What Is Digital (Crypto) Currency-How Does It Work

What is digital money? It is specified as: cash stored and also transferred in electronic kind. May sound straightforward enough, but just how does it all job?

This sort of money is thought to excel to make use of for making purchases on the internet due to the fact that if it functions the method it was indicated to, transactions need to be rather confidential and untraceable back to the payer or individual.

This indicates that cyberpunks would no more have the ability to collect individual information from people that utilize their credit cards to make online acquisitions. This would clearly lessen the variety of taken identifications that take place each day.

To assist you recognize more of, “just what is electronic money?” I have done a fair bit of research on the subject as well as have located that there are many different types out there, each with it’s very own special high qualities.

Right here are just a few with their descriptions complying with:

Digital Gold Money– This type is supported by gold kept in safes. The gold offers an extra measure of safety as well as if you hold this type of money, you might possibly straight exchange it for solid gold bullion.
Central Money Systems– these are like PayPal and these business permit you to send money all over the world as long as you have money in the account. For some services provided by these sorts of firms, you obtain charged a fee on the receivers end of the purchase.

Decentralized Currency Equipments– Like Bitcoin are all based upon cryptography and/or trust networks. Additionally called Hard Electronic Currency, it is meant to be more like utilizing cash money to make your deal but your purchase is non-refundable when made. This kind of system simply works in one direction.

The E-cash idea has developed together with the advancement of the Net. Individuals simply do not feel comfortable with offering their individual credit card information over the Internet when buying.

A lot of bad things can happen like identity theft. No person desires their identification swiped.

So, many companies have actually attempted to create this kind of repayment or financial system to minimize the threats of shopping online.

Lots of countries have actually effectively created systems for “internal” usage such as Hong Kong’s Octopus card. This card functions similar to a kind of debit card where the customer loads cash into the card and then all the money is placed right into a financial institution. They could then make use of the card for anything they have to use it for.

Some nations are working with or have systems that permit the user to transfer cash through cell phones. I believe this is rather like what Chase permits their customers do. Their consumers could take a photo of their check, front as well as back, with their phone and make their down payment online.

I do wish that this provides you some suggestion of just what is digital money and how it is attempting to take it’s area on the planet of e-commerce. There might be a bit more to it compared to I could explain in merely one little article yet I assume you can acquire a great idea.

    Bitcoin Hub

  • WP Sales Chimp - Single Site "New 3-Step Software Allows You To Create, Customize, Track and Analyze ALL your marketing links inside of ONE Central Dashboard..."
Posted in Analysis | Leave a comment

The Ever-Changing Atmosphere of Bitcoin Mining 2.0

The Ever-Changing Atmosphere of Bitcoin Mining 2.0

Boost VC Is Going Full Bitcoin

 

We are going full Bitcoin!

After spending time at the Inside Bitcoin seminars in both Hong Kong and also Melbourne, we realised that out of all the excellent firms existing, a large section originated from makers of mining hardware and also the entire Bitcoin Mining room. The large number of manufacturers and teams of Bitcoin miners made it apparent that this component of the Bitcoin neighborhood is in an Arms Race. It was very appealing to talk with these business as we at Coinarch are taking advantage of a room that is not as saturated as that of Mining.

Many surprisingly, the business we spoke to forward market their rigs for months in advance as well as totally admit that their aged rigs would be enormously obsoleted hereafter interval. This hanging around duration in anticipation for excellent quality tools makes the entire Bitcoin Mining procedure appear a little bit tough without the appropriate sources as well as encounter.

One firm that struck our interest was that of Genesis Mining, a German cloud mining service provider who charges a fixed yearly rate to rent its hash power. Though the idea is not foreign, Genesis does an incredible work of making their service very easy for any individual to make use of, from newbie to expert. From an option of 9 altcoins, the user earns each day based after the particular mining result on the address they chose. Below is a screenshot of their interface; we were so pleased that we registered right away!

In addition to Genesis, we were very intrigued by the Cloud Broker design, which gives a web link between people that are interested in acquiring cloud mining power and also the people marketing it. For a person trying to choose in between the huge quantities of alternatives around, this design is an interesting concept to link the right people with each other.

Among the essential takeaways from our experiences at Hong Kong and Melbourne was the tremendous quantity of Mining companies and the quality at which their work is done. Moving on, this has to mean that their devices as well as solution will certainly begin to reduce but not without a correct balance in the mining difficulty also. Even though we at Coinarch are not included with Bitcoin mining, this encounter has opened our eyes as well as informed us on the future of Bitcoin mining as well as the effect it carries Coinarch as well as the whole Bitcoin neighborhood.

    Bitcoin Hub

  • BitCoin Rush Learn how to exploit the BitCoin to profit like crazy
Posted in The Ever-Changing Atmosphere of Bitcoin Mining 2.0 | Tagged | Leave a comment

Overstock CEO Patrick Byrne:

Overstock

Lamenting on Missed opportunities in Innovative Tech

Overstock CEO Patrick Byrne: ‘That’s Not Going to Happen with Bitcoin’

by Kenny Spotz 

In a Quarter 3 conference call with investors, CEO of Overstock Patrick Byrne expanded on his plans to team up with Counterparty to create a decentralized stock exchange called Medici. Once developed, Byrne says Medici will be a “tollbooth” between the worlds of traditional finance and crypto finance.

