From the Front Page - Columns
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We Talk, Share, Create, Exchange, and Resolve: Decentralized Autonomous Society
August 19th, 2014 by
Alchemi New Editor: Crystal Editor: Cheryl
Decentralized autonomous society empowers individuals by rewarding innovation through sharing, distributed ownership and abundance. By sharing innovative ideas we can build a much better, fair, transparent and innovative society which is based on group consensus rather than a society enforced by rules and regulations.
Therefore for any society to operate on complete autonomy, it should have these 5 major components or in other words the 5 pillars as its foundation. I would like to explore these components and provide a bird's eye view of how decentralized autonomous society can thrive.
- Decentralized Communication to talk
- Decentralized Collaboration to share ideas and designs
- Decentralized Creation to manifest goods and services
- Decentralized Exchange to barter goods, services and resources
- Decentralized Arbitration to resolve conflicts
Decentralized Communication and Privacy
Establishing privacy in our communication channels is the first and foremost priority in order to be self-autonomous and free. Without private correspondence we cannot strive to build a free autonomous society. Privacy enables an individual to be free as a self autonomous entity and thus empowering the society as a whole to be self autonomous.
Why mass surveillance is a violation of Article 12 of Universal Declaration of Human Rights of United Nations?
No one shall be subjected to arbitrary interference with his privacy, family, home or correspondence, nor to attacks upon his honour and reputation. Everyone has the right to the protection of the law against such interference or attacks.Source
Mass digital surveillance in any form is an arbitrary interference of privacy and correspondence. Therefore it is a gross violation of human rights. On December 19 2013 the United Nations passed a resolution backing the right to digital privacy.
Deeply concerned that electronic surveillance, interception of digital communications and collection of personal data may negatively impact human rights, the United Nations General Assembly has adopted a consensus resolution strongly backing the right to privacy, calling on all countries take measures to end activities that violate this fundamental tenet of a democratic society.Source
we can hardly trust any third party to keep our information safe and secure because of conflicts of interest such as maximizing profits and legal obligations to local jurisdiction. The E-mail privacy can only be achieved through decentralized peer to peer communication.
How does Bitmesssage enable E-mail privacy?
Bitmessage is a P2P communications protocol used to send encrypted messages to another person or to many subscribers. It is decentralized and trustless, meaning that you need-not inherently trust any entities like root certificate authorities.Source
Bitmessage protocol implements two major features which are storing the information in peer nodes for a limited period of time and encrypting the message end to end. Thus it is extremely difficult for anybody to intercept the information.
Bitmessage is not the only open source tool that enables digital privacy as there are many other tools which serve similar purpose. One such tool is known as Tox which fascilitates instant messaging and video calls.
Tox is a free and open-source, peer-to-peer, encrypted instant messaging and video calling software. The stated goal of the project is to provide secure yet easily accessible communication for everyone.
Decentralized Collaborative Sharing vs Centralized Hiding
Let us imagine a cave man discovered how to make fire to keep him warm and cook food. If he did not share his discovery and decentralized the concept of light and warmth but instead claimed intellectual property right on how to make light and heat, I do not think I would be able to type this article in a markdown format and share my vision with all of you today. The moral of the story is to let your light shine. It would be nothing but an absurdity for anyone to claim a patent right on how to make light and heat because inventions and discoveries are nothing but an innovative improvisation of a priori.
There is nothing wrong in awarding compensation for inventions and discoveries. But it should rather be awarded to the collective for decentralized collaborative sharing than compensating global monopolies such as corporates for centralized hiding.
In 1742 Benjamin Franklin invented a new type of stove for which he was offered a patent. Franklin refused it arguing in his autobiography
we enjoy{ed} great advantages from the inventions of others, we should be glad of an opportunity to serve others by any invention of ours. source
In similar veins Linus Torvalds could not afford to buy propriatiary Unix so he created Linux kernel and released the source code under GPL Licence so that it can be used for similar purpose and to empower others.
Why is Linux kernel a success story even though it defied the conventional knowledge of the academic paradigm?
Decentralized collaborative sharing enabled the success of Linux kernel.Thousands of ordinary people shared small pieces of code known as patches. Linus Torvalds designed and developed a tool known as git. This open source tool enabled the decentralized collaborative sharing by managing a distributed revision control archive and Linus along with his team merged the patches with the kernel.
But the irony is that thousands of ordinary people who contributed to the Linux kernel walked away without a penny and the monopoly corporates such as Redhat and Google reap billions of dollars today in profits thanks to Linux kernel. It is neither fair nor ethical but it bootstrapped the open source movement because they don't want to kill the goose that lays the golden eggs.
Open source tools that enables decentralize collective sharing
Even though there are many tools that enable decentralize collective sharing I would like to highlight only two tools. One is git which enables to develop open source software by means of decentralize collective sharing and contribution of source code which I have discussed before. And the other one is Twister which is a hybrid of two peer to peer technologies such as Blockchain from Bitcoin and DHT from Torrents.
Twister is a social microblogging peer to peer network such as twitter but is based on decentralized peer to peer network. It enables decentralized sharing of ideas and concepts without being tracked or compromising your digital privacy. It creates and authenticates users using Blockchain and stores the data using Distributed Hash Table (DHT)
What is the issue with Centralized Hiding?
By enforcing centralized hiding such as intellectual property rights on the masses, it leads to a situation where the benefits are funneled to the 1% at the cost of 99%. It also impedes innovation resulting in stagnation and scarcity thus empowering the few to control the many. For example if there are 7 different brands of cars and there is a billion of each brand, controlling and manipulating one of each 7 brands will be easier than controlling each of the 7 billion different cars. Control, manipulation and corruption are applicable to finite sets of numbers. They are of no relevance to infinite set of numbers.
An example of a centralized hidden archive is the vault below the Vatican which runs for more than 52 miles and hoards vast collection of knowledge dating back 10000 years from various libraries from around the world such as Alexandria.
Knowledge is power when applied, but is wisdom when shared. Power corrupts but wisdom redeems.
Decentralize Creation and Abundance
Let me clarify the key difference between creation and cloning. Creation is the process of manifesting our shared ideas and design into a physical or readable form. Cloning on the other hand is a process of producing photocopies of someone's design using it as a template. Creation can also be compared to writing your own book or novel but production is photocopying a book written by someone else.
In a decentralized creation the value is based on network effect and abundance. Let us consider LTBcoin for example, the value of the coin will increase provided more people use the LTB network and the network creates higher quality content. Thus the value is not based on scarcity but is based on abundance. The decentralized creation operates on the principle of abundance, the more the better as we do not produce but we create.
On the other hand, centralized production operates on the principle of scarcity of innovation, the lesser the better. This is because we do not create but we clone someone's design which resides in a centralized hidden archive. We are forced to pay a patent fee for the clone even though someone has the knowledge to design and create their own car.
For example if we consider a centralized car manufacturing industry, the value of the car is directly proportional to the quantity that has been produced.Ford is a cloned mass produced car based on a single template.Even though there are million clones they have less value because they are not original, creative or innovative.
Let me give you another example even though someone has the knowledge to use one of the open source software distributions like Ubuntu, every time he buys a new laptop or computer he is forced to pay the license fee for Windows which has its source code residing in the centralized hidden archive which the buyer has no access to.
Decentralized exchange of goods, services and resources
Any exchange involves two major transactions. We sell what we create and we buy what we need.Peer to peer payment system enables individuals to pay directly to the producers bypassing the middlemen. This enables the producers to have a better profit margin and the consumers to have better value for their money. One such example is OpenBazaar.
OpenBazaar is an open source project to create a decentralized network for peer to peer commerce onlineusing Bitcointhat has no fees and cannot be censored.Source
Lets say that you would like to sell vegetables from your garden. Using the OpenBazaar, you create a new listing on your computer with details of the vegetables and quote for the price in Bitcoin. When you publish that listing, it is sent out to the distributed p2p network of other people who use OpenBazaar. Anyone who searches for the keywords such as local vegetables will find your listing. They can either accept your price, or offer up a new price.
If you both agree to a price, OpenBazaar creates a contract with your digital signature and sends it to an entity called a notary. In the case of a dispute an arbiter can be brought into the transaction. There is no third parties involved. The notaries and arbiters are also part of the distributed p2p network who the buyer and seller trust in case something goes wrong. The notaries and arbiters witness the contract and create a multisignature Bitcoin account that requires two of three people to agree before the Bitcoin can be released.
Decentralized distributed exchange can also empower individual innovation at a personal level through crowdfunding. Crowdfunding in turn enables decentralized distributed ownership.
Crowdfunding is the practice of funding a project or venture by raising monetary contributions from a large number of people, typically via the Internet. One early-stage equity expert described it as the practice of raising funds from two or more people over the internet towards a common Service, Project, Product, Investment, Cause, and ExperienceSource
How decentralized distributed ownership is different from stocks and bonds?
Decentralized distributed ownership enables individuals to directly own a company but not through third parties like stock brokers or banks. The dividends are paid directly to the individual owners of the company. Distributed ownership can enable all the 7 billion people of this planet to own one single company directly without any major issues or downsides.
The funds raised through bonds are invested in public infrastructure projects such as roads, rails, bridges etc. The decentralized distributed ownership enables individuals to directly participate in the public infrastructure projects without the need for bonds.
Decentralized Arbitration
We as individuals each one of us is a sovereign. We are not a person but a sovereign, which is a basic right granted by the Creator. We exist simultaneously in a parallel multiverse which has many domains or dimensions that exist in parallel but we are aware of only one domain. These are some of the practical implications of the Multiverse hypothesis.
We can only be tried in any jurisdiction as a person. We consent to be represented as a legal person to be tried in a court of law in a temporal domain. A person is a legal entity such as a limited liable company which can be tried by any jurisdiction. The purpose of a legal entity such as a person is to limit the liability to this temporal domain.
We can create our own rules without involving any third parties to arbitrate and abide by them as a sovereign as long as the rules are consented by the counter party and are not violating the common law or natural law. This is made possible by the application of smart contracts.
Smart contracts are computer protocols that facilitate, verify, or enforce the negotiation or performance of a contract, or that obviate the need for a contractual clause. Smart contracts usually also have a user interface and often emulate the logic of contractual clauses.Source
What is Temporal Jurisdiction?
As a sovereign, if anyone prefers litigation rather than decentralized arbitration, then they should be at liberty to exercise their freedom to choose their temporal jurisdiction in order to resolve their conflicts.
When Ethereum started the first round of crowd funding the funds are managed by a company incorporated in Switzerland. The developers of Ethereum had the freedom to choose their legal jurisdiction of sale and thus are accountable to the laws of Switzerland but not accountable to the temporal jurisdiction of Canada or USA. This is a classic example of exercising their freedom to choose their temporal jurisdiction in order to resolve their conflicts in future.
Disclosure
This article is meant for informational purposes and is not an endorsement. Articles published on the LTB network are the authors personal opinion and do not necessarily represent the opinions of the LTB network.
Further Reading
https://en.wikipedia.org/wiki/Email_privacy
https://bitmessage.org/bitmessage.pdf
https://en.wikipedia.org/wiki/Tox_(software)
https://en.wikipedia.org/wiki/Git_(software)
http://www.youtube.com/watch?v=9vZpNQUIqIg
https://en.wikipedia.org/wiki/Multiverse
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Security in Decentralized Domain Name Systems
August 17th, 2014 by
mike ward Editor #1: William
Editor #2: Cheryl
Proofreader/publisher: Cheryl
The first article in this series compared the Domain Name System (DNS) to a phonebook. In this analogy, DNS is a directory that allows you find computer addresses from domain names just as people's names can be looked up in a phone directory to find their phone numbers. DNS enables us to translate "LetsTalkBitcoin.com" into the computer-friendly IP address "66.175.222.204".
