayPal. Instead of enabling merchants to process credit card payments from Visa or MasterCard, Bitcoin bypasses the system entirely in favour of device-to-device transactions using near-field communications technology. By Tom Wainwright Amazon: — — —,,,,,,,,,,,,,,,,, The effect is to make a user’s web-browsing history as good as untraceable, which is handy if you are a political dissident, spy, investigative journalist—or drug dealer. Then there is the problem of how to pay. For this, there is Bitcoin. The world’s foremost digital currency system, Bitcoin works without a central bank, instead relying on networks of computers to generate new “coins” by performing complex mathematical operations in a process known as mining. Setting up a Bitcoin account is a bit of a hassle, but not particularly complicated and, like the TOR browser, the currency is perfectly legal to use. Bitcoin’s value is ludicrously volatile: its price shot up from less than $15 at the beginning of 2013 to nearly $1,000 in November of that year, before falling back to $300 by the end of 2014. But online shoppers can live with this because, like TOR, Bitcoin provides them with a cloak of anonymity. The combination of untraceable browsing and anonymous payments has enabled an online criminal market to flourish. Others, apparently including Evolution, vanish when the people running them decide to pull a fast one. (Evolution’s managers are thought to have made off with some $15 million in Bitcoin payments kept in escrow when the site mysteriously vanished in 2015.) And all such sites depend on Bitcoin and TOR, both of which could be pulled from under their feet if the governments of the world decided to ban them. There is no sign of that for now. Germany’s finance ministry has recognized Bitcoin as a currency, meaning its users can be taxed. In the United States, the Winklevoss twins, the nearly men of the dotcom boom who claimed that Mark Zuckerberg had stolen the idea for Facebook from them, have poured money into creating a Bitcoin exchange. Most democratic governments have so far been reluctant to outlaw the TOR browser, on the basis that it has legitimate uses as well as nefarious ones. One academic study of the goods for sale on the original Silk Road estimated that about one-fifth of all its listings were aimed at dealers, and that these “business-to-business” transactions accounted for between 31 percent and 45 percent of the site’s trades by value.3 If that is the case, even drug users who buy their supplies “offline,” from a dealer or friend, may well be buying a product that was traded online at an earlier stage in the supply chain. Measuring the total value of the online drug economy is hard, not least because Bitcoin’s price is so volatile. The FBI originally estimated that the Silk Road had done $1.2 billion in business during its two and one-half years online. But it later scaled down this rough calculation: the estimate had been made when Bitcoin’s value was near its peak, whereas much of the Silk Road’s business was done when the digital currency was less valuable. The FBI did a revised estimate, using the currency’s varying value at the time that each different trade was made, and came up with the much lower figure of $200 million. By Jamie Bartlett Amazon: — — —,,,,,,,,,,, A decentralised world that is both private and impossible to censor. Back in 2009, in an obscure cryptography chat forum, a mysterious man called Satoshi Nakamoto invented the crypto-currency Bitcoin.fn3 It turns out the real genius of Bitcoin was not the currency at all, but the way that it works. Bitcoin creates an immutable, unchangeable public copy of every transaction ever made by its users, which is hosted and verified by every computer that downloads the software. This public copy is called the ‘blockchain’. Pretty soon, enthusiasts figured out that the blockchain system could be used for anything. Armed with 30,000 Bitcoins (around $12 million) of crowdfunded support, the Ethereum project is dedicated to creating a new, blockchain-operated internet. Ethereum’s developers hope the system will herald a revolution in the way we use the net – allowing us to do everything online directly with each other, not through the big companies that currently mediate our online interaction and whom we have little choice but to trust with our data. The first thing that strikes you on signing up on these market sites is how eerily familiar they all feel – they’re just like eBay or Amazon. Every one of the thousands of products on offer has a detailed description, a photograph and a price. All products and vendors are rated out of five by buyers, who also provide