Plans for this project go back to Byrne’s keynote speech at Bitcoin 2014 in Amsterdam, where he first mentioned the possibility of using the Blockchain to replace traditional methods of issuing securities. In the conference call, it was revealed that that speech was a strategic move to attract interested parties that could help Overstock achieve this goal. Following the speech, “thirteen different groups around the world” offered their services, with Counterparty being chosen after a vetting process.

Byrne said that Counterparty was selected for multiple reasons:

“It’s an open-source movement that stays true to the bitcoin philosophy. It is transparent. It is built within Bitcoin rather than being a proprietary alternative to bitcoin. There’s just all these aspects of it that made me think these were the right fellas to go with.”

The decision to develop Medici should come as no surprise to those who have follow Byrne’s career. As the man behind Deep Capture, he has long been railing against corruption on Wall Street and what he believes have been targeted attacks against his company’s stock using a strategy called naked short-selling. The team from Counterparty involved with Medici’s development told the Wall Street Journal in a conference call that the system’s design will prevent that specific tactic.

Unfortunately for those hoping to use Medici, there is no planned date for when it will be up and running. During the conference call Byrne said that “in the absence of there being a government,” the system could be up and running in three to four months, but because of the need for regulatory approval there is no way to predict the true timetable.

Mark Griffin, General Counsel for Overstock, chimed in to say that “initial discussions” with agencies have yet to take place and that, since this is a “paradigm shift” for regulatory agencies, it is hard to predict what the framework for implementation will look like. One thing is certain, current regulations necessitate that Medici feature a centralized clearing house. Merging this requirement with the project’s decentralized nature will be a key challenge.

CEO of Overstock Patrick Byrne

During the conference call, the man who once told Wired that Bitcoin is the solution to our oncoming zombie problem also dropped some insight into why he is so passionate about capitalizing on Blockchain technology (beyond it’s ability to fight corruption and the undead).

It seems Byrne has regrets about missing out on previous trends:

“We were early in the game in mobile, so early that around 2002 nobody adopted and we eventually discontinued it. We had a great social media platform very early on. Again, the same story. So I kick myself about some — about having stood just a foot away from some of the great technological innovations of the last 15 years and not really seized them correctly. That’s not going to happen here. We, through some fluke, have ended up right in the crossroads of this emerging technology.”

While he hopes that Overstock is hopping on Bitcoin at the right time, there have been signs that they could be too far ahead of the curve once again. Commenting on international Bitcoin purchases, which were opened up about a month ago, Byrne commented that consumer response has been “quite a bit slower than (the) domestic program when it launched. I had expected something much bigger, but the international purchases — I mean, they are happening, but they’re — it’s de minimis.”


Did you enjoy this article? You may also be interested in reading these ones:

    Bitcoin Hub

  • BitCoin Rush Learn how to exploit the BitCoin to profit like crazy
Posted in Overstock CEO Patrick Byrne: | Tagged | Leave a comment

How Bitcoin Companies Keep Your Funds Safe

How Bitcoin Companies Keep Your Funds Safe

How bitcoin companies keep your funds safe

When you store your bitcoins on an exchange, a gambling site, or in an investment site, you’re placing a lot of trust in the company.

Personal wallet security with a relatively small amount of coins is one thing, but these sites store many more bitcoins than the average user, and are therefore prime targets for attack. So how do they protect your money?

Some, like the gambling site Seals With Clubs, use their own proprietary wallet technology, while others work with third-party services.

There are a variety of techniques and tools that companies can use to try and keep customers’ cherished coins safe.

Cold storage

Cold storage is an obvious candidate, and this is what wallet provider and merchant payment gateway Coinbase does.

The company, which claims to store more bitcoin than anyone in the world, holds 97% of it offline, on a combination of USB keys and paper backups. The private keys on the USB drives are encrypted and stored in safe deposit boxes around the world.

Exchanges, too, rely on cold storage for their security. “All of the funds held on Coinsetter are currently in cold storage,” said the New York-based exchange’s founder, Jaron Lukasiewicz. “We have multiple tiers of cold storage, depending on a number of factors.”

A firm can manage its own cold storage, or it can get someone else to do it. Coinsetter stores around 50% of its funds in Xapo‘s bitcoin vault.

Xapo charges around 0.12% of the amount stored to look after enterprise bitcoins in its bitcoin vault, which consists of offline servers held in three locations in Asia, South America and the US.

The geographic distribution isn’t just for physical site redundancy. It focuses on governments as an attack vector too. If the authorities in one jurisdiction try to seize bitcoins in a vault, then there would be two other locations still with their bitcoins intact.

Insuring against loss

Now, some cold storage services are complementing the technical advances in enterprise bitcoin storage with a financial one: cyber-insurance.

“We were the first bitcoin company to obtain a cyber-crime insurance policy,” said Coinbase co-founder and CEO Brian Armstrong. “This covers the bitcoin we store live on servers, and covers things like hacking, internal theft and accidental loss due to software bugs.”

Xapo’s vault is insured by Meridian Insurance.

Another wallet supporting cold storage is Armory, an enterprise-class storage wallet developed by Alan Reiner.

John Velissarios, who recently joined Armory as chief information security officer (CISO), explained that the wallet has a special cold storage version designed not to connect to the blockchain, meaning that it doesn’t publish transactions.

“You can have a cold storage machine where it’s completely disconnected, with no connectivity to the outside world. You use that to release funds from your wallet,” he said.