This article discusses the system's security. It will explain how the existing DNS system is prone to malicious attacks, and suggest how decentralized solutions increase security.
DNS Security in the Age of the Blockchain
The current Domain Name System was designed with reliability in mind, not security. It was designed in a different era, when packet switched networks were still a novel idea. Indeed, DNS is easily compromised, and is now a prime target for attack. For example, the government of Turkey recently forced local ISPs to redirect all traffic for twitter.com to a government site by changing the DNS entries in their nameservers.
Our current DNS has many intermediaries, called nameservers where traffic can be intercepted or tampered with. Blockchain based DNS reduces the number of queries to nameservers. That's because many domains are associated with IP addresses in the blockchain, so no other servers need to be consulted.
A huge problem on the Internet is man-in-the-middle (MITM) attacks. In MITM attacks, the "bad guy" is positioned between users and the site being accessed. This allows the attacker to return fake data in order to to divert users to malicious sites.
Blockchain-based DNS makes significant improvements to the existing system. Most importantly, the process of resolving a domain name and verifying the credentials of the destination server will be greatly simplified and substantially more secure. All the information needed to resolve a domain name will often be found in the blockchain, whereas the current process usually involves querying multiple servers. Blockchain-based DNS will also simplify the process of establishing trust between a given user and a server.
Centralized control structures create central points of failure that constitute valuable targets for attack. We noted in a previous article how these hierarchical systems lead to troubling political problems. In this article we will briefly look at some of the security implications.
Digital Certificates
Let's suppose some user Mary wants to visit her bank website. How does she decide whether or not she has found the legitimate bank website? She trusts her web browser, which in turn relies on an overly complex system involving signed digital certificates.
Mary's web browser is presented with a digital certificate from the bank website, which bolsters her belief that she is interacting with the legitimate bank website that she expected. That certificate makes the claim that this bank is indeed the site operator, by offering an assurance from the entity issuing that claim - called a certificate authority (CA). Her web browser probably decides to trust the site because the Certificate Authority is on a whitelist of trustworthy CAs, and therefore trustworthy.
The government of France was recently caught using a fraudulent Google certificate, which is dangerous because it can be used to man-in-the-middle (MITM) Google users. How safe should you feel? Digital certificates can usually, but not always be trusted. Rather than basing security on math, the current system requires faith.
Decentralized DNS can fix this problem by replacing the current certificate trust relationships with a much simpler scheme. The site owner can publish their own signed certificate, or the equivalent, right there in the blockchain. Only the registrant has the ability to publish this certificate because doing so requires the private key.
See the difference? There is no need to have a third party validate the trustworthiness of a certificate since by definition only the site owner has control of this. Certificate authorities are a prime target for attack, but decentralized systems have no such authorities to rely on. There is literally nobody to attack!
Man In The Middle
Main-in-the-middle (MITM) attacks are a persistent problem on the Internet. MITM refers to a broad class of attacks where somebody between the two endpoints intercepts, tampers with, or redirects the traffic without the knowledge of the victim.
For example, when Mary attempts to access her bank website she might be attacked by someone in a position to intercept this traffic. She may be tricked into connecting to a fake bank website, in an attempt to steal her username and password.
A next generation nameserver like DNSChain will retrieve the information needed to resolve a decentralized domain name by maintaining local blockchains. Signing the reply with a private key allows Mary to know that the IP address she gets back definitely came from her chosen name server.
On a local network like many people have in their homes or offices, a router is the perfect place for this nameserver to reside. By being so close to the networked devices it can efficiently provide name resolution to connected computers, tablets, mobile devices, smart toasters and more. By expecting signed responses from a next generation router, devices can avoid the classic MITM attack which victimizes so many Wi-fi users.
Domain Thefts
Domain names are stolen or hijacked all the time, often by exploiting registrar procedures for safeguarding registrants' names. A typical domain theft begins with an email account being compromised. The thief then calls the registrar to explain that they forgot the password, and requests a reset link be sent to the registrant's email address of record. Once the registrar account can be accessed, the domain name is transferred to an overseas registrar.
In decentralized systems there is no registrar to exploit with social engineering. If there is an entity like a registrar, they cannot be made accomplices in order to change ownership data, or provide password resets. With Namecoin's .BIT domains, for example, an update operation is required to transfer ownership, which can only be accomplished by presenting the corresponding key.
Note that spear-phishing, social engineering, hijacking email accounts, cracking registrar passwords, compromising registrar databases and other traditional tools in the domain thief's arsenal are all useless here.
There seem to be only two ways to steal a domain name in a blockchain-based system like Namecoin; either steal the private key from the registrant, or take control of the network via 51% attack and register the domain again. The former is certainly plausible, but strategies to prevent it are straightforward, including using multiple signature (multisig) addresses.
Eliminating Attack Targets
The Internet Corporation for Assigned Names and Numbers (ICANN) has the authority to digitally sign the root zone, which in practical terms means they hold one of the most valuable private keys in the world. ICANN carefully guards the key used to sign root nameserver keys. Root servers store the most important data for almost all the world's Top Level Domains (TLD) like .COM, .NET and so on.
In case that description did not make it clear, this essentially means that both ICANN and the root name servers themselves are high value targets for criminals and malicious hackers. After DDOS attacks on the root servers in 2002 and 2007, these lynchpins of the Domain Name System were made more redundant, but they remain a critical target. A threat was made in 2012, allegedly from Anonymous, to "shut the Internet down" by attacking the root servers.
Another potential choke point is the registry operators. Recall that registries are granted the authority to operate a Top Level Domain by ICANN. They provide the APIs which allow registrars to offer domain name registration and domain management services for all conventional domain names. Attacking registry operators like Verisign, administrator of .COM and .NET, would have a severe impact on the Internet.
Decentralized DNS avoids these problems. If all the domain data is stored in the blockchain, there is no need for ICANN, registries, or registrars. Gone in one fell swoop are all of these pressure points of the legacy DNS. Decentralized Domain Name Systems are MITM-resistant, theft-proof, and solve the whole digital certificates problem on the Internet today!
A quick reminder, this is a multipart series on decentralizing the Domain Name System. Be sure to check back next time as we take a close look at a real, working example - Namecoin.
If you enjoyed this article and want to show your gratitude you can do so by signing up to Lets Talk Bitcoin using my referral code: http://letstalkbitcoin.com/?ref=52b52db8
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The Bitcoin Economy: Global, Connected, and Cooperative
August 11th, 2014 by
Hayden Gill Read MoreThe Bitcoin Economy: Global, Connected and CooperativeThe Bitcoin economy represents many things, including a multitude of global and transformational triumphs. The best symbol of this combination – the example that sets the standard for Bitcoin, and is a reminder of the credibility of this alternative form of currency – starts with the virtual network of investors, mentors, executives and entrepreneurs responsible for this international phenomenon.Indeed, if you seek to contrast these benefits with the conventional world of venture capital and the subculture of Silicon Valley, if you want a clear alternative to the status quo and the financiers headquartered on San Hill Road – the multibillion-dollar backers of brands like Facebook and Twitter – my suggestion is simple: Redirect your attention from the bulldozed apricot orchards, long since converted into office complexes and parking lots off Interstate 280 in Northern California, and look at your laptop, smarphone or tablet, instead.There, in this digital domain, you will find the rise of innovative trading platforms, virtual wallets (for the transmission and receipt of Bitcoin) and ways to send remittances to friends and family throughout the Americas – all of it underwritten by experts with an appreciation for the union between technology and convenience.This model, which I have alluded to in previous articles, is one I champion not out of self-interest or monetary gain; it is one I support – and shall continue to do so – because it works. I refer, specifically, to Seedcoin (http://www.seedco.in), a virtual Bitcoin-incubator with a worldwide portfolio of investments.Again, I celebrate this organization because, given its proven record of success (more about anon) and dynamic nature, it signifies an important milestone involving the popularity of Bitcoin and the power of modern technology.Concerning the latter, and the ability to rapidly adapt to changing circumstances, it is this very characteristic – the freedom to call upon the wisdom of business experts and mentors – that transcends borders, nationalities and the traditional politicking for influence and guidance.According to Eddy Travia, Co-Founder and Chief Startup Officer for Seedcoin:"As a global incubator, Seedcoin unites entrepreneurs with established leaders, who provide their counsel and assistance for newly launched companies. Our emphasis on fast-growing, Bitcoin-centric businesses – enterprises with the agility to succeed, and the infrastructure to rapidly respond to demands from traders, merchants and consumers – is a sign of the revolutionary developments underway in this virtual landscape."I second this comment because it redefines the way all companies should pursue financial support, business tutelage, and an international framework of marketing and promotions.So, in lieu of making a pilgrimage to the denizens of Sand Hill Road, and in comparison to the physical limitations of geography (where location, not the superiority of the best ideas, trumps a group's likelihood to raise money), the Seedcoin ideal should inspire all manner of entrepreneurs.The Virtual Model in Practice: A Platform for EveryoneA strong illustration of this point involves BTC.sx, a platform for the trading of Bitcoin derivatives. (This company is a personal favorite of mine because of two reasons: Transparency and flexibility. One governs all communications between BTC.sx and the public, while the other proves the assertion about the skill necessary to accommodate the swiftness of aglobal marketplace.)It is this nimble approach to technology and commerce that defines the Bitcoin economy, where freedom – the liberty to hedge against fluctuations in the price of Bitcoin, and enjoy adjustable rates of leverage when trading Bitcoin derivatives – that underscores the vitality of this new word.In the words of George Samman, COO of BTC.sx:"The legitimacy of Bitcoin rests with its international influence and wealth of business opportunities, in which innovation is often well ahead of corollaries from Wall Street or other run-of-the-mill economic features. As a global platform, with a strong presence in Asia, we can immediately respond to and make adjustments for any number of events."I return to this theme about agility – I choose to repeat its importance – because it articulates the why and how of theBitcoin economy, which crosses countries and unites cities at the speed of the electron.It is not the prisoner of dollars, yen, yuan, pesos or euros. Nor is it captive to the capriciousness of a market clouded by obscurity and overrun by manipulation.In the Bitcoin economy, at least the one actualized by Seedcoin and BTC.sx, there is, indeed, a level playing field. With openness and choice, there is a venue to succeed.That promise encapsulates the essence of this issue, for the good of all and the satisfaction of a global audience. For these individuals – diverse in their interests, steadfast in their expectations and laudatory in their comments – now is a time of great excitement. -
Decentralized DNS: Politics of the Domain Name System
August 8th, 2014 by mike ward The Domain Name System (DNS) has become such a fundamental part of the Internet over the years, and yet it has also become more political than ever. In our introductory piece we introduced the main themes for this series, and in this article we explore the the specific issues of censorship, domain seizures, thefts and privacy. Decentralization can address these important issues in a direct way.
Much of what is wrong with the status quo stems from the centralized structure of our DNS. From a political perspective it is a three-tired hierarchy. ICANN is in charge, at the center of it all. On the second level are the registries, like Verisign, who are in charge of Top Level Domains (TLDs) like .com.
On the bottom tier are registrars, who provide retail services like domain registration to customers. They are proxies who typically present an assortment of TLDs for consumers to register. There are currently around 1000 registrars accredited by ICANN, and many have networks of resellers working with them. Think of registry operators as the wholesalers and registrars as the retailers.