detailed written feedback. There are customer service buttons and shopping carts and free-package-and-delivery and one-off specials. I, like thousands of others, placed an order; paid with bitcoin; and waited for my product to arrive in the post. Which it did, bang on time. The hardest thing is deciding what to buy, since there is an unbelievable choice of products on offer. The Silk Road 2.0 (which was closed by the FBI and other police forces in late 2014) was an anonymous market for anything, with few exceptions, which meant wares stretched from the mundane to the bizarre: listings I spotted on one visit included a complete box-set of The Sopranos and a hundred-dollar Marine Depot Aquarium Supplies voucher. I became the moderator of an infamous trolling group and spent weeks in forums dedicated to cutting, starving or killing yourself. I explored the labyrinthine world of Tor Hidden Services in search of drugs, and to study child pornography networks. I witnessed online wars between neo-Nazis and anti-fascists on popular social media sites, and signed up to the latest porn channels to examine current trends in home-made erotica. I visited a Barcelona squat with anarchist Bitcoin programmers, run-down working men’s clubs to speak to extreme nationalists, and a messy bedroom to observe three girls make a small fortune performing sexually explicit acts on camera to thousands of viewers. By exploring and comparing these worlds, I also hoped to answer a difficult question: do the features of anonymity and connectivity free the darker sides of our nature? And if so, how? The Dark Net is not an effort to weigh up the pros and cons of the internet. By Joshua Cooper Ramo Amazon: — — —,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, Today, the most talked-about model for an all-digital currency is Bitcoin, a system based on the algorithmic creation of money mined from computation much as gold was once mined from the hills of California. Bitcoin’s most appealing property is that it is not controlled by any government. It is meant to be free from political pressures, from the influence of central bankers, and from the risk of national default. If you’re an Indonesian farmer or an Estonian cabdriver, the thinking goes, better to store your money in BTC than local cash. Bitcoin is easy to keep and transmit, and Bitcoin transactions can be made anonymously—which has attracted drug lords and tax evaders and bred a Bitcoin-fueled black-market economy too. Bitcoin or something like it will have a role in our future, but another kind of digital currency will appear too, and it will form itself into a kind of gateland. Bitcoin or something like it will have a role in our future, but another kind of digital currency will appear too, and it will form itself into a kind of gateland. Instead of being anonymous, backed only by algorithms, and unlinked to a government, as Bitcoin is, this currency will be built for reliability, not mystery. Bitcoin transactions are cloaked in secrecy; this new currency will be transparent, traceable. Bitcoin is free from government interference; this digital currency will be backed by a major government and tied intimately into policy and credit. Imagine that the United States began to issue Bitdollars—traceable, controllable digital currency backed by the security of America’s economic position. While many people might still prefer Bitcoins (or Bitrubles or Bityuan), the answer to the question What’s your safety currency? Won’t change much just because you put the prefix “Bit” in front of it. If you look at a kid with a phone and think strong, you have a feeling for the potential of a network. If you look at an angry, barely educated terrorist wannabe and think junior varsity, you don’t. And, as a result, you may be about to have a very unpleasant surprise. A friend who controls the largest secure Bitcoin vault in the world put it to me once this way: “Platforms mattered once; now it is protocols.” His point was that the pipes and rules connecting the varied systems of our world fundamentally affect the distribution of power. The rules of the Bitcoin block chain or the implications of an addressing protocol such as IPv6 reveal something about how we’ll all connect in the future. They are examples of how the pulling pressure of networks will become operational. Try this: Ball up your right hand into a fist. Take your left hand and open the fingers wide. By Kevin Kelly Amazon: — — —,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, sizable bag rental business: Emily Hamlin Smith, “Where to Rent Designer Handbags, Clothes, Accessories and More,” Cleveland Plain Dealer, September 12, 2012. Phone app, such as M-Pesa: Murithi Mutiga, “Kenya’s Banking Revolution Lights a Fire,” New York Times, January 20, 2014. Has $3 billion in circulation: “ Bitcoin Network,” Bitcoin Charts, accessed June 24, 2015. 