To take advantage of cold storage, enterprise users can prepare their bitcoin transaction on an Internet-connected computer, and then copy it to a USB drive and transfer the transaction to the offline cold storage computer, where they are signed.

“You then copy it back onto the online computer and publish it,” Velissarios continued.

Hardware security modules

Not everyone is enamoured by cold storage, however. Getting the funds out of that storage into a hot wallet can be time consuming, point out the method’s critics.

“People in a business need controlled access to funds,” said Rodolfo Novak, co-founder ofCoinKite. “Every time you do cold storage you are mandatorily adding a human to the mix, so there is capacity for human error.”

In February, CoinKite launched a service storing private keys securely in hardware security modules (HSMs), which are not directly connected to the Internet, but instead function through a proxy that makes requests to the system. This provides what Novak calls ‘warm’ storage – securely-held keys that are accessible via an API.

“The HSM is walled out of the standard Internet and it doesn’t ever expose its keys. So you can’t really practically get hacked,” he said.

The HSM, which CoinKite built itself, has no web server. All it can do is support API requests from CoinKite’s own web server. The module has to electronically sign that server before it starts up, which according to CoinKite co-founder Peter Gray means that there can be no malicious processes running on the server.

Users access the system using their CoinKite login credentials, which the company encrypts using a hashing algorithm, and can further protect themselves from being compromised using two factor authentication (2FA), via Google Authenticator, SMS, or even paper-based authentication.

When the user is authenticated, they can then access their cold storage via an API, which can be set to follow certain constraints, such as only allowing access from certain IP addresses, or limiting withdrawals to a set amount over a specified time period.

Multisignature storage

Multi-signature (‘multisig’) storage is one of the biggest developments in enterprise bitcoin security to date.

BitGo, which CEO and co-founder Will O’Brien says focuses on solutions for enterprises and institutions, eschews cold storage altogether in favour of multisig.

O’Brien said:

“Single-key cold storage is a dangerous, outdated practice. As an industry we need to end the cold storage ice age and adopt multisig, where you can make any number of keys ‘cold’ and have much stronger protections.”

Standardised a couple of years ago as part of BIP 16 (it was previously a non-standard feature in the protocol), multisig enables a sender to require more than one signature to confirm a transaction in what is known as ‘m of n‘ signing.

In an m of n multisig transaction, there are a total of n available private keys to sign a transaction, and the wallet can be set up to require m of those keys to sign the transaction for the transaction to be executed.

The idea is to stop a single person from being able to compromise a wallet, by requiring another known party to co-sign that transaction.

BitGo, which claimed to be the first provider of multisig wallet functionality, features ‘2 of 3′ signature confirmation, meaning that two private keys must be used to sign a transaction from a total of three available.

One of the signers in the scenario is the private local wallet, and one of them is the bitcoin private key. The third key is a backup key held on the Bitgo server.

Armory also announced fully decentralised mutisig capability in July. The firm offers multisig combinations up to m of 7, via independently-managed Armory wallets, without the use of a centralised site.

“Banks typically have 2 of 3, or 3 of 6, but they generally won’t go past 7,” said Velissarios, formerly a senior principal in Accenture’s security consulting arm, with similar experience at PricewaterhouseCoopers. “That’s why the enterprise space is very well suited for doing that kind of segregation of duties and providing those capabilities.”

Decentralised private key storage

Dencentralised offline multisig key storage is a significant advantage for some, including the CEO of one VC-backed bitcoin enterprise that has raised several million dollars.

“I can make m of n structures, where all n of the private keys are created offline,” said the CEO, who asked not to be named. “Then, how I treat those is up to me. I could put one of them online, but the point is that the choice is mine.”

The CEO said:

“There are also situations in which, for very small amounts of coin, I have a small hot wallet, where I keep $50 [in bitcoins]. That has its place.”

For those enterprises that do want more ms for their ns, on 18th November, CoinKite introduced multisig for its hardware security module. The system offers m-of-15 transactions, and like Armory, doesn’t require any of the keys to be stored on a central server, although it does offer five different options.

In the simplest storage option, CoinKite stores all keys centrally. Passphrase storage keeps the keys in the HSM, but encrypts them using the user’s unique password.

The third option, ‘invite others’, enables users to invite other CoinKite users to be cosignees, who can then choose which option they want to store their key.

The fourth option, offline, uses an open-source tool created by CoinKite, which runs in the browser and generates multisig keys.

“Some of the people who are cosigning on an account may want to use the HSM, so we support storing the multisig keys in the HSM,” said CoinKite’s Gray. “At the same time, we also give them Javascript code to generate a key offline, on a computer that doesn’t do anything else. So they can generate a key totally outside CoinKite.”

Finally, a fifth option lets users import keys from other wallets.

What’s next for enterprise bitcoin security?

Wallet companies are specifically tailoring their solutions to enterprises. BitGo has an enterprise service with features like spending limits, alerts, and round-the-clock wallet monitoring. Over at Armory, Velissarios heads up the consulting services division.

What would really help bitcoin enterprises, though, is a standard for auditing security, that goes beyond classic datacentre security and PCI security standards, to reflect the unique nature of bitcoin storage and usage.

Nothing like this exists yet. Will an existing security standards body, or an independent institution in the bitcoin world, step up?