All these are eliminated or at least marginalized with a decentralized solution - there is just no need for them. People and companies are now empowered to register their domain names without going through intermediaries, and without being forced to adhere to the rules set by political bodies like ICANN.
The hacker inside me likes decentralization architecture. It could be argue that much of the "political problems" we have today derives from the centralized nature of the DNS with the root. So technology like namecoins or other decentralized identifier system intrigues me.
- James Seng, March 2014 draft from ICANN's Technology Innovation Panel
Vint Cerf explaining who controls the DNS
Protecting Freedom of Speech
Censorship is an important issue for us all. National governments are the primary concern here, with many exerting as much control as they can. Extreme examples include North Korea and Iran, where authoritarian regimes control virtually all available information.
In countries where political speech is stifled, dissidents are often prevented from publishing anti-government opinions. The use of Tor in Turkey nearly tripled this past March in the wake of videos on youtube implicating government officials of trying to stage an event as pretext to declare war on Syria. Government officials also banned twitter in March by redirecting DNS queries, after leaked recordings surfaced with the prime minister apparently instructing his son to dispose of large amounts of cash.
The situation in most countries is far more nuanced. It is all too easy to single out countries like Turkey and Iran for what many consider to be draconian censorship. But some level of censorship takes place pretty much everywhere, including less oppressive Western nations. Google, the world’s largest search provider, now discloses the number of requests they receive to remove search results.
Luckily no matter the current level of censorship in a country, blockchain systems can provide a solution. Namecoin’s .BIT domains and BitsharesDNS upcoming .p2p domains cannot be seized or pointed to government sites against the will of the registrant. Even if a government seized control of the network through a 51% attack, it does not appear possible to change ownership of a blockchain-based domain name without being in possession of the corresponding private key.
Next generation DNS like Namecoin are immune to censorship! People can now publish political content without worrying about government censors seizing their domain names. We cited political dissidents but this is a critical assurance used by journalists operating in hostile environments as well. This freedom to speak out will certainly be used by bad actors too, but the benefits are indisputable.
Domain Thefts
People often believe that theft of domain names is rare, because there is a lack of supporting evidence. There is anecdotal evidence, and a few high profile cases like sex.com (video). There was even a conviction in the much publicized case of the P2P.com domain name theft.
Most people own very few domain names and have never experienced domain theft firsthand. No reliable data on domain thefts seems to be available. The registrars are in a position to have information about this, but have a strong disincentive to publicizing incidents that might damage their reputation.
"As far as I know, no one has a really good handle on just how much of a problem domain theft is. We hear of occasional instances of high profile thefts that catch everyone's attention, however I'm sure the vast majority of thefts go unreported."
- Ron Jackson, Editor and Publisher, DN JournalIt is typically registrars that engage in bad behaviors which result in lost or stolen domain names. However, both registry operators and registrars can both behave in questionable ways, like registering domain names right after their customers search for them.
Registrars have been caught stealing users' domain names too. Bad actors lose their accreditation when caught, but that is small consolation to a person or company that no longer has their domain names. If only these domain names had been registered on a blockchain! Domain name theft in the world of crypto-DNS requires stealing a private key. Theft of a .bit or .p2p domain name cannot occur as result of a company abusing its authority.
Domain Name Seizures
Registrars commonly seize domain names at the behest of government agencies or judicial systems. There are instances when many people feel it can be considered appropriate, but again this comes loaded with the potential for abuse. As mentioned earlier, although there is a nearly universal consensus on the undesirability of domains being used to host child pornography, it is less clear in matters involving intellectual property rights or political speech.
The DNS pecking order goes something like this. The U.S. Department of Commerce has had the authority to approve changes to the Root Zonefile since it was inherited from the U.S. Department of Defense in 1998. ICANN awards contracts for management of TLDs to registry operators, who enter into contractual relationships with registrars.
Individual domain names are sometimes seized as result of court orders when the domain is operated by a registry which operates in that jurisdiction. The .COM registry for example, is run by Verisign, a U.S. Corporation, and can therefore be compelled to comply with U.S. federal court orders.
The U.S. Department of Homeland Security has seized domain names on several occasions, when illegal activities are alleged. And in fact, other nations routinely seize domain names as well when a registry is located within their jurisdiction.
Thus the rationale for blockchain-based DNS, where domain names are independent of national jurisdictions. If a government agency wants to take control of a Namecoin .bit domain name, for example, how can they do it? It's basically impossible for governments, courts, registries or registrars to seize domain names in a decentralized system.
Department of Justice took down 130 websites, Thanksgiving 2011
Seizing Entire Namespaces?
There are several types of extensions, and they are not treated the same. The two letter country code domains (ccTLDs) like .DE (Germany ccTLD) are administered entirely as the national governments decide. This is in stark contrast with how Sponsored Top Level Domains (sTLDs) are forced to abide by very restrictive terms and conditions.
Yet a U.S. federal court is currently being asked by plaintiffs in a lawsuit to compel ICANN to seize control of the ccTLDs of Iran (.IR), Syria (.SY) and North Korea (.KP) to satisfy judgements against those nations. At stake is the fate of three entire namespaces, despite there being virtually no functioning websites in North Korea.
This raises legitimate questions about Internet governance. In blockchain-based DNS, federal courts have no agency. Even in the case of BitsharesDNS, where the underlying technology is being developed by a for-profit company, it seems that they cannot be compelled to intervene because they simply don't have that capability.
Protecting Privacy
Who is that domain name registered to? It's a question many would like to know. Registration data is generally stored by the registry operator, and can be accessed using a protocol called WHOIS. Providing accurate information including name, street address and phone number is required by ICANN. Failure to comply is grounds for forfeiting the domain name.
The status quo is convenient for law enforcement to help locate lawbreakers. It also makes life easier for intellectual property holders to identify those who they believe to be infringing. The current system is also of great benefit to prospective buyers who wish to negotiate a domain name sale, or potentially anyone interested in contacting the domain owner. But the status quo offers no good options for individual registrants to protect their private information.
In fact, the current scheme has serious disadvantages for individuals. We make this distinction between individual and corporate registrants because the latter can use corporate contact info and no personal information is exposed. Individual domain owners are often targets for scammers because their personal information is required to be public. For example, an easy way to bootstrap a botnet intended for mass spamming is to harvest the millions of email addresses publicly available in WHOIS records.
Over the years registrars began to sell private registration services. This service typically involves replacing the ownership data on the official WHOIS record with that of the registrar. This scheme unfortunately requires even more trust be extended.
Technically these registrars are in a position to make an ownership claim, which might be important if the owner disappears from public view. More troubling still is the notion that they keep the real ownership info in their database. Those private details must be kept hidden from both misbehaving employees as well as hackers.
Two Systems Going in Different Directions
ICANN wants to replace the current system with one where more detailed contact information is required from registrants, but data lookup would be granted only for "permissible purposes" to authenticated and approved users. Despite thoughtful objections of the sole privacy advocate on the working group which came up with this proposal, both registrants and agents looking up information would need to be clearly identified in the latest proposed scheme.
Namecoin requires no information from the registrant to simply reserve a domain name. Possession of the private key corresponding to that domain’s address on the blockchain is the only thing required. Registrations are pseudonymous in that no identifying information is available by default except that particular tokens can be tracked through the blockchain. With some effort, a registrant could come to posses tokens which could not be traceable back to any personal identifier.
But this is not an anomaly. According to project lead Nikolai Mushegian, "all domains are anonymous by default" in BitsharesDNS, meaning that personal identifiers are only public record if the registrant chooses to provide that info. In their soon-to-be launched system domain names will be pseudonymous, meaning that they are by default only associated with internal identifiers.
A registrant in either the Namecoin or BitsharesDNS systems can put in specific contact details entirely at their discretion. Meanwhile ICANN steadily continues down the path of eroding user privacy in order to appease the interests of big business.
A quick reminder, this is a multipart series on decentralizing the Domain Name System. Stay tuned for the next installment as we explore how decentralized DNS allows us to solve some of the most pressing online security issues we face today.
If you enjoyed this article and want to show your gratitude you can do so by signing up to Lets Talk Bitcoin using my referral code: http://letstalkbitcoin.com/?ref=52b52db8
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Bitcoin and Intrinsic Value
August 6th, 2014 by
Tron Black Warren Buffett, generally a shrewd investor, surely knows the financial definition of intrinsic value, but inexplicably he does not understand Bitcoin. How do I know he does not understand Bitcoin? Because he called it a "mirage," said it had “no intrinsic value,” called it “a joke,” and compared it to a check. A check? Bitcoin, the network, can be compared to the entire banking system that processes a check, which includes the clearing system, the image scanning system, the ATM network, the credit and debit system of the Automated Clearing House, the SWIFT financial messaging system, and ultimately the institutions that we trust to safely track our balances and return our deposited funds upon request.
Warren’s uninformed and off-the-cuff remark sparked a conversation about the intrinsic value of Bitcoin. We need to begin by defining "intrinsic value," because it has a different definition for a financial investor than it does for most noninvestors. Investors look at the book value and add the discounted cash flow to arrive at the intrinsic value, which is often different from the market value. Most noninvestors think of intrinsic value as the value of a thing itself. Noninvestors often cite the example of gold, or of a knife that can cut, splice, and dice. Gold can be used for industrial purposes. It is extremely malleable, shiny, and contains other unique physical properties. I posit, however, that gold’s real value lies in its scarcity and in its worldwide acceptance as a store of value. Knives, on the other hand, are great tools of utility value.
Mr. Buffet’s ability to calculate the difference between intrinsic (or fundamental) value and market value gives him a real investing edge. I respect his investing acumen and I mean no disrespect for him when I declare he is wrong about Bitcoin.
Perhaps if Warren thought about Bitcoin differently, he might come to a better conclusion. He regularly purchases stocks, so he understands that market. A stock, based upon the investor's definition of intrinsic value, represents partial ownership in an ongoing business that holds assets (book value) and makes money, which can be included in its value when discounted for time. Once Mr. Buffet learns a bit more about Bitcoin, I hope he will realize that upper-case Bitcoin, the network, holds tremendous value because it can be compared to a banking system, or a worldwide collection of banks and all of their systems. While lower-case bitcoin, the currency, can be compared to an index fund or an exchange-traded fund, which would indlude all the bitcoin companies in the Bitcoin ecosystem.
Value is subjective and contextual. It is subjective because it depends on the feelings and opinions of the person doing the valuing. It is contextual because it depends on the circumstances and setting of that person.
Let’s explore this with a simple example. Imagine you are stranded alone on a desert island with no internet connection. You are hungry, thirsty, and you cannot get off the island. Three things wash ashore -- a laminated-paper bitcoin wallet that gives the private key for an address that holds 100 BTC, a shoebox full of freshly printed US $100 bills, and a crate containing a knife, some flint, nine hens, a rooster, and several large sealed bottles of crystal-clear purified water. Which has the most value -- to you?
Now change the context, and imagine you just polished off a meal at a five-star restaurant and you ate too much dessert. You’re faced with the choice between the same items, but now you might want to count the $100 bills and check the public bitcoin address to decide whether you would rather take the bitcoin or the shoebox full of cash.