100,000 vendors accepting the coins: Wouter Vonk, “ Bitcoin and BitPay in 2014,” BitPay blog, February 4, 2015. Six times an hour: Colin Dean, “How Many Bitcoin Are Mined Per Day?,” Bitcoin Stack Exchange, March 28, 2013. Knowledge-Based Trust: Hal Hodson, “Google Wants to Rank Websites Based on Facts Not Links,” New Scientist, February 28, 2015. Tools are extensions of our selves: Marshall McLuhan, Understanding Media: The Extensions of Man (New York: McGraw-Hill, 1964). And some admirable characters championing human rights were looking for a money system that would work outside of corrupt or repressive governments, or in places of no governance at all. What they together came up with is Bitcoin. Bitcoin is a fully decentralized, distributed currency that does not need a central bank for its accuracy, enforcement, or regulation. Since it was launched in 2009, the currency has $3 billion in circulation and 100,000 vendors accepting the coins as payment. Bitcoin may be most famous for its anonymity and the black markets it fueled. But forget the anonymity; it’s a distraction. The most important innovation in Bitcoin is its “blockchain,” the mathematical technology that powers it. The blockchain is a radical invention that can decentralize many other systems beyond money. When I send you one U.S. Dollar via a credit card or PayPal account, a central bank has to verify that transaction; at the very least it must confirm I had a dollar to send you. When I send you one U.S. Dollar via a credit card or PayPal account, a central bank has to verify that transaction; at the very least it must confirm I had a dollar to send you. When I send you one bitcoin, no central intermediary is involved. Our transaction is posted in a public ledger—called a blockchain—that is distributed to all other bitcoin owners in the world. This shared database contains a long “chain” of the transaction history of all existing bitcoins and who owns them. Every transaction is open to inspection by anyone. That completeness is pretty crazy; it’s like every person with a dollar having the complete history of all dollar bills as they move around the world. Six times an hour this open distributed database of coins is updated with all the new transactions of bitcoins; a new transaction like ours must be mathematically confirmed by multiple other owners before it is accepted as legitimate. By David Wolman Amazon: — — —,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, It may be tempting to belittle alternative currencies as limited, unrealistic, or maybe a little hippie-ish, but they do work, so long as they don’t run into a counterfeiting problem, and so long as the supply of this money is intelligently controlled so as to avoid inflation (or worse). That’s why Bitcoin’s algorithmic approach to steering the money supply is captivating, although wild fluctuations in its value in the summer of 2011 suggest to some that The Economist is correct: “ Bitcoin is technically sophisticated. As a monetary system, it looks primitive.”7 Alternative currencies are at a disadvantage due to their limited connection to the banking system. Credit is money too, after all, but there aren’t really loans out there denominated in Ven or Bitcoin, let alone Kilowatt Cards. Nevertheless, nothing but perception makes the issuing authority of the U.S. Government more legitimate than the Ithaca HOURs Circulation Committee. Projects like Hub Culture, Bitcoin, and Superfluid are trying to blend the interconnectivity of social networks with alternative currency models (although who knows if they’ll still be around by the time you read this). At Superfluid, users trade in Quids, which, as the website explains, are not dollars. “They’re placeholders for favors.” Hub Culture’s currency, Ven, is an attempt to bridge the divide between virtual currencies and real-world goods and services. People in the network transact in the “local” currency, which is priced from a basket of major sovereign currencies, commodities, and carbon futures. Your Ven can be exchanged for one of the major national currencies based on the same floating exchange rates that govern the value of world currencies against one another. Bitcoin has captured peoples’ imaginations because the money supply is determined by an algorithm, not bureaucrats or economists, and there is a cap to the number of Bitcoins that can be created: 21 million. Bitcoin has captured peoples’ imaginations because