    Bitcoin Hub

  • WP Sales Chimp - Unlimited "New 3-Step Software Allows You To Create, Customize, Track and Analyze ALL your marketing links inside of ONE Central Dashboard..."
Posted in How Bitcoin Companies Keep Your Funds Safe | Tagged | Leave a comment

What Is Digital (Crypto) Currency-How Does It Work

What is digital money? It is defined as: cash kept as well as transferred in electronic kind. May sound simple sufficient, however how does it all work?

This kind of money is believed to excel to make use of for making investments on the net since if it functions the means it was meant to, deals ought to be rather confidential as well as untraceable back to the payer or customer.

This indicates that cyberpunks would no longer manage to acquire individual details from individuals which use their credit cards to make on-line acquisitions. This would clearly minimize the number of stolen identities that happen every day.

To assist you understand more of, “exactly what is electronic money?” I have done a fair bit of research on the subject as well as have found that there are a number of various kinds out there, each with it’s own special top qualities.

Right here are merely a couple of with their descriptions complying with:

Digital Gold Currency– This kind is supported by gold kept in vaults. The gold provides an added measure of protection and if you hold this type of currency, you could perhaps directly trade it for solid gold bullion.
Centralized Currency Systems– these resemble PayPal and also these companies permit you to send out cash throughout the world as long as you have cash in the account. For some solutions supplied by these sorts of business, you obtain billed a charge on the receivers end of the purchase.

Decentralized Currency Equipments– Like Bitcoin are all based upon cryptography and/or depend on networks. Additionally called Hard Electronic Currency, it is planned to be much more like utilizing money to make your purchase yet your deal is non-refundable as soon as made. This kind of system only works in one direction.

The E-cash idea has actually advanced together with the development of the Web. People just do not really feel comfy with offering their personal bank card information over the Internet when making a purchase.

Way too many bad factors can take place like identification burglary. No one wants their identification swiped.

So, many firms have attempted to create this type of settlement or monetary system to lessen the dangers of purchasing online.

Many nations have actually efficiently produced systems for “in-house” usage such as Hong Kong’s Octopus card. This card functions just like a form of debit card where the individual lots money onto the card and after that all the money is transferred right into a financial institution. They can then make use of the card for anything they have to use it for.

Some nations are working with or have systems that enable the customer to move money through cell phones. I believe this is rather like what Chase lets their customers do. Their customers could take a picture of their check, front and also back, with their phone as well as make their down payment digitally.

I do hope that this gives you some suggestion of what is electronic money and also how it is attempting to take it’s place on the planet of e-commerce. There might be a bit more to it than I can describe in simply one small write-up however I think you can acquire a smart idea.

    Bitcoin Hub

  • WP Sales Chimp - Unlimited "New 3-Step Software Allows You To Create, Customize, Track and Analyze ALL your marketing links inside of ONE Central Dashboard..."
Posted in Analysis | Leave a comment

What Is Digital (Crypto) Currency-How Does It Work

What is digital money? It is defined as: cash saved and also moved in electronic kind. Appears basic enough, yet how does it all job?

This sort of money is believed to excel to make use of for making purchases on the internet because if it works the way it was meant to, purchases need to be instead confidential and untraceable back to the payer or customer.

This indicates that hackers would certainly no longer have the ability to collect personal info from individuals that utilize their credit cards to make on-line acquisitions. This would obviously reduce the number of swiped identities that occur every day.

To help you realise more of, “what is digital money?” I have actually done quite a bit of research on the subject as well as have actually found that there are numerous different kinds out there, each with it’s own distinct high qualities.

Below are just a couple of with their descriptions complying with:

Digital Gold Currency– This kind is supported by gold kept in safes. The gold gives an added action of protection as well as if you hold this sort of currency, you could perhaps straight exchange it for strong gold bullion.
Central Currency Systems– these are like PayPal and also these companies enable you to send out cash across the globe as long as you have cash in the account. For some solutions offered by these types of business, you get asked for a fee on the receivers end of the transaction.

Decentralized Money Systems– Like Bitcoin are all based on cryptography and/or depend on networks. Also called Hard Electronic Currency, it is planned to be more like using cash to make your purchase yet your deal is non-refundable once made. This type of system only works in one instructions.

The E-cash suggestion has advanced in addition to the progression of the Web. People just do not feel comfortable with offering their personal charge card info over the Web when purchasing.

Too many bad points could take place like identification burglary. No one wishes their identity swiped.

So, several firms have actually attempted to produce this sort of repayment or monetary system to lessen the risks of shopping online.

Lots of countries have successfully created systems for “in-house” use such as Hong Kong’s Octopus card. This card functions similar to a form of debit card where the customer tons money into the card and then all the money is deposited right into a financial institution. They could then make use of the card for anything they have to utilize it for.

Some countries are working on or have systems that permit the customer to move money via cell phones. I think this is somewhat like exactly what Chase lets their clients do. Their consumers could take a picture of their check, front as well as back, with their phone and also make their deposit electronically.

I do really hope that this gives you some concept of just what is digital currency and also how it is attempting to take it’s area in the world of e-commerce. There could be a bit additional to it than I might describe in just one small short article however I believe you can acquire a smart idea.

Posted in Analysis | Leave a comment

We are going full Bitcoin!

Boost VC Is Going Full Bitcoin

 

We are going full Bitcoin!
Our team is excited to announce, after raising $6.6m to fund 200 companies, that we will be accepting 20–30 Bitcoin companies into our next Boost tribe. Tribe 5 will consist of 100% Bitcoin companies. Under this umbrella we will be looking at payments, exchanges, block chain technology, Sidechains, and companies that service Bitcoin companies. We are very excited about the focus that this will bring us. Long term we hope to be able to breach other “before-the-chasm” industries, but Bitcoin is our first exciting step.