OK, one last example. This time you have eaten a nice meal while reading about China and Russia striking a deal to use their native domestic currencies to settle trade and purchase energy in the form of gas, oil, and coal. You are faced with the same choice of food, bitcoin, or dollars. But now you’re rattled. You think, “What if the dollar is losing its status as the global-reserve currency? What if dollars come flooding back to the United States as other countries choose not to hold them? What if government numbers for inflation are being blatantly manipulated?” You give it more thought, and you reason that you could take the dollars and buy stock in global companies in order to protect yourself. Then it hits you: “This is why the stock market is doing so well. It is not in recovery at all. People are shifting to stock assets in the face of a manipulated and devalued currency.” Your choice now comes down to buying global stocks, or taking the bitcoin. You look at the history of Bitcoin over the last few years, compare it to the S&P 500, and you make your choice without even needing to count the dollars in the shoebox. Read More -
Using Bitcoin in Patagonia
August 5th, 2014 by
Arturo With Argentina in the news a lot, it's hard to ignore the need they have to find a better way to do business. Especially when printing more pesos just isn't going to make the problem go away. One small store owner in the Patagonia has taken the opportunity to accept bitcoin instead of the depreciating Argentine peso.
So I headed down to the beautiful town of San Carlos de Bariloche, famous for its mountains, enormous fresh water lake and Swiss style town, to make my first purchase with bitcoin. Besides, I've been studying bitcoin for over a year now and I hadn't made my first bitcoin purchase yet!
I bribed my family with a promise to get them goodies from the store to come with me so they can not only see how cool it is to use this new international money, but finally see in action the very technology I was bragging about for so many months. The downtown located Maxikiosco is a quick stop for snacks on the go. Just a few blocks from where we were staying so it was perfect.
I opened the "Aceptamos Bitcoin" branded door and right away in an Argentnian tone and look spoke to the owner asking in spanish, "So you really are accepting bitcoin?". A slow smile came to his face. Little did I know that his store was becoming popular with clients paying with bits.
He confirmed and we selected our items. So I put all the goodies on the counter and he counted quickly the final sum in pesos... and that's where the ease of bitcoin came to a screeching halt.
If you don't yet, Argentina has two rates. The oficial and the "blue" rate. The first is the oficial rate of the peso to the dollar (and any other fiat for that matter). The second is the "black" market rate that fluctuates depending on the actual demand on the dollar (Mycelieum has confirmed with me that they are planning to put a blue rate in their wallet soon).
Bitcoin is exchanged at the blue rate of course, so that means converting the peso to the blue rate to the bitcoin. After a few minutes of this, we confirmed how many bitcoins... or milibits... and that's the thing, he hadn't moved over to milibits yet, even though the small purchases he sells would be more convienient for him. But that was easier than trying to scan the small QR code on is small iPhone4 (even my 4.9" android is too small for me!). He was going to dictate the account to me but I halted him. I have a strict rule of no manual inputs.
That's just rediculous in this day and age. So he wanted to text me the address to my cell phone so I can copy and paste it. It took me a second but I did notice eventually I had no cell signal in his store... which meant I also needed wifi to confirm the transaction with him. My family looking at me now is doubting they were going to get their promised drink and snacks.
"Fear not! Over 20 years in the IT industry, I've seen worse!", I exclaimed. He had wifi. I tried to connect to it. No luck. I had seen this before, cell phone hung, waiting for an IP address. I wasn't about to try to start troubleshooting his wifi router no matter how easy it could be. I wanted my drink now.
He said he knew another wifi (possibly the neighbor's?)... and success! Alright, now back in busines. I noticed he was using bitpay on his laptop. At this point, I took over and said to him to just show me the QR code from his laptop screen. I scanned that in a jiffy and then sent him the milibits.
I was not expecting the speed of which the propagation occured, for no faster than me entering my pin to confirm the sending amount, did I hear a beep on his laptop. That was fast. He gave me a huge "We Accept Bitcoin" spanish sticker as a gift. I had my first bitcoin transaction, and it was as cumbersome as all the podcast stories I've heard everyone has had for their first time as well.
Now my bitcoin address had an output. Not a virgin anymore. We both agreed no need to wait for any confirmations, that's just more peace of mind than a necessity for these kind of transactions.
I had to thank my family for their patience and even going back there again later in the day and made another transaction much smoother (saved wifi and bitcoin address helped!), I realized that there is a much better setup small business owners can have if they do the following:
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Open wifi called "bitcoin". If we all set aside an open SSID (seperate from your corporate/home network), we could have also the largest open network that not only advertises for free the bitcoin network, but as well, help previous bitcoin cutomers automatically connect to a network for propergation confirmation.
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Screen facing customer with the requesting QR code. Best if it would itemize each purchasing item with a total in the fiat/bitcoin amount. The store owner should make the requesting amount and have that displayed in large on the screen so that the customer only needs to scan it and confirm the send. That would make for a much smoother transaction and even faster than credit cards or cash (if you need change). I have other ideas for multiple checkouts with one cashier but that's another post.
- Discount for using bitcoin. Although he is the only one accepting bitcoins, passing on the savings the merchant would have had to pay had the customer used a credit card, would help in their own marketing and also for the paying customer to opt in to pay for a miner's fee. I like the idea of paying the miner's instead of these multi-billion dollar companies.
The bitcoin scene is growing in the south of Argentina. The best thing we can do is convert fiat slowly to it as a savings account (to avoid these rollercoaster violatilities), use it when possible (to encourage the economy to stay in BTC), and help others understand and use it. I average about 2 hours per new adopter in helping them understand, setup their new account, back it up, erase it, restore from backup and then do the first transfer. I remind everyone to have a method for your accounts to be accessed in case of your death so to not see the funds lost forever.
Arturo D'Elia has been working in the IT industry for the last 21 years. He's currently volunteering freely and independantly in the Argentinian Patagonia to help people learn and understand bitcoin. Any donations for this cause is greatly appreciated! His profile can be found here: https://plus.google.com/+ArturoDElia
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Crypto for Change - Is this Wall Street's Kodak Moment?
August 4th, 2014 by
Andrew De Gabriele -
Intro to Decentralized DNS
August 4th, 2014 by mike ward The Domain Name System (DNS) is the Internet's version of a phone book, allowing computers to lookup an IP address like 66.175.222.204 from a given domain name like letstalkbitcoin.com. Today's Domain Name System is sagging under the heavy weight of political and technical problems. It has held fast for years, but worsening technical issues and growing concern over governance seem implacable in a system designed with centralized control.
In this series of articles we intend to examine the key issues more closely, and look at specific initiatives in the crypto-currency space designed to alleviate the pain points or create new opportunities. We will be outlining some of the next generation DNS alternatives being built, and talk with some of the visionaries making it happen.
But first, it is important to identify what the most serious problems really are. Which ones are intrinsic problems that any distributed naming system will exhibit? Which ones are shortcomings of centralized systems, such as we currently have?
Freedom of Speech
In most parts of the world speaking out against government censorship, corruption, or government policies is a risky proposition. By speaking out, we refer to publicly voicing dissenting opinions, published on a website for the whole world to read.
In a world where thought leaders can keep a low physical profile, electronic censorship has become the de facto weapon of choice in the suppression of ideas and ideology. Mass access to these voices, and the censorship thereof both rely on using domain names.
Today domain names are routinely seized for various reasons. Sometimes people are indifferent, or even supportive of this - in the case of child pornography websites for example. Sites filled with hate speech, promoting violence against ethnic, religious, racial, or other minorities are routinely taken down via domain seizures. Registrars are only too happy to comply with governments to minimize citizens' exposure to the ugliness that is hatred and bigotry.
But this is a slippery slope. It is not clear that the system benefits us all when the censorship occurs because content is alleged to be in violation of copyright law or politically threatening. Is seizure of domain names justified when sites are being used to spread malware? Is revolutionary speech too destabilizing, and when can it safely be tolerated? The answer of course, is highly subjective.
Privacy
Over the years, the Internet Corporation for Assigned Names and Numbers (ICANN) has developed processes for making decisions which are highly inclusive of a range of stakeholders. Unfortunately the loudest voices get a disproportionate share of influence, and this has contributed to an erosion of privacy for domain registrants.
Information about who is the registrant of record for a given domain name are currently accessible via a mechanism called WHOIS. ICANN requires this information, and the penalty for non-compliance or falsifying the info can be domain seizure. This is very convenient for corporate holders of intellectual property rights, in order to identify and go after those who are perceived to be infringing on those rights.
There is a strong case to be made against requiring such disclosure from registrants. However, ICANN's Expert Working Group on WHOIS and Privacy recently published their report recommending the expansion of WHOIS in a way which further weakens privacy for individual registrants by requiring and exposing street address and phone number data.
Internet Security
Identity is at the heart of many online security challenges. "Who is that, and should I trust them?" is the most basic concern in many interchanges on today's Internet. Indeed, identity and reputation management are considered by some to be the holy grail of social interactions on the Internet.
As users interact with websites which offer services and information, each side tries to determine the likelihood that the other is sufficiently identified, and that the interaction will be conducted safely. A potpourri of technologies is employed to accomplish this today, which is another way to say that we struggle mightily.
Trust on the web today is primarily established using digital server certificates. The entity at the other end, with whom users interact, establishes a basis for trust by providing one of these. It will be signed by an even more trustworthy certificate authority. In case it is not yet evident, this system if fraught with peril and requires a lot of trust. The current system has proven over time to be untrustworthy.
Another area of concern is the control structures. Registry operators are the authorities for top level domains like .COM. Root servers are those lynchpins which contain the authoritative DNS data for resolving domain names. They are both prime targets for attack, as well as central points of failure. There are other central targets in the system as well, including ICANN itself, which guards a private key used to sign certificates for these root servers.
Domain Thefts
Aside from the domain seizures that routinely occur, the risk of theft is always present in the current domain name system. The classic scenario is the compromising of a victim's registrar account along with an email account. The specifics could involve keystroke loggers, social engineering to access registrar accounts, registrar employee collusion, or plain old inadequate password management on the part of registrants or registrars.
However it happens, when registrar accounts are compromised, the domain names are typically transferred to countries with less mature judicial systems, or less cooperative political leadership leaving the victims with little or no recourse.
Assets secured on a blockchain work differently. Transferring control of assets involves presenting private keys. That is all. No password management, hacking servers, etc. The security of such an asset is completely up to the person controlling the private key.
More Problems?
There are other shortcomings to the current domain name system. But we have outlined enough here to give our readers a sense of where we expect to see blockchain-based solutions making inroads.
Big changes are coming to the domain name system as we know it today. Our current system has been in place since the 1980's, and is ripe for change. In fact people have been working on blockchain based remedies and replacements for this thirty year old system that we have come to depend on.
What will our global namespaces look like a few years from now? How similar will these systems be to our current one? Stay tuned as we bring you the ideas of some key visionaries who seek to rework this aging system.
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Solution to Sybil attacks and 51% attacks in Decentralized Networks
August 3rd, 2014 by Alchemi Original (dhimmels):
In the early days Internet started as a symmetric peer to peer decentralized network of computers. As time passed by, the Internet became more asymmetric and concentrated in a few centralized data centers with billions of PCs and laptops on the edges. The reason Internet started as peer-to-peer decentralized networks are scalability, high fault tolerance and resilience to censorship. However security is a major drawback in these types of networks as it is almost a certainty that malicious nodes will be joining the network from time to time. These malicious nodes can flood the network with invalid packets, thus preventing the packets from being delivered causing a simple flood attack.
Another common attack is Man in the Middle (MitM) attack in which an attacker places himself between two peer nodes in the network. Such an attack can remain undetected, as long as the attacker remains passive. This also enables the attacker to listen to the communications between the two nodes. As a result, the attacker can assume the identity of both the peer nodes, compromise one or both nodes and try to infiltrate the network.
What are Sybil Attacks and Sockpuppets?