the money supply is determined by an algorithm, not bureaucrats or economists, and there is a cap to the number of Bitcoins that can be created: 21 million. Two related experiments are the Wuffie Bank and Serios. Wuffie has tried to set up a currency based on reputation, as determined by an algorithm that measures the influence we have on others via our social networks. Serios is a currency of attention, based on the idea that in the age of information overload, an incoming e-mail loaded with 100 Serios is of more value than one loaded with just five Serios. Or think about the “Like” button on Facebook: when someone clicks this button on an article, product, or online video, she is assigning a tiny additional value that wasn’t there before.5 In the summer of 2011, the publishers of Longshot magazine decided that instead of making readers use a conventional paywall, they would ask for payment in U.S. Dollars or by sharing the site with others via social media. By Steve Sammartino Amazon: — — —,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, The ratio is still on the money, even today, which is something we can’t claim for state-backed or fiat currency because none of the fiat currencies in the world are backed by the gold standard any more. A new globally networked commercial economy needs a currency to match. Step forward crypto currencies such as bitcoin, which are the next evolution in how we trade. Bitcoin Bitcoin was the first fully implemented and distributed crypto currency. It works in much the same way as other emerging crypto currencies. Crypto currencies are simply decentralised electronic cash systems. The ‘money’ is created by using peer-to-peer networking, digital signatures and cryptography to generate a currency. Bitcoins are mined out of a digital network by computers plugged into a system trying to figure out a 64-digit code that unlocks 50 bitcoins at a time. The money, or bitcoins, is generally traded within the system by using specific peer-to-peer software. It’s a lot like BitTorrent client software. It’s a lot like BitTorrent client software. All transactions are stored on a publicly distributed database so that the record of transaction is with everyone plugged into the system, rather than in a central storage location. It creates a form of decentralised stability and control in transactions, although the currency itself is highly volatile. A key difference with bitcoin is that the owner of each bitcoin stash is anonymous. The major advantages of bitcoin There’s a cap on the amount that will ever be in circulation (21 million) so it can’t be devalued by inserting more into the economy. There’s no centralised control agency that can destabilise the currency through its economic systems. It’s pan global and not controlled by a government (like gold). It’s digitally native and suits the future of commerce. It can transfer across borders without financial interruptions and fee gouging by existing finance systems. Yes, banks don’t own currency, but the reason crypto currencies such as bitcoin are emerging is because of the banks themselves. Their opportunistic fee-taking is a counter move to the lower cost transaction (of all things) world we’re moving towards. Taking advantage of the system they feed off enables new systems to emerge. Banks haven’t provided simplified systems for modern-day digital trade and the net result is that this will eat into one of their revenue streams, another hardly noticeable leak in the industry bucket. It’s a form of system hacking, if you like. Unstable yet permanent Yes, bitcoin and crypto currencies are unstable and risky, but they’re in many ways no less stable than other stores of money. While bitcoin fluctuates wildly, its overriding direction is for more users, more traders who accept it and importantly its increasing value on the long-term trajectory. By Julia Angwin Amazon: — — —,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, For instance, if I created: “How Spamgourmet Works,” So I started using: MaskMe, Abine, Inc., I hoped to buy bitcoins: “FAQ— Bitcoin,” accessed August 21, 2013, bitcoin.it/wiki/FAQ#How_can_I_get_ bitcoins.3F. Bitcoins can be used on: Adrian Chen, “The Underground Website Where You Can Buy Any Drug Imaginable,” Kotaku.com, June 1, 2011, In May 2013, Kashmir Hill: Kashmir Hill, “Living on Bitcoin for a Week: The Journey Begins,” Forbes.com, May 1, 2013, bitcoin-for-a-week-the-journey-begins/. A digital cash start-up, E-gold: United States Department of Justice, “Digital Currency E-Gold Indicted for Money Laundering and Illegal Money Transmitting,” press release, April 27, 2007, I decided to try to find a more