    Bitcoin Hub

  • WP Sales Chimp - Single Site "New 3-Step Software Allows You To Create, Customize, Track and Analyze ALL your marketing links inside of ONE Central Dashboard..."
Posted in We are going full Bitcoin! | Tagged | Leave a comment

What Is Digital (Crypto) Currency-How Does It Work

Just what is electronic money? It is specified as: cash kept as well as moved in digital kind. Seems straightforward enough, however how does it all work?

This sort of money is thought to excel to make use of for making investments on the web since if it functions the way it was indicated to, transactions should be rather confidential and untraceable back to the payer or user.

This indicates that cyberpunks would certainly no longer have the ability to collect personal information from individuals who utilize their bank card to make on the internet investments. This would clearly lessen the variety of swiped identifications that occur every day.

To help you comprehend more of, “just what is electronic currency?” I have done quite a bit of study on the subject and also have discovered that there are several different kinds available, each with it’s very own unique qualities.

Below are simply a few with their descriptions following:

Digital Gold Currency– This kind is backed by gold kept in vaults. The gold gives an extra step of security and also if you hold this sort of money, you could possibly directly trade it for strong gold bullion.
Central Money Systems– these resemble PayPal as well as these companies enable you to send money around the world as long as you have cash in the account. For some solutions offered by these types of companies, you obtain billed a cost on the receivers end of the deal.

Decentralized Money Systems– Like Bitcoin are all based upon cryptography and/or count on networks. Also called Hard Electronic Money, it is meant to be much more like making use of cash to make your transaction however your purchase is non-refundable when made. This type of system just works in one instructions.

The E-cash idea has actually evolved together with the development of the Web. Folks simply do not really feel comfortable with giving their individual credit card details over the Net when buying.

Too many bad things can take place like identity theft. No person desires their identification swiped.

So, many firms have attempted to produce this kind of settlement or monetary system to decrease the risks of purchasing online.

Lots of nations have actually successfully developed systems for “in-house” use such as Hong Kong’s Octopus card. This card functions just like a form of debit card where the customer tons money into the card and afterwards all the cash is transferred into a bank. They can then utilize the card for anything they need to utilize it for.

Some nations are dealing with or have systems that allow the customer to move cash through cell phones. I believe this is rather like exactly what Chase allows their consumers do. Their customers can take a photo of their check, front and also back, with their phone and also make their deposit online.

I do really hope that this gives you some concept of exactly what is electronic money as well as how it is attempting to take it’s area worldwide of e-commerce. There may be a little additional to it compared to I could explain in merely one tiny write-up however I believe you can get a smart idea.

    Bitcoin Hub

  • WP Sales Chimp - Single Site "New 3-Step Software Allows You To Create, Customize, Track and Analyze ALL your marketing links inside of ONE Central Dashboard..."
Posted in Analysis | Leave a comment

The Satoshi Nakamoto Mystery

The Satoshi Nakamoto Mystery

bitcoinSince the creation of Bitcoin, many have wondered who Satoshi Nakamoto, the pseudonymous creator, actually was. The mystery was deepened recently when on March 6, 2014, Newsweek published an article which identified a man named Dorian Prentice Satoshi Nakamoto as the Satoshi Nakamoto who created Bitcoin. Dorian Nakamoto is a 64 year old Japanese American male who lives a modest lifestyle in Temple City, California and also likes to collect model trains. It appears as though if he is the creator of Bitcoin, he has not spent any of his riches.

The article was written by Leah McGrath Goodman, and gives several pieces of evidence to suggest that Dorian is the real creator of Bitcoin. Apparently, Dorian Nakamoto was very good at math and also had a background in engineering and knew how to program. Much of his career, which includes work for the U.S government, is shrouded in secrecy. The greatest piece of evidence is the statement given by Dorian Nakamoto at the time of the interview: “I am no longer involved in that and I cannot discuss it. It’s been turned over to other people. They are in charge of it now. I no longer have any connection.”

This statement was later confirmed by police. However, in a later interview, Dorian denied being the creator and said that his quote was taken out of context. He apparently though that the interviewer was talking about his classified work for the U.S military. He would also deny having anything to do with Bitcoin, saying he had just recently heard of it. The mystery was deepened even further when on March 7th Satoshi Nakamoto’s profile on the P2P Foundation posted: “I am not Dorian Nakamoto.”

Other issues remain with the Newsweek story, such as why the writing style and skill of Dorian Nakamoto is so much different than the Bitcoin creator’s writing skills. Satoshi Nakamoto wrote in a very technical tone and with very good English skills. As evidenced by earlier emails and letters written by Dorian, his writing is nowhere near as good. Because of these issues, many in the Bitcoin community met the article with skepticism. Many were also concerned with Dorian Nakamoto’s lack of privacy and exposure which, regardless of whether he really created Bitcoin, may put him in danger.

While many may still be inclined to believe that Dorian Nakamoto is the creator of Bitcoin, it seems as though he is serious about denying it. A law firm hired by Dorian Nakamoto released a statement that said: “I did not create, invent or otherwise work on Bitcoin. I unconditionally deny the Newsweek report.” The fact that Dorian hired a law firm may mean that he is contemplating action against Newsweek. Regardless of what happens, the mystery of Bitcoin’s anonymous creator will continue on.

    Bitcoin Hub

  • People Image Creator - By Laughingbird Software Create and use REAL people graphics with this easy to use graphics software for Mac and Windows. Images of REAL people (with transparent backgrounds)! Over 300 ready to use templates and 300 built in images (and you can add your own!) Create log
Posted in The Satoshi Nakamoto Mystery | Tagged | Leave a comment

Bitcoin as a Solution to E-Commerce Pain

transactionrights_

Bitcoin as a Solution to E-Commerce Pain

Written By: Ashok Misra of Alina Consultants

Introduction

Bitcoin as a Solution to E-Commerce Pain

Bitcoin is a decentralized virtual currency whose valuation and use has grown dramatically since its inception in January 2009.

Some thinkers view bitcoin as a viable alternative to sovereign currencies; however, e-commerce was the original use case for bitcoin in Satoshi Nakamoto’s epic paper in 2009 on the proposed “Peer to Peer” cash system.

Unfortunately, a lack of authoritative articles exist on the precise benefits of bitcoin vis-a-vis payment methods involving credit cards for purchase of goods and services on the Internet.

In this paper, we address in practical terms the precise advantages of using bitcoin as a payment method for Customer Not Present (CNP) transactions made over the Internet.

E-commerce Payments (“e-payments”)

E-payments are digital payments for goods and services that are made over the Internet on online merchant websites. E-commerce serves multiple vertical lines of business for physical and digital goods. Dominant verticals in shipped physical goods purchased over e-commerce channels by retailers are books, apparel, and electronics. Examples of digital goods purchased over the Internet are music, streaming media, and e-books.

Some key drivers for e-commerce are: residential broadband penetration; access to consumer payment instruments suitable for online commerce; and distribution and delivery channels for physical goods.

The worldwide e-commerce market has grown by 20 percent year after year for the last several years. Global B2C Ecommerce Sales are projected to hit USD1.5 Trillion in 2014, driven by growth in emerging markets.

The more mature e-commerce markets such as the United States, the UK, and Germany, where citizens enjoy a strong purchasing power and widespread access to broadband Internet, see about 10 to 15 percent of online share to total retail trade, whereas less mature e-commerce markets such as Poland see only about 3.8 percent of online retail volume to total volume. However, many regions such as Poland are witnessing a tremendous rate of growth in e-commerce. Poland, for example, has a population of 38.5 million, out of which 26.2 million are Internet users and 12.6 million are online shoppers.

Payment Methods

Payment methods used by consumers for online purchases vary considerably by region, depending upon their availability and consumer attitudes. They expose a unique set of advantages and risks for online commerce. They can be broken down as follows:

Credit and Debit Cards

Credit and debit cards were originally intended for “card present” merchants. The cards were designed for physical use at the point of sale, where the magnetic stripe card is “swiped” and read by a terminal. The cardholder is authenticated by methods such as a wet ink signature on a printed receipt, a signature captured on a touch sensitive POS screen, a secret PIN number, etc.

Such cards have been adapted since the birth of e-commerce by merchants and processors for use on the Internet. The number on the card is entered by the consumer on a web form during the order process. Authentication is carried out using information such as billing zip code, expiration date, etc.

Fraud with credit cards is a serious concern on account of the weak authentication and inherently insecure mechanics. However, it must be noted that consumers are typically protected against fraudulent purchases on their credit cards. For transactions made in a “Card Present” manner, the consumer’s bank bears the fraud loss, whereas in the e-commerce CNP use mode, the online merchant bears the fraud loss.

Security for credit cards in a “Card Present” environment has improved progressively. That notwithstanding, there have been recent cases of large breaches involving retail stores. The United States lost 5.33 billion USD to fraud in 2013. This was up 14.5% from the previous year. Of the 5.33 Billion, issuing banks in the United States lost 3.41 billion USD. The United States accounted for 47.3 % of global card fraud losses on only 23.5% of total volume.

All industrialized countries outside of the United States have migrated magnetic stripe credit cards to EMV1 technology. EMV cards have a microprocessor chip embedded in the plastic that communicates with the POS device. It is possible to embed the EMV chips form factor on mobile phones to communicate with proximity readers. EMV cards are virtually invulnerable to tampering, duplication, etc. Banks and card brands in the United States have announced their intent to move to EMV technology, and rollout is currently underway in a phased manner. It is expected that fraud on e-commerce channels will increase after the EMV rollout in the United States as fraudsters typically attempt to exploit the weakest attack surfaces.

It must be noted that EMV technology does not impact the mechanics of the e-commerce use case. Credit card numbers will still have to be entered on websites in the same manner as they are for magnetic stripe transactions.

Alternative Payment Methods

Credit card penetration in some regions (like the European Union, for example) has been limited due to negative sentiments on the part of consumers with the use of credit payment instruments.

That notwithstanding, e-commerce growth in several of these regions has progressed, as non-card payment tenders have been adopted. Examples of alternative payment methods are

Direct Debit (Germany), Ideal (Netherlands), and Boleto (Brazil). Alternate payment systems generally have more friction in purchase paths than credit cards. This friction usually stems from more robust authentication.

Main Players in Credit Card E-commerce Payments

Consumers are issued payment instruments by their card issuers. These instruments are credit or debit cards.

Issuers are banks that provide credit or debit instruments to consumers.

Merchants are businesses that sell goods or services to consumers.

Acquirers are banks that underwrite merchants.

Brands are the associations, such as Visa, MasterCard and Discover, that maintain the network of Issuers and Acquirers. Visa and MasterCard are now public companies.

Payment Service Providers (PSPs) are entities who provide transaction and settlement services for merchants.

Costs of E-commerce Payments with Credit Cards

The costs of e-commerce payments are borne primarily by merchants. Whereas there has been regulation that precludes merchants from directly passing on credit card processing costs to consumers, one can conjecture that costs for payment processing are reflected in SKU prices.

Costs for credit card processing are broadly divided into two categories:

  • Non-negotiable costs
  • Negotiable costs

Non-negotiable costs are pass-through costs levied by the brands and collected by acquirers. These costs make up more that 85 percent of total payment acceptance costs. The largest component of the non-negotiable cost is credit card interchange. Credit card interchange varies depending upon the type of card product. For example, an airline mileage card may attract 50 basis points of additional interchange fees over a non-rewards card. Other non-negotiable fees are assessments, cross-border fees, etc.

Negotiable fees are service fees paid by merchants to gateway service providers. Merchants with smaller processing volumes may be set up by their processor to pay a single-blended fee that includes interchange and gateway service fees.

Typical Process Flow for CNP Commerce

Screen Shot 2014-11-13 at 8.45.04 AM

  1. Consumer visits merchant website and loads a shopping basket.
  2. Checkout flow captures payment information and shipping address.
  3. Merchant sends authorisation to credit card gateway for final amount with shipping and handling.
  4. Credit card gateway routes transaction to consumer’s credit card issuer and obtains authorisation.
  5. Merchant indicates to consumer that the process is completed, and goods will be shipped or available for download.
  6. Merchant sends a settlement instruction to credit card gateway, which, in turn, routes it to the issuing bank.
  7. Merchant gets paid by acquirer.
  8. Transaction shows up on customer’s billing statement.

Bitcoin Basics

Bitcoin is a software-based online payment system described by Satoshi Nakamoto in 2008 and introduced as open-source software in 2009. Bitcoin payments are recorded in a public ledger using its own unit of account which is also called bitcoin. Payments work in a peer-to-peer manner without a central repository or single administrator, which has led the US Treasury to call bitcoin a decentralized virtual currency. Although its status as a currency is disputed, media reports often refer to bitcoin as a cryptocurrency or digital currency.

Bitcoin is created as a reward for payment processing work in which users offer their computing power to verify and record payments into the public ledger. Called mining, individuals or companies engage in this activity in exchange for transaction fees and newly created bitcoin. Besides mining, bitcoin can be obtained in exchange for fiat money, products, and services. Users can send and receive bitcoin electronically for an optional transaction fee using wallet software on a personal computer, mobile device, or a web application.

E-commerce Purchase Paths Using Bitcoin

E-commerce purchase paths using bitcoin as a payment method can be developed using two basic methodologies, namely:

  1. Purchase paths using a Bitcoin processor
  2. Purchase paths made without the use of a Bitcoin processor

Bitcoin Processors

Bitcoin processors such as Coinbase and BitPay offer an abstraction layer into Bitcoin. A merchant desirous of accepting bitcoin from consumers, but at the same time desirous of being paid in fiat currency, could integrate with a service like BitPay. From the consumer’s point of view, the order flow would be exactly similar to a purchase with a credit card until the point of payment. Upon reaching the point where the payment is to be made, the website generates and displays a Bitcoin public address for the merchant. This Bitcoin address may be rendered in a QR code. Also, the order amount is converted to BTC and displayed to the consumer. The processor determines the price point to BTC conversion rate based upon industry real-time analytics. The consumer pays for the order amount using his or her Bitcoin wallet. BitPay provides the technical implementation to notify the merchant’s website when the payment has been completed as a signal to initiate delivery of the purchased goods to the consumer.

Merchants who choose to accept and hold bitcoin2 do not technically need a payment processor. In the direct integration method, the merchant creates a unique Bitcoin address for the customer’s shopping cart. The customer pays for the order total using his or her own wallet.

The merchant polls the Bitcoin network periodically to determine if the payment is completed, after which goods can be delivered.

Pain Points Solved by Bitcoin

Receipt of Funds by Merchants.

Credit Cards

With credit card payments, consumers see the funds withdrawn from their account (or credit floor reduced) immediately after the e-commerce payment has been completed. As described in the flow diagram, the merchant is paid through a settlement process that takes from one to several days. During the time that the funds are in transit, the merchant is technically forced to extend credit to her acquirer. It is likely that merchants do not enjoy the same credit on their account payable vendors.

Bitcoin

As we have seen, bitcoin payments are instantaneous3 for both parties, and there are no settlement delays involved. Thus, the funds disbursed by consumers are available immediately to the merchant.

Credit Card Chargebacks

A consumer may dispute a merchant charge within a certain window after a transaction is

completed. A dispute may arise due to non-receipt of goods or services, fraud, an incorrect amount billed, etc. The consumer’s transaction is temporarily reversed at the initiation of the dispute process. During this time, the acquiring bank “funds” the disputed amount to the consumer. Thereafter, there is a resolution process wherein the consumer and merchant present documentation to resolve the dispute. If the transaction is resolved in the consumer’s favor, the charge is reversed permanently. If resolved in the merchant’s favor, the temporary adjustment made to the consumer at the start of the dispute process is reversed.

Bitcoin

With bitcoin, there is no guarantor for transactions. No party can reverse a completed payment. From a merchant’s point of view, there is no exposure to disputes that will reverse payments.

Merchant Credit Card Acceptance Underwriting

As described earlier, a merchant desirous of accepting credit cards needs to secure a relationship with an acquiring bank. This could involve an “underwriting procedure,” as the acquiring bank guarantees payments for the merchant. Should the merchant become insolvent, it is the acquiring bank who protects the payment in the event of consumer disputes. Merchants who do not have a processing history, such as startup businesses, usually face difficulties during the underwriting process for obvious reasons.

Bitcoin

With Bitcoin there is no centralized banking institution involved. The underwriting process is eliminated completely. Also, merchants who do not have a business history can begin payment acceptance immediately.

Credit Card Security

Security with payment cards relies upon protecting the credit card payment data (16-digit credit card number) and authentication data (billing address, expiration date, cardholder verification codes, etc.).

The Payment Card Industry Data Security Standard (“PCI DSS”) was developed to encourage and enhance cardholder data security and facilitate the broad adoption of consistent data security measures globally. PCI DSS provides a baseline of technical and operational requirements designed to protect cardholder data. PCI DSS applies to all entities involved in payment card processing—including merchants, processors, acquirers, issuers, and service providers, as well as all other entities that store, process, or transmit cardholder data.

Bitcoin Security

Attack surfaces for Bitcoin are primarily at the endpoints. There is no useful information for a hacker that can obtained by observing transactions in flight. The Bitcoin protocol, in fact, relies on transaction information being public.

Since the consumer does not “deposit” symmetric payment and authentication information to the merchant, there is no way for a maleficent agent who is privy to the communication channel or to the merchant’s infrastructure to use that information to exploit the consumer at some later time.

At the merchant end, there is no need to maintain any sensitive information on front-end webservers. The infrastructure to handle the merchant’s bitcoin obtained from consumer payments can be completely delinked from the commerce website.

There have, in fact, been recent incidents where bitcoin have been stolen. It is worth emphasizing that these cases without exception involved theft at end-point infrastructure. Thus, they were not attacks on the protocol. There are various technologies (out of the scope of this article) to secure bitcoin on hardware appliances.

Caveats

Volatility

Screen Shot 2014-11-13 at 9.07.10 AM

As seen in the chart above, price fluctuations in the bitcoin to USD rate on bitcoin exchanges vary considerably over even short periods in time. We have seen bitcoin highs and lows in the range of $1,200 to $100 in the last twelve-month period. The volatility is likely due to the fact that currently bitcoin purchase is driven largely by speculation and there is no robust way of evaluating an appropriate USD to BTC rate. Also the perceived value of the cryptocurrency fluctuates with news and announcements from financial regulators on the manner in which they intend to regulate bitcoin. This volatility is not conducive to e-commerce and some stability needs to set in for mass adoption.

Consumer Protection – There are several cautionary advisories from government agencies about the risks associated with virtual currencies. It is certainly true that Bitcoin offers no protection for consumers, and it is unlikely that governmental consumer agencies will protect consumers for bitcoin purchases in the same manner as they do for regular bank instruments. That notwithstanding, from the consumer risk management point of view it brings up the question if the higher reflected sku costs associated with credit card transactions are proportional to the protection offered. If the costs of protection were offered using free principles, the costs would likely be lowered. For low value transactions over the internet, consumers may choose to embrace the risks associated with bitcoin for lower SKU price points, particularly for repeat purchases from the same merchant.

It is conceivable that trusted third parties could broker bitcoin transactions and offer consumer insurance. The Bitcoin protocol supports the contract to enforce financial agreements; Bitcoin supports contracts using the same decentralized and distributed architecture used for financial transactions. These constructs can be used to reduce the risks of dealing with unknown entities in commerce.

Legal Issues – Needless to say there are serious risks on further growth of bitcoin on account of the uncertain legal status of bitcoin as a financial tender type. Some jurisdictions have deemed bitcoin to be a commodity whereas others treat it as currency. Some countries have outlawed bitcoin altogether and treat the possession of bitcoin as a criminal activity.

At the time of writing the United States treats bitcoin as a commodity. Any agency involved in the transfer of bitcoin with fiat currencies comes under the purview of banking and money laundering laws and requires licensing in every state, thus there is a high entry bar for exchange activities. For consumers, the act of purchasing a commodity in bitcoin is a taxable event. This treatment certainly hinders wider adoption.

Regulators clearly see the bitcoin features of anonymity, decentralization and lack of a central control as detrimental to control. However, it is fair to assume that a complete ban on bitcoin would continue to take place only in totalitarian jurisdictions. In western countries, it is unlikely for governments to impose a categorical ban on bitcoin. It is more likely that tax reporting, VAT, etc. would be based on some kind of honor system. There are some successful examples of parallel currencies that are recognized as legal tenders. An example is the WIR franc developed in Switzerland in 1934 and still in use at this time.

Conclusion

Bitcoin offers a unique and powerful payment mechanism for all participants in e-commerce payments. It eliminates many of the inefficiencies present in traditional web payments. Bitcoin is not purely an academic subject anymore. Some mainstream web properties such as Expedia, Overstock.com, Dell, and WordPress have been accepting bitcoin as a form of payment. Bitcoin has an extremely low entry bar and should expect its usage to grow rapidly

Posted in Bitcoin as a Solution to E-Commerce Pain | Tagged | Leave a comment