Sybil attack is another security vulnerability specific to peer to peer decentralized networks as it is open and anonymous in nature. The attack is named after the subject of the book Sybil which deals with the case study of a woman diagnosed with Dissociative Identity Disorder. The main component of the Sybil attack comprise of creating a large number of pseudonymous identities. Once the identities are accepted as peers they try to gain control of the network and subvert the whole network from within. The network’s resilience depends on the main criteria which is how easy it is to create an identity and be accepted as a peer. As there is no 100 percent fail-proof firewall against these types of attacks, the best defense against sybil attacks is to make it as impractical as possible.
Sockpuppet is a term that implies many online identities for the sole objective of deception in the online communities.
A sockpuppet is an online identity used for purposes of deception. The term, a reference to the manipulation of a simple hand puppet made from a sock, originally referred to a false identity assumed by a member of an Internet community who spoke to, or about, themselves while pretending to be another person. A significant difference between the use of a pseudonym and the creation of a sockpuppet is that the sockpuppet poses as an independent third-party unaffiliated with the puppeteer.
What is 51% attack?
A “51% attack” means a bad guy getting as much computing power as the entire rest of the Bitcoin network combined, plus a little bit more.
In his white paper Satoshi proposed the Proof of Work. The main purpose of this algorithm is to minimize 51% attacks. However proof of work does not completely eliminate 51% attack. If a bad guy tries to launch an attack, the algorithm makes it harder as it requires a lot of resources to take down the hashing power of 51 percent of the nodes that constitutes the Bitcoin network. I would therefore like to discuss the possibilities of mitigating these risks by proof of reputation.
Why centralized proof of work increases the risk of 51% attack?
Let us imagine a case scenario where the proof of work is centralized in a few data centers. As a result whoever controls the data centers can intentionally manipulate the proof of work algorithm of the decentralized network to his own ends. It is also feasible for the hackers to have a total control of the network. It will play out exactly the same way the centralized Bitcoin exchanges are getting hacked nowadays. Thus we can conclude that if we centralize the proof of work it only magnifies the risk of the attack rather than mitigating it.
Why delegated Proof of Stake is equivalent to centralized Proof of Work?
Delegated proof of stake magnifies the risk of 51% attack same as centralized proof of work. It is relatively easy to corrupt, say 100 delegates than to corrupt the 51 percent of the stake holders.
A bank is an example of a hybrid of delegated Proof of Stake and fractional reserve system. When a user deposits 100 pieces of silver coins into a bank, the user delegates his stake of silver to the bank. Then the bank releases a token of 10000 notes based on the user’s 100 pieces of silver coins.
The issue with banks is that it involves trusting the third parties as it is based on delegated Proof of Stake. If the trust is violated it magnifies the risk out of proportion because of fractional reserve system. Thus Delegated Proof of Stake cannot be classified as a decentralized system because one has to trust a third party to delegate his stake. In the long run more users tend to delegate their stakes because of brand loyalty, user friendliness etc. This leads to more centralization, violation of the trust, dilution and corruption of the whole stake.
Proof of Reputation
The motive behind proof of work is based on the control of processing power while proof of stake is based on the percentage of wealth. It is very easy to corrupt both. On the other hand the motive behind proof of reputation is based on ethics and morality which is very resilient to corruption.
Let us examine the Proof of Reputation in depth and its implications. Assuming there are 10 anonymous generals who don’t trust each other but are willing to undertake an invasion by providing 1000 soldiers each. In return they are willing to settle with one tenth of the spoils. It is highly probable for a general to either have 2 to 3 sockpuppets, to conspire with another 5 generals or the combination of the two.
Let us now bring in the proof of reputation in the equation. Say for example each general has a score for Proof of Reputation which is based on how many of the 1000 soldiers like them. It is very difficult to gain good reputation for all the 3 sock puppets even if they tend to have similar reputation as it negates the purpose of the sock puppets. If a general tries to conspire with another 5 generals, it will be very difficult to conspire with all the 5 generals with good reputation. This is because each one will have to risk his reputation.
In a decentralized peer to peer network it is next to impossible to corrupt 51% Proof of Work, 51% Proof of Stake and 51% Proof of Reputation of the whole network.
Implementation of Proof of Reputation
Proof of Reputation can be implemented as an assurance contract which is explained as follows:
In a binding way, members of a group pledge to contribute to action A if a total contribution level is reached. If the threshold level is met, the action is taken, and the public good is provided; otherwise, the parties are not bound to carry through the action and any monetary contributions are refunded.
The problem with assurance contract is that it enables free riders. Free riders are those who do not contribute to the public good but reap the benefits of the public good at the cost of other contributers. In order to eliminate the problem of free riders, Alex Tabarrok proposed Dominant Assurance Contract by publishing a white paper. Dominant Assurance Contract not only defines the monetary incentive, expiry date as in Assurance contract but also adds another parameter known as minimum number of contributers required for the contract to come into effect.
Therefore Proof of Reputation has to be implemented as a dominant assurance contract to discourage free riders. One method of implementation is based on semi-trusted oracles. Gavin Andresen explains the implementation as follows.
So I’ll start there, and imagine that there are semi-trusted ‘oracles’ that compete to be the most reliable and trustworthy verifiers of contracts. People involved in contracts choose N of them, and then require that contract conditions be validated by one or more of them before the contract pays out. Pick more than one so no single oracle can steal the contract’s funds, but less than N in case some of them go out of business or just aren’t around to validate contracts when it is time for the contract to pay out.
These oracles need an agreed-upon, machine-readable contract language, but that shouldn’t be hard. There are lots of interesting design decisions on what information contract scripts have access to (and lots of not-so-interesting-to-me design decisions on the language itself; is it stack-based, register-based, high-level, low-level bytecode, etc etc etc).
Another method of implementation is by awarding tokens to miners based on honesty and integrity. Tokens are basically an implementation of the assurance contract to make sure that the motives of the miners and end users are aligned for the common good. For example, if the mining pool operators will tweak their mining rigs between 10-20 percent for a period of time then the operators will have an incentive to be honest and earn reputation as tokens in addition to mining incentives. If a miner is using a mining pool, he can pledge may be 5% of his total Bitcoin mining towards the dominant assurance contract so that the mining pool will receive a reputation token which can be pegged to the market value of Bitcoin.
Tokens can also be crowd funded as a pledge by the stake holders in the decentralized network to ensure the miners and pool operators have an incentive to be honest, hence earn reputation. The tokens can be earned or burned depending on the nature of the coin which is either inflationary or deflationary. If it has to be burnt it can be released as a token and claimed by charities.
The tokens can be issued either as 1 to n, n to n or n to 1, depending on individual requirements based on Counterparty protocol, Colored coin protocol for Bitcoins or Dogeparty protocol for Dogecoins.
Another method of implementation is using the Lighthouse platform. Lighthouse has a lightweight encrypted HD wallet. It uses payment verification by directly synchronizing with the block chain. It also enables dominant assurance contracts for people to pledge for the projects directly using Bitcoins. If they want their money back before the contract reaches its target amount, they can revoke the pledges they have already made. As the contract is entirely based on the block chain, pledges cannot be claimed individually. They can only be claimed when the combined pledges together reaches the targeted amount.
LTBcoin
In LTB network, Proof of Reputation is being implemented to defend against sockpuppets which is based on token controlled access. Each piece of content is mapped to certain tokens and quantities. If the quantity is zero, the content is accessible to users. If the quantity required is more than zero, the content is then blocked.
Token-Controlled Access (TCA) is a simple idea. In a given system, different levels of access to that system are granted according to the combination of tokens in a particular user’s wallet.
Token Controlled Viewpoint (TCV) is an application of TCA to information content (forums, posts, comments, bonus content, bloopers, walkthroughs, tips, tweets, supplemental blogs, RSS feeds or other data) on basic web pages.Disclosure
This article is meant for informational purposes and is not an endorsement. Articles published on the LTB network are the author’s personal opinion and do not necessarily represent the opinions of the LTB network.
Read MoreFurther Reading
https://bitcoin.org/bitcoin.pdf
https://en.bitcoin.it/wiki/Attacks#Attacker_has_a_lot_of_computing_power
http://gavintech.blogspot.co.uk/2014/06/bit-thereum.html
http://mason.gmu.edu/~atabarro/PrivateProvision.pdf
http://blog.vinumeris.com/2014/05/17/lighthouse/ -
SecretBitcoinProject.com goes Stellar! But... why?
August 1st, 2014 by
Mike Roncone No I’m not referring to the Incubus song, although I like where your head is.
Rather, Jed McCaleb’s new project (formerly secretbitcoinproject.com) has finally come to fruition. Today users who signed up to be alpha testers received an email which introduced the new project: “Stellar”.
Before we begin, I would like to caution you that this article is not intended to give a full technical breakdown of any of the protocols described within. Any information presented is intended to convey a very basic level of understanding. Many aspects of the programs have been left out. There is also quite a bit of conjecture on my part. Though I have tried to be relatively unbiased and present the facts where there are facts and my interpretation of events where interpretation is needed, you may see things differently. I encourage you to post those differences in the comments so that we can talk about them further! I have a financial stake in both the Ripple network and the Stellar network.For anyone who is familiar with Ripple, Stellar will sound quite familiar to you. This is because Stellar is essentially a carbon copy of the Ripple project of which Jed was a founding member. Ripple was Jed’s biggest pet project after selling Mt. Gox. Though it has received seemingly infinite amounts of scrutiny, it has also arguably seen quite a bit of success in its resiliency.
The question is: Why would Jed ditch Ripple and create basically an exact copy of it? For that, we have to speculate a bit.
Before we go there however, the following is a quick-and-dirty rundown of what Ripple is and what it provides for those who are not already aware. I will not get very technical here; for that you can go to their website.
Ripple was created to provide a network that could seamlessly convert any one currency to any other in the middle of a transaction. Let’s say that we only hold U.S. dollars because that is the only currency we trust. We see that Alice is selling key chains online and they are really cool, so we decide that we are going to buy one. There’s one problem though… She only accepts Euros.
Since we only have dollars, this would normally necessitate the conversion of USD to EUR and then somehow conveying that to Alice in Europe. All of this can be quite costly and time consuming. In many cases the international wire fees would cost more than the trinket to begin with. Usually, we would just forget about the key chain and move on.
This is where Ripple came in. Ripple created a cryptographically based network where users could hold any currency they wanted, and send any amount of that currency to another user. The transaction would be confirmed in seconds, and in those seconds between remittance/receipt, the initial currency would be converted automatically to whichever currency the receiver preferred. Ripple does this by providing a third “currency” known as ripples (XRP). Ripple the token is used as the third party to any currency exchange on the network. Thus, USD would be converted to XRP at the best possible rate and then converted to EUR at the best possible rate. This exchange can actually be done through any number of currency combinations, resulting in the best possible exchange rate on the market every single time. The best rate is determined through a built-in process known as “pathfinding”.
This is essentially what Stellar is as well. So why the fork? Again, much of this is speculation, but I will attempt to come up with an explanation here.
It is well known to the Ripple community that Jed had a falling out with the company that currently runs the core development of the Ripple Protocol – Ripple Labs. The first thing to understand is that Ripple Labs is a for-profit entity. All ripples were pre-mined just like stellars were on Stellar. These ripples were allocated to founders, early stage investors, and Ripple Labs. Like Stellar, the majority of the internal tokens were set aside by the core development entity for free giveaways. These giveaways would be used to promote the adoption and subsequent health of the network. In Ripple’s case however, these giveaways and the exact nature of ripple distribution have been a bit foggy since the very beginning. This has brought enormous amounts of scrutiny from bitcoin enthusiasts and is still one of the main arguments against the platform itself.