anonymous currency. I hoped to buy bitcoins, a virtual digital currency that was all the rage in the hacker community. But I couldn’t find a place that would let me buy bitcoins with a credit card. They all wanted my bank account number or a wire transfer—apparently because people often call their credit card company complaining that they didn’t receive their virtual coins. Bitcoins can be used on online “black markets” that can sell drugs and weapons. However, some brick-and-mortar businesses have started accepting bitcoins. In May 2013, Kashmir Hill, a reporter for Forbes, lived for a week only on bitcoins—subsisting mostly via a food delivery service in San Francisco that accepted the currency. However, all Bitcoin transactions are logged and publicly viewable. People’s names are not attached to their transactions, but a determined investigator could likely identify people behind certain Bitcoin transactions. People’s names are not attached to their transactions, but a determined investigator could likely identify people behind certain Bitcoin transactions. This was not the anonymity I was seeking. * * * The deeper I looked at anonymous digital transactions, the less I liked them. They seemed to be havens for criminals. In 2007, a digital cash start-up, E-gold, was charged with money laundering. The indictment said the company knew that its services were used by identity thieves, child pornographers, and other criminals. The following year the company and its owners pleaded guilty to money laundering. And in 2013, federal prosecutors shut down the anonymous online currency exchange Liberty Reserve, charging that it was a $6 billion money-laundering operation for child pornographers and other criminals. By Salim Ismail, Yuri van Geest Amazon: — — —,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, Quicken and Quickbooks have both had a major impact on traditional accounting firms. Now, similar to Mint for personal finance, Wave Accounting offers 100-percent-free small business accounting, although its real business model is to mine the data buried within those transactions. A little further out, the Bitcoin phenomenon continues to unfold. The smartest five VCs we know are all building or investing in between fifteen and twenty Bitcoin companies each. These investments could prove to be unimaginably disruptive. In fact, Salim believes Bitcoin to be the single biggest technology-enabler of the above list. Leading Bitcoin investor Brock Pierce frames it thusly: While the Internet is a medium for open communication—on top of which a layer of secure transactions has been attempted with great difficulty—the block chain itself is an ultra-low-cost infrastructure of secure, guaranteed transactions over which all manner of applications can be laid (currency being just one of them). CFO – Chief Financial Officer The finance function, although historically very conservative and cautious, is about to face radical disruption from several technologies, including AI (Deep Learning), sensors and Bitcoin (the underlying block chain protocol in particular). Key Opportunity Implications and Actions AI accounting Automatic A/P, A/R software-enabling automatic reminders and payment, automatic tax management, and AIs watching for errant behaviors in transaction flows. Taxation without borders Governments are getting their act together regarding tax havens, which will likely continue to face ever-closer scrutiny in the coming years. Digital payment solutions More than 60,000 merchants already accept Bitcoin, which we predict will hit Wall Street in late 2014 and will most likely be mainstream by 2016. This is in addition to the growing impact of Square and PayPal. We see a consistent set of steps around disruptive innovation comprising the following: Domain (or technology) becomes information-enabled Costs drop exponentially and access is democratized Hobbyists come together to form an open source community New combinations of technologies and convergences are introduced New products and services appear that are orders of magnitude better and cheaper The status quo is disrupted (and the domain gets information-enabled) We are seeing this evolution occur in drones, DNA sequencing, 3D printing, sensors, robotics and, certainly, Bitcoin. In each domain, an open source, networked community has sprung up, delivering an accelerated stream of innovation exactly in line with the steps listed above. The reason “Disruption is the New Norm” is that democratized, accelerating technologies, combined with the power of community, can now extend Christensen’s Innovator’s Dilemma to an unstoppable force. Beware the “Expert” The old saw that an expert is “somebody who tells you why something cannot be done” is truer than ever before. By Nicco Mele Amazon: — — —,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, A host of alternative currencies are blossoming on the Internet, and one in particular—an open-source project called Bitcoin—appears to be gaining steam. Bitcoin uses peer-to-peer technology to operate with no central authority, allowing anyone to send “money” (the Bitcoin currency) to anyone, anywhere, at any time, and beyond the reach of governments. Bitcoin enlists participants in the community to manage transactions and issue money; the network, rather than a central bank, collectively creates the money. Lest you think Bitcoin is a nerd pipe dream, many companies—even large, publicly traded ones like LaCie—accept Bitcoin as payment.10 In the opinion of the tech entrepreneur and journalist Jason Calacanis, “ Bitcoin is a P2P currency that could topple governments, destabilize economies and create uncontrollable global bazaars for contraband.”11 Recently, Bitcoin has faced significant setbacks, but it is a promising opening salvo in the advent of alternative, postgovernment currency. Joshua Holland, The Fifteen Biggest Lies about the Economy: And Everything Else the Right Doesn’t Want You to Know about Taxes, Jobs, and Corporate America (Hoboken: John Wiley, 2010), 105. Charlene Li and Josh Bernoff, The Groundswell, (Cambridge: Harvard Business Press, 2008). Bitcoin-p2p-currency-the-most-dangerous-project-weve-ev.html 12. Lest you think Bitcoin is a nerd pipe dream, many companies—even large, publicly traded ones like LaCie—accept Bitcoin as payment.10 In the opinion of the tech entrepreneur and journalist Jason Calacanis, “Bitcoin is a P2P currency that could topple governments, destabilize economies and create uncontrollable global bazaars for contraband.”11 Recently, Bitcoin has faced significant setbacks, but it is a promising opening salvo in the advent of alternative, postgovernment currency. It’s possible now to build some of the structures parallel to the government with very little start-up cost—like revenue collection, for example. As people find the current system of government slow and frustrating, they’ll increasingly turn to the casual opportunities offered by radical connectivity to accomplish many of the same goals, even to the point of using alternative money like Bitcoin. An astonishing range of tools exist that complement and in some ways could replace government if given the opportunity. The Limits of Small The groundswell is exciting, but is it an unmitigated good thing? In some ways, it makes effective governance more difficult. At a meeting of mayors from around the country that I attended, I kept hearing a common refrain: they were drowning in the volume of direct contact with constituents. By Andrew Keen Amazon: — — —,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, Distributed capitalism equals ubiquitous capitalism. That’s the evolutionary logic of networked economics. In the financial market, Bitcoin already has its own trading indexes where hundreds of millions of dollars are speculated on the electronically networked currency. Digital money like Bitcoin represent a peer-to-peer alternative to centrally controlled currencies like the US dollar or Swedish krona, an alternative in which middlemen and thus banks and banking fees are eliminated. The End of Alchemy: Money, Banking and the Future of the Global Economy by Mervyn King,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, In principle, two parties engaged in a transaction could instead settle directly by a transfer of money from one electronic account to another in ‘real time’. A step in that direction was the creation of bitcoin – a ‘virtual’ currency launched in 2009, allegedly by one or more individuals under the pseudonym of Satoshi Nakamoto. Ownership of bitcoins is transferred through bilateral transactions without the need for verification by a third party (necessary in all other current electronic payment systems). Transactions are verified by the use of a software accounting system accessible to all users.35 The supply of bitcoins is governed by an algorithm embodied in the software that runs the system (with a maximum number of twenty-one million). If you can persuade someone to accept payment in bitcoins, then you can use them to buy ‘stuff’. The price of bitcoins in terms of goods and services, or currencies such as the dollar, is determined in the market. The price of bitcoins in terms of goods and services, or currencies such as the dollar, is determined in the market. Without any public body setting the standard for bitcoins as a unit of account, their price is highly volatile – less than $1 when launched, a peak of over $1100 in December 2013, and back to below $400 in late 2015.36 With no one standing ready to redeem them in terms of any other commodity or currency, bitcoins are a highly speculative investment. They have no fundamental value: their price simply reflects the value that bitcoins are expected to have in the future. The integrity of the algorithm determining the supply of bitcoins is vital. An indication of what can go wrong when confidence in that process is lost is the fate of a related venture, the auroracoin, a digital currency in Iceland. As an alternative to government-issued paper money, auroracoins were circulated in Iceland by a private entrepreneur in March 2014 through a ‘helicopter’ drop to every citizen listed on the national ID register. The increase of cybercrime is analysed in the 2014 US State of Cybercrime Survey, www.pwc.com/cybersecurity 35 This system, effectively a public ledger of all current and past transactions, is known as the block chain technology. 36 Similar huge swings in prices can be seen in related digital currencies, for example Scotcoins in Scotland. 37 38 Although, unlike cash, transactions with bitcoins leave a permanent record in the software accounting system, leading commentators such as Brito and Castillo (2013) to describe them not as anonymous but pseudonymous. Money stored as bitcoins can also be stolen by hackers or lost through carelessness, just as cash is vulnerable to theft or loss. 39 Yermack (2013) provides data on the relative volatilities of the prices of bitcoins, gold and the major currencies. The volatility of bitcoins is an order of magnitude higher than the other currencies. 40 Economies of this kind have been discussed by Fama (1980), Hall (1983) and Issing (1999). 41 On money as a unit of account see Doepke and Schneider (2013). 42 Magna Carta, chapter 35, translation of the original Latin of 1215. 43 Hayek (1976). By James Rickards Amazon: — — —,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, Among them are the rise of alternative currencies and of virtual or digital currencies such as bitcoin. Digital currencies exist within private peer-to-peer computer networks and are not issued by or supported by any government or central bank. The bitcoin phenomenon began in 2008 with the pseudonymous publication of a paper (by Satoshi Nakamoto) describing the protocols for the creation of a new electronic digital currency. In January 2009 the first bitcoins were created by Nakamoto’s software. He continued making technical contributions to the bitcoin project until 2010, at which point he withdrew from active participation. However, by that time a large community of developers, libertarians, and entrepreneurs had taken up the project. By late 2013, over 11.5 million bitcoins were in circulation, with the number growing steadily. The value of each bitcoin fluctuates based on supply and demand, but it had exceeded $700 per bitcoin in November 2013. By August 2013, total student loans backed...: “The Rolling Student Loan Bailout,” Wall Street Journal, August 9, 2013, “the test of a first-rate intelligence...”: F. Scott Fitzgerald, The Crack-Up (1936; reprint New York: New Directions, 2009). The bitcoin phenomenon began in 2008...: Satoshi Nakamoto, “ Bitcoin: A Peer-to-Peer Electronic Cash System,” November 1, 2008, bitcoin.org/ bitcoin.pdf. The history of barter is mostly a myth: David Graeber, Debt: The First 5,000 Years (Brooklyn, N.Y.: Melville House, 2011), pp. 11 was not a failure of intelligence or coordination...”: Thomas L. Friedman, “A Failure to Imagine,” New York Times, May 19, 2002, The value of each bitcoin fluctuates based on supply and demand, but it had exceeded $700 per bitcoin in November 2013. Bitcoin’s long-term viability as a virtual currency remains to be seen, but its rapid and widespread adoption can already be taken as a sign that communities around the world are seeking alternatives to the dollar and traditional fiat currencies. Beyond the world of alternative currencies lies the world of transactions without currencies at all: the electronic barter market. Barter is one of the most misunderstood of economic concepts. A large economic literature is devoted to the inefficiencies of barter, which requires the simultaneous coincidence of wants between the two bartering parties. If one party wanted to trade wheat for nails, and the counterparty wanted wheat but had only rope to trade, the first party might accept the rope and go in search of someone with nails who wanted rope.
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