It appears as though the decision to basically fork Ripple stems from a philosophical issue. Ripple Labs seems to have changed directions from Jed’s initial vision of Ripple. According to Jed, the initial vision was to provide a way for regular people like us to send payments in any currency, anywhere in the world, at little-to-no cost.
It appears as though Ripple Labs has decided to pursue other outlets for their platform by way of acting as a sort of back-end clearing house for financial institutions. This change in the tide appears to have been at the cost of basically ignoring the common user.
Because of this difference in vision, Jed stepped down from all of his responsibilities at Ripple Labs. He then announced to the community that he would begin selling what was left of his enormous founder's allocation of XRP on the open market. As one can imagine, this caused a crash in the value of XRP, since his one founder allocation would be enough to wipe out the entire order book of offers across all currencies on the network. Afterwards he would have still had an obscene amount of XRP left. In case you were wondering, he never dumped the entire amount all at once.
In comes Stellar. Mechanically it appears to be almost, if not the exact, same platform as Ripple. However, I can spot two key philosophical and one key mechanical difference right off the bat, and there may be more.
The first mechanical difference that I see is the total amount of Stellar that will ever exist. Instead of being a fixed amount like bitcoin or ripple, 100 billion stellar was created in the genesis block and more will be generated at a fixed rate of 1% per year. This introduces some degree of inflation which can arguably be good or bad depending on your perspective. The two main arguments in favor of the mechanism, according to the foundation, are to account for both lost stellars as well as economic growth. This 1% is allocated weekly to the top fifty accounts voted to receive such a distribution by the community. The foundation’s hope for these inflationary funds is that “holders will use the inflation-generated stellars to enable novel business models or to fund causes they support".
In the first philosophical case, the Stellar Development Foundation is a 100% not-for-profit entity. Its only goals are to provide support/development for the Stellar network as well as “expand financial access and literacy worldwide”. All of this can be found in their mandate. It will not take any profits and only allocated 5% of the genesis stellar toward financing future operations. For the rest of the genesis stellar the breakdown is as follows: 50% dispursed to the “direct signup educational program”, which involves giving users who create new wallets some stellar. Then 25%, the “increased access program”, will be given away to nonprofits that aim to support the underserved/under-banked populations across the globe. Finally, 20% of the genesis stellar will be given away in the “bitcoin program”, which aims to give back to both the users of Bitcoin and Ripple. Without these two protocols, Stellar would likely not exist. It could also be argued that Ripple is included due to the crash that followed Jed’s intent to sell announcement. This ended up costing many users quite a bit of money.
The second philosophical case is a big one. I mentioned previously that Ripple Labs appears to have switched gears from being user-focused to business/institution-focused. From all angles that I can see, Stellar looks to be targeted towards the regular person. Stellar wants to be what Jed wanted Ripple to be originally; a wallet for the everyday person to side-step the big, bad legacy financial system and support payments from person-to-person across the globe at little-to-no cost. One can see the individual focus all over their website, and especially throughout their mandate. Stellar is very focused on financial literacy and accessibility which absolutely starts at the individual level.
There you have it. In my opinion, this is what caused Jed to essentially fork Ripple and pursue his original vision for the technology. In the interest of full disclosure, I have had a significant stake in Ripple for quite some time now. I also plan on pursuing a significant stake in Stellar.
In any case, it will be interesting to see how both networks play out in the long run. Due to the difference in objectives, it may be that Ripple and Stellar can coexist and both be wildly successful. Only time will tell.
If you are interested in seeing what Stellar is all about, I encourage you to sign up at http://www.stellar.org. For creating an account and linking your Facebook profile to it, you are credited with 5,000 stellar. If you confirm your email address, you receive another 1,000 stellar. Finally, for testing the network and sending 1,000 stellar to someone else you are credited with another 1,000 stellar.
As an added bonus, if you send your 1,000 stellar to me, I will return 500 of it back to you as a win-win for the both of us. You get 1,500 stellar instead of 1,000 and I get some extra stellar as a tip. Full disclosure: there are better offers on the Stellar forums, but if you enjoyed my article and are feeling generous I would love to work with you!
My Stellar username is: mjroncone and if that doesn’t work the address is: gPcDRFkyksJh5o53Lr8dbEfH7KSYfaPvMv
If you are reading this article and are not a member of LetsTalkBitcoin.com, I encourage you to go here and sign up! (Caution: referral links) That way you can send me a private message or ping me in a thread by using @Mike if you have any questions or if I have failed to return your 500 stellar.
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A History of Zombie Events
August 1st, 2014 by
John W. Ratcliff About a month ago I posted an article on 'Let's Talk Bitcoin' entitled 'Rise of the Zombie Bitcoins'. In this previous article I presented a great deal of data and analysis about the state of the bitcoin blockchain in relation to long unused addresses. In that article I argued that the bulk of the bitcoins mined for the first two years have never been moved and, most likely, never will be. I also argued that bitcoins which have sat in addresses for an extremely long time with absolutely no spend activity are arguably lost forever. In total these 'zombie' bitcoins represent roughly 25% of the number of bitcoins which have ever been produced. This is such a huge quantity that knowing whether or not they should be considered part of the active economy is an important mystery to investigate. And investigate is what I have been doing. I have discovered in the data presented in this article strong evidence that this view may be wrong. It turns out that someone who mined the earliest bitcoin blocks has been spending them at semi-regular intervals in relatively recent history.
Today I will not be presenting a great deal of analysis. There are only two simple graphs and no burndown charts. Instead I am going to be providing absolute raw data that you, the reader, can use to become a blockchain researcher yourself. You can use this data to produce your own findings, graphs, and conclusions. I encourage readers to download this dataset and explore interesting ways to chart it and then leave links to those results in the comments section of this blog post.
This dataset can be extremely fascinating to dig through because, while most of those old 50 bitcoin mining reward blocks have never been spent, there are still some being shaken loose today. It might be pretty interesting to track down when and where this happens and follow where they lead to.
For example, here is the address of a bitcoin public key which contained nothing but a miners reward block of 50 bitcoins created on July 13, 2010. Then, on May 1, 2014, BOOM, the owner came along almost 4 years later and transferred these coins to two other addresses; one receiving 45 bitcoins which remains untouched, and another that has a lot of transaction history. So, while it is true that the vast majority of those ancient 50 bitcoin miners reward blocks have been untouched, occasionally they do, in fact, rise from the dead. This dataset provides you with a window directly into every single time this has ever occurred. So let the chase begin!
I would like to explain what this dataset represents and how it was created. I wrote a piece of software which analyzes the entire bitcoin blockchain at one day intervals since its inception. For each day I gather all of the bitcoin public key addresses which are in active use and look for any which have had spend transactions performed that day relative to keys which were untouched for over two years. This dataset is current as of today, July 26, 2014.
I start with the assumption that these 'zombie events' are infrequent and becoming more rare all of the time. I believe the data set attached shows this to be true.
For each zombie event I provide the following detailed information as a single line in a comma-separated-value file which can be imported into any standard spreadsheet program.
Here is a link to a spreadsheet which shows a list of the top 148 days since April 2013 that have had significant amounts of very old bitcoins transferred. You can cross reference any of these days against the full datset to drill down into every single individual public key address and transaction that was involved. You will note that most of these 'zombie events' refer to bitcoins which were last moved in 2011 and 2012. It is much more rare to see bitcions which were mined during the first year of the blockchain being moved.
Date: This is the date at which the zombie event occurred.
LastDate: This is the last date that his address was used prior to this event.
PublicKey: This is the bitcoin public key address associated with this event. You can copy/paste this key into the blockchain.info website to get the entire transaction history to match.
Type: The type field classifies whether this public key is associated with a 50 bitcoin miners reward, a 25 bitcoin miners reward, or is simply a normal bitcoin address not previously associated with a miners output.
BalanceBefore : This is the balance held at this key before the zombie event occurred.
BalanceAfter : This is the balance held at this key after the zombie event occurred.
ValueChange: This is the amount of bitcoin value which was transacted during this zombie event; not necessarily all bitcoins may have been spent.
Age: This is how old this key was in days since its last send transaction prior to this event. Minimum age is two years for this dataset.
ZombieScore : This is a computed value equal to the number of bitcoins previously associated with this address times the number of days since it was last used squared.
In the provided data set immediately following each day that new zombie events have occurred (and zombie events do not happen every single day), a subtotal is included. The subtotals per day include the following.
TotalZombieCount : The total number of zombie events which occurred on this day.
TotalZombieValue : The total value in bitcoin addresses associated with the zombie events for this date.
TotalZombieValueChange : The total value change which occurred, which is not necessarily the same as TotalZombieValue since not all of the bitcoins associated with each key may have been spent.
TotalZombieScore : The total zombie score for all events on this day.
Now let's take a look at some of the most significant zombie events in history. There have been around 24,000 'zombie events' throughout the lifetime of the bitcoin blockchain. Considering the fact that there have been millions and millions of transactions, this points out just how rare an event it is when bitcoins older than two years get moved to a new address.
Take a look at these four public keys. These are public keys associated with block miner rewards of 50btc each that were mined over a couple of days starting January 30, 2009. This is quite literally just a few weeks after bitcoin was started, and highly likely belonging to either Satoshi or one of his close friends. These were all spent on the same day over five years later on February 7, 2014. Maybe Satoshi (or Hal Finney) had some bills to pay? Realize that this first address is a coinbase-reward from block #2400!
The oldest ever was this address which mined a block on January 30, 2009 (just a few weeks after bitcoin was started) but was spent on February 6, 2014. Was this Satoshi?
Here are the four addresses:
15coobWGLz5rTPPLwMqDrC848g5rSqgXX1
1CgrbzKje66Pcz1egaAnhr7qEGfdk9atS2
1KiCeqdXxzTYeq1dDUi6B1265cqFwsihzm
14pDPbeBCCn4CoNKc7YZJnJSWnqfoxf1XF
Then we find that on November 15th and November 18th of 2013 someone (Satoshi??) cashed in 1,850 bitcoins over those two days from public keys that date back to January 29, 2009! On November 18th, 2013, bitcoins were at their near all time high of over $1,100 each. So on those two days someone who mined blocks on January 29, 2009 of the history of the blockchain cashed out over a million dollars worth of the earliest bitcoins!
On October 9, 2013, probably the same person, cashed out 200 bitcoins from the earliest blocks. Here is one of the public keys of the four he cashed in. Again, this person is cashing in bitcoins mined right around January 30, 2009. Probably the same person.
I must admit that I was surprised to find these transactions. Apparently someone who mined bitcoin in the earliest days has, in fact, been cashing out some of them in relatively small batches (if you can call a million dollars worth of bitcoin 'small'). This person is either Satoshi himself or, more likely, one of the first handful of people who downloaded and were running the bitcoin client which could mine bitcoins easily on a CPU back then. This demonstrates that at least one person who mined bitcoins in the earliest days actively controls the keys and is making withdrawals over time but probably not anywhere near their entire stash. This is indeed very interesting data to inspect!
Here is a spreadsheet which highlights the several phases that bitcoins which were mined during just the first few weeks of the blockchain were moved over the course of the last year.
So who are the people likely to have been mining bitcoins in the first few weeks? Likely they were individuals participating on the cyberphunk mailing list and responding to Satoshi's announcement of the availability of the software. Some likely candidates include:
Satoshi Nakamoto
Hal Finney
Ray Dilinger
Dustin D. Trammell
The bitcoin zombie event with the highest zombie score in history is this transaction on March 10, 2014 of over 111,114 bitcoins when this public key got emptied. Considering the timing, this could have been related to the MtGox fiasco. It could also belong to the Winklevoss twins or could have had something to do with Silk Road; I’m really not sure but maybe someone knows and can post it in the comments section.
On March 7, 2014, the following four public keys, three containing 40,000 bitcoins and one containing 30,000 bitcoins, for a total of 150,000, were all transferred out of addresses which had not been touched in 842 days from November 16, 2011. Considering the timing the movement of these coins was probably associated with MtGox's claim that they 'found' a bunch of old bitcoins they had lost.
Here are those four addresses:
16Ls6azc76ixc9Ny7AB5ZPPq6oiEL9XwXy
12HddUDLhRP2F8JjpKYeKaDxxt5wUvx5nq
1cXNTyXj4xPGopfYZNY5xfSM1EPJJvBZV
1MyGwFAJjVtB5rGJa32M6Yh46cGirUta1K
Finally, I will include two quick charts. The first shows the number of zombie events that occur daily over time. As you can see, during periods of time when the bitcoin price was running up, the number of zombie events (indicating people cashing in and moving a lot of old bitcoin public keys) goes up substantially. Note that this is just a total count of 'events', it does not graph value.
Here is a graph of the absolute total value in bitcoins rising from the dead on a daily basis. Note that the Y axis has been clamped at 18,000 bitcoins since on just a few days hundreds of thousands of bitcoins were moved and throw the graph out of scale.
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References:
Here is a link to a graph showing the distribution of bitcoin balances by age.
Here is a link to a spreadsheet showing every day that a sigificant quantity of bitcoins rose from the dead, meaning value older than two years old was transferred.
Here is a link to the raw data as a straight ASCII comma separated value file showing every single 'zombie event' over the lifetime of the bitcoin blockchain and up until July 27, 2014.
Here is a link to a spreadsheet which shows the top 1,534 bitcoin public key addresses with a balance of greater than or equal to 1,000 bitcoins.
Finally, here are some overall blockchain statistics as of July 27, 2014.
* Total Blocks: 312,869
* Total Transactions: 43,386,218
* Total Inputs: 102,938,959
* Total Outputs: 115,051,298
* Found 42,288,981 addresses which have ever been used.
* Found 39,120,232 addresses with a zero balance.
* Found 1,509,310 'dust' addresses (less than 1mbtc) with a total balance of 206.78281 BTC
* Found 1,335,814 addresses with a balance greater than 1mbtc but less than 1btc, total balance 116,862
* Found 208,989 addresses with a balance greater than 1btc but less than 10btc, total btc: 528,389
* Found 99,695 addresses with a balance greater than 10btc but less than 100btc, total: 3,532,151
* Found 13,407 addresses with a balance greater than 100btc but less than 1,000btc, total: 3,044,956
* Found 1,435 addresses with a balance greater than 1,000btc but less than 10,000btc, total: 3,210,357
* Found 97 addresses with a balance greater than 10,000btc but less than 100,000btc, total: 2,206,252
* Found 2 addresses with a balance greater than 100,000btc, total: 295,838 -
Crypto for Change - Gatecrashing the Gatekeepers’ Party
July 30th, 2014 by Andrew De Gabriele -
Our Fractious Bitcoin Community
July 29th, 2014 by mike ward There are growing divides among the ever increasing numbers of supporters of Bitcoin. These schisms have existed since the very early days of this technology. Yet people were compelled historically by a common vision to band together and push forward as a united movement.Bitcoiners hold a wide range of views about why Bitcoin specifically, and cryptocurrencies generally, are exciting. Initially these divergent opinions were suppressed in favor of universally supported goals, but as the Bitcoin ecosystem continues to mature that bond grows weaker.
In the Beginning There Were Techies
First there were the technophiles. Satoshi and his contemporaries having lofty discussions about how to make digital currency technology work. How specifically to create a system like hashcash or bit-gold without the double-spend problem? It’s not clear that even they realized the import of what resulted from those discussions.The techies continue to be fascinated by new algorithms for securing the network, experimentation with sidechains or tree chains, meta protocols using Bitcoin’s blockchain as substrate, new approaches to anonymity, next-generation 2.0 metachains, and all the new and shiny advances that come along.So the techies came first. Who else could understand why this Bitcoin would work where previous iterations had not? Who else would setup machines to "mine" these worthless digital things? Technologists create; if it has value, others may follow.Geeks soon began to realize this weird idea of a blockchain as a mechanism to achieve consensus across a distributed network had merit. It wasn’t simply an inefficient, sloppy way to do data storage. It was, in fact, a solution to a classic problem in computer science involving ensuring data integrity on a network without requiring the trusting of any specific node. They quickly began to think of other applications, like de-centralized domain name systems and more.Many of them began mining what would eventually turn into fortunes. This led to the inevitable first exchange of value involving Bitcoin, the famous 10,000 BTC pizzas, which would become a cherished part of Bitcoin history.And Then Came Progressives
Read MoreAfter living through the financial mess of the previous decade, many young idealists soon began to wonder if this weird digital money could provide some degree of freedom from the encumbrance of the traditional world of finance. An influx of counter-culture advocates flocked to Bitcoin, but were more diverse in their worldview than the original money hackers.These early adopters included a fair number of Libertarians, who found appeal in the idea of usurping government control over existing, corrupt financial systems. They pointed to the big banks, repeatedly sanctioned for market tampering, money laundering, rigging rates, fraud and more. They were disgusted that these same institutions could receive billions in public bailouts when their dubious investments went belly up. Worse still, these huge banks and financial firms continued to engage in the same behaviors, merely paying fines every time they got caught.This group of early adopters also included self-proclaimed agorists, who rallied behind the notion that they could avoid letting governments know anything about their money, and avoid supporting it with their participation, and avoid paying taxes. This contingent included everything from living-off-the-grid isolationists to fiercely independent separatists.
Success Has a Downside
Of course as Bitcoin the currency started to be valued in the nascent marketplace, it attracted the attention of criminals. Criminal enterprise is an indicator of success in the case of currencies. The US dollar is going to remain the preferred currency of criminal organizations for now, but new opportunities emerged for the unsavory elements in our midst to conduct business across distances using Bitcoin.The dark web became filled with Bitcoin scammers. Governments realized they could gain credibility in the eyes of those anxious about technological change by attacking underground Bitcoin enterprises like Silk Road.Fraudsters began to emerge as well, as it became obvious that profits could be made. Some untrustworthy exchanges would repeatedly have trouble and freeze withdrawals, some would simply take deposits and disappear.New altcoins would pop up with no hint of utility, engage in marketing campaigns and then dump everything as soon as the coin gained value. Some had no programmers, some had hidden pre-mines, DaFuqcoin even deployed a trojan.And so there came to pass an uneasy alliance between many technologists, believing that algorithms can solve problems better than laws, and criminals looking for anonymity, and privacy advocates bemoaning the increasingly intrusive nature of online surveillance. This ushered in new tech like Zerocash, Darkcoin, coin mixing services, and Darkwallet.
Enter the Entrepreneurs
We then started to see a new class of technologists flocking to Bitcoin. Not the early pioneers, but more practical entrepreneurs. Some blended in perfectly, understanding the tech well at a sufficient level to bring it to main street. The result was friendlier wallets, exchanges, and tutorials.But the entrepreneurs working in the financial services space quickly realized they needed what others in the growing community were stridently opposed to. To build real exchanges in the post-Gox era, for example, required quantifying legal and regulatory risk. Business opportunities depend on predictability.Uncertainty is the worst environment for financial services; clearly spelled out governmental policies, even problematic ones, would bring opportunities. So how to make others in the community understand? Broad, sweeping regulation appeals to nobody. But the intersection of fiat and crypto is the domain of those governments who control the old currencies.
The View From Main Street
Bitcoin has survived MT Gox, Silk Road busts, repeated faux-banning in China and much more without sustaining any lasting damage, and that has vindicated those who truly believed. This has ushered in still more folks from main street, who have started to call for regulation, and to ask about those safeguards to which they’ve become accustomed in life.Now they ask about services to insure deposits. They worry about the complexity, they worry about making mistakes. They wonder if the free-for-all altcoin markets would ever get some oversight. They talk about all those things that so many early adopters are so adamantly opposed to.Beyond the need for simplicity of design and function, the newly intrigued would like to participate more broadly. For that to happen requires fewer scammers and fraudsters, a wider variety of wallets and online account options, and the ability to scrutinize and audit services like online exchanges.
The Inevitable Fragmentation
The ever broadening base of Bitcoin supporters is highly democratic, and growing more diverse with each passing day. Entrepreneurs versus Agorists? Libertarians vs. Venture Capitalists? The plurality that is the Bitcoin community grows further apart with each new on boarding of users. Perhaps that’s not a bad thing.Isn’t this really what most of us wanted? Bitcoin’s becoming mainstream. So many different voices are speaking up. Did we expect dogma from a self-appointed group of thought leaders to be promulgated throughout the user base like an ancient religion? No, it only makes sense to expect a messy competition of ideas and aspirations. -
In-depth Review: BitPesa
July 27th, 2014 by
William Suk Last week I reported on two Bitcoin startups in Africa that are working to cash in on the remittance business: Kenya-based BitPesa and Ghana-based Kitiwa. These startups are working to leverage Bitcoin’s low transaction fees to reduce the cost of sending money across international borders.
In this week’s column, I give a detailed review of BitPesa, based on four test transactions. My tests reveal that BitPesa is indeed a convenient, comparatively low-cost way of remitting money to Kenya.
I found that the total fees for using BitPesa are slightly higher than the advertised 3%. However, BitPesa is still more economical than other options like Western Union. Moreover, BitPesa enables micro remittances, which are not currently practical through established money transfer services.
What is BitPesa?BitPesa is a remittance service based in Kenya that allows users to exchange Bitcoin for Kenyan Shillings that are sent directly to a recipient’s mobile money account.
Mobile money is a growing phenomena in Africa and around the world. People deposit money into an account associated with their cellphone number, then use their phones to buy things in shops, to send money to other mobile money accounts, or to cash out into paper currency.
Kenya’s Safaricom owns the M-Pesa service, which is at the vanguard of the mobile money movement. Almost every adult in Kenya owns an M-Pesa account, and a third of the country’s GDP passes through the system. Users are assessed fees when transferring money between accounts and when exchanging mobile money for cash. These fees make mobile money a lucrative business, and Safaricom is now East Africa’s most profitable company.
BitPesa, which works seamlessly with M-Pesa and competing mobile money platforms, allows people outside of Kenya to upload BitCoin and specify a Kenyan phone number to electronically receive Shillings in return. As stated, BitPesa advertises a 3% fee for this service.Not Available in All Markets
I initially attempted to test BitPesa from my home in New York City. However, the system blocked me from creating an account, likely due to the United States' stringent money transfer laws.
Currently I am traveling in England, where I successfully opened a BitPesa account and completed four test transactions.Account Registration
The registration process for BitPesa is trivial, requiring only a name, email address, mailing address and date of birth. Users must also check a box that permits BitPesa to confirm their identity information.
Transactions
After registering, users are asked to input the quantity of Pound Sterling (£) that they would like to remit to Kenya. This sum is immediately translated into the quantity of Kenyan Shillings (KSH) that will be received and the amount of Bitcoin (BTC) that is required to process the transaction.
The user then specifies a person to receive the money by inputing their name, email address and mobile money phone number.
A Bitcoin address is subsequently generated and a 10 minute countdown timer is initiated. The user must deposit the indicated amount of Bitcoin to the specified address in order to complete the transaction.
In all of my test transactions, the recipients’ mobile money accounts were credited after one confirmation on the BitCoin network, which took between 2 and 15 minutes.Identification Required for Subsequent Transactions
After the first transaction, BitPesa will not work until the user uploads a government-issued identity document.
Fees and Exchange Rates
I completed four test transactions in the amounts of £1, £2, £5 and £6. The table below details each of these transactions:
Amount sent Amount received Bitcoin used £1 KSH 145 .00283 £2 KSH 289 .00566 £5 KSH 723 .01416 £6 KSH 868 .01699
At the time of testing, the market exchange rate for Bitcoin was 1 BTC = £353.73. The following table shows that this is roughly the same exchange rate that BitPesa used in calculating the Bitcoin required for each transaction:Amount sent (£)
Bitcoin used (BTC)
BitPesa's exchange rate (£/BTC)
Market exchange rate at time of transaction (£/BTC)
Difference
1 0.00283 353.36 353.73 -0.37 2 0.00565 353.98 353.73 0.25 5 0.01412 354.11 353.73 0.38 6 0.01695 353.98 353.73 0.25
At the time of testing, the market exchange rate for Kenyan Shillings was £1 = KSH 149.23. The table below illustrates that BitPesa’s fees were indeed approximately 3%:Amount sent (£)
Amount received (KSH)
BitPesa's exchange rate (KSH/£)
Market exchange rate (KSH/£)
BitPesa's fee*
1 144 144.00 149.14 3.45% 2 289 144.50 149.14 3.11% 5 723 144.60 149.14 3.04% 6 868 144.67 149.14 3.00% *(Market Rate – BitPesa's Rate)/Market Rate, expressed as percentage
It should be noted that the above calculations do not include the costs of purchasing BitCoin. I buy Bitcoin in the United States, on a low cost exchange, for a 1% fee plus $0.15. This increases the total transaction cost to about 4% from BitPesa’s advertised 3%.Not everyone desiring to send money to Kenya will be able to access low-cost exchanges. Immigrants who are undocumented or do not have bank accounts will likely have to purchase their Bitcoin with cash, at up to 10% above the market rate.
Additionally, the above calculations do not include Bitcoin miners’ fees paid to transfer Bitcoin from a user’s wallet to BitPesa’s site. For each of the above test transactions, I paid a negligible .0001 BTC ($0.06) using my Mycelium smartphone wallet.
Finally, receivers in Kenya must pay additional fees to Safaricom to withdraw cash from the M-Pesa network or to send money to another M-Pesa user. In the above £5 (KSH 723) transaction, the receiver would pay KSH 33 (4.5%) to send to another M-Pesa account or KSH 27 (3.7%) to withdraw cash.
Not all M-Pesa transactions accrue fees, however. Buying airtime on the Safaricom network is free, as are transactions within Kenya’s mushrooming network of M-Pesa merchants. For instance, the recipient of my test transactions uses M-Pesa to buy gasoline and does not pay transaction fees to do so.
Comparison with Existing Methods of Money Transfer
Western Union is one of the world’s most well-established money transfer companies. In the United Kingdom, Western Union allows people to send money online, from their bank account to a Kenyan mobile money account like M-Pesa. The chart below uses Western Union’s fee calculator to determine the effective exchange rate for various remittance amounts:
Amount sent (£)
Western Union transfer fee (£)
Total used (£)
Amount received (KSH)
Effective exchange rate (KSH/£)*
2 2 4 295.24 73.81 5 2 7 738.27 105.47 10 2 12 1476.2 123.02 50 4.9 54.9 7380.98 134.44 100 4.9 104.9 14761.96 140.72 500 19.9 519.9 73809.82 141.97 *higher is better Compare this to BitPesa’s effective exchange rates in the table below:
Amount sent (£)
1% Bitcoin purchase fee (£)
Total used (£)
Amount received (KSH)
Effective exchange rate (KSH/£)
2 0.02 2.02 289 143.07 5 0.05 5.05 723 143.17 10 0.10 10.10 1447 143.27 50 0.50 50.50 7235 143.27 100 1.00 101.00 14470 143.27 500 5.00 505.00 72349 143.27 This comparison reveals that BitPesa yields a better exchange rate in all cases. Importantly, savings are particularly pronounced for small transactions. These “micro-remittances” in the range of £2 - £10 ($4 - $20) are impractical via established money transfer companies like Western Union.
Conclusions
BitPesa—one of Africa’s first Bitcoin startups—could make waves in the international remittance market. In addition to offering competitive exchange rates across the board, BitPesa also enables micro remittances. This may be the company’s strongest selling point for Kenyans living abroad, who often encounter situations where they wish to quickly send home small sums. BitPesa thus destabilizes the prevailing business model for money transfer services where smaller remittances accrue far higher fees than larger remittances, as illustrated in the Western Union table above.
BitPesa is also appealing in its convenience. Using the service is almost effortless once a person is comfortable with buying BitCoin and transferring it between wallets. BitPesa thus allows users to send money from their laptops or smartphones, eliminating the frustration of standing in long queues at brick-and-mortar money transfer outlets.
There are drawbacks to using BitPesa, however. For instance, the service is not available in the United States, which will undoubtedly frustrate a number of potential users there.
The extreme volatility of Bitcoin is a second potential drawback. Users who purchase Bitcoin and do not immediately send it might find that the value of their Bitcoin decreases (or increases) drastically in a matter of days or hours. Receivers are not directly affected by this volatility, however, because BitPesa converts Bitcoin into Shillings as soon as it enters the platform. In fact, receivers do not need to know anything at all about Bitcoin, or even that it was used in the transaction.
In sum, BitPesa appears poised to disrupt the international remittance market by offering competitive fees, by enabling micro remittances, and by offering users a convenient way of sending money. It is an up-and-coming company to watch in Africa's fledgling Bitcoin ecosystem.
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On Value by Design: Boston and the Bitcoin Dream Protocol
July 24th, 2014 by
Ryan Walker -
Funding Anonymity with Crypto
July 23rd, 2014 by mike ward Proofread and edited7/21/14 denise
The Tor network is a widely used tool which provides a degree of anonymity to users. Users have their location obscured from those watching certain destinations, and what they are doing hidden from those who know their location.
But Tor has some problems, one of which is a relatively small number of people running servers on the network. These so-called relay node operators would be rewarded under schemes currently being considered, by issuing a token in exchange for proof of bandwidth provided to the network. In this article we explore how this clever scheme might work in a bit more detail.
Tor network is a unique tool on the Internet, providing a high level of anonymity to its users. Recently we reviewed a whitepaper proposing a plan to issue a crypto currency with the goal of incentivizing those key players who make it all possible. This would institutionalize a rewards structure, in the same spirit as a recently announced EFF initiative to give prizes and recognition to people who operate network nodes for twelve months.
Tor network accomplishes this difficult feat of fuzzing what users do and where they're located by routing traffic through a set of randomly chosen nodes before reaching the intended destination. This can only currently be done because people volunteer to run nodes on the Tor network. As you might imagine, there's a shortage of volunteers. The brave folks who run the more important of these network components are not only unpaid, but they face frequent attack by malicious agents, and make themselves persons of interest to the NSA.
This recent proposal aims to at least offer some small financial reward for those who will contribute to the continued operation of Tor. Network nodes who route traffic toward its destination can receive tokens for doing so, and would have an opportunity to exchange them for fiat, or bitcoins or other.Tor Terminology
Tor network is made up of servers referred to as nodes. These servers relay information through the network, thus the moniker relay nodes, and are further categorized based on their specific roles.
Guard nodes are the entry into the Tor network. They act as the gatekeepers, but due to Tor's ingenious omion routing scheme they cannot know the intended destination - only the next hop within the network.
Exit nodes are the most important ones, sending traffic from within Tor network to the actual destination. These critical nodes are more scarce than ordinary relay nodes, largely because they are prime targets for attack. They are in a unique position to attack user sessions since they directly connect to the destination endpoint. If they are able to collude with guard nodes they can de-anonymize users, since together they will know both endpoints; e.g. who is using Tor and what they're doing.
Each trip through Tor network is called a circuit, and consists of 3 pseudorandom nodes including a guard node, relay node and exit node. These nodes are chosen from a list of active nodes provided by a Directory Server. There are very few of these, since a high level of trust is essential. These Directory Servers are also key to making the proposed incentive scheme work.So who gets the coins, how would they be issued, and what exactly gets rewarded?
The basic idea is to reward relay node operators who can demonstrate that they provided bandwidth which was used to route requests on the network. Every node interacts with at least one other node, and the nodes within a circuit can validate claims by adjacent nodes in a given circuit. Under this proposal these nodes could be rewarded with tokens, for each time they participate. A bit more information needs to be published by the Directory Servers, and nodes will need to do a little more work.
It's widely believed that NSA and other agencies run many Tor nodes, especially high speed exit nodes. The nodes with the most available bandwidth get chosen more often, and as mentioned earlier, exit nodes are in a unique position to collude and to execute man-in-the-middle attacks. It has been shown also that the NSA targets Tor users for extra scrutiny, and key players even moreso.
But before we forsake Tor, thinking it's a rigged game, it's important to realize that the facts are somewhat more confusing. Tor was built and funded by the US Navy. It's very useful for government agents conducting operations in the field with anonymity. But there are many other uses for law enforcement generally, as well as whistleblowers, political dissidents, and more.
The US Government has continued to provide most of the funding for Tor over the years, and still does. But this does not mean that it's a honeypot. There is a need to have operatives in faraway places able to interact with their colleagues inconspicuously. The fact that people hide from government suveillance, and even use the network for criminal activity does not make it less useful.
The leaked Snowden documents clearly suggest that the NSA has had mixed results trying to breach the anonymity of users on Tor. It's also clear that the more people who can be persuaded to run nodes on the network, the more anonymity is afforded to users. More guard and exit nodes mean less chance of some single entity operating both of these nodes for a given circuit. And generally the more users on a network, the harder it is to match users with destinations.Read More
Currently there are just under 6000 relay nodes on Tor network, and of those it looks like there are just over 1000 exit nodes currently. Constrast this with about 2.4 million daily users and you can easily see how more nodes are needed. Thus the impetus for creating incentives. It costs money to operate a high bandwidth node, and now we have people discussing how to best offset that cost with an altcoin. One more victory for blockchain tech! -
Bitcoin and Tulip Mania
July 18th, 2014 by Tron Black Starting editorial review: dhimmels, 2014-07-15 9:00AM Pacific Time
(minimal edits for grammar and clarity)
Finished editorial review: dhimmels, 2014-07-15 9:20AM Pacific Time
Learning about Bitcoin forces you to think about money and value. Some people who look at Bitcoin come to the erroneous conclusion that it’s like tulip mania. Tulip mania took place in the 1600s in the Netherlands when the price of a rare or unique tulip bulb could exceed the price of a nice house. It is hard to fault these armchair Bitcoin analysts for making this comparison. After all, the spectacular rise in value of something that you can’t feel, touch, or see is outside the realm of their experience.
Tulip bulbs have an interesting property that you can breed them. The folks buying the rare and unique tulip bulbs had the idea that if they purchased a valuable tulip bulb for breeding, they could make more, sell them, recoup their original investment and then continue to sell more tulip bulbs at pure profit. This seems like a pretty good idea on the face of it. Why didn’t it work? The answer lies in the geometric growth curve. I’m not a tulip expert, so I may offend the green thumbs that are reading this. Every year, you can dig up the tulip bulbs and where one was planted, you may have more than one bulb. This number is important. If the number was always exactly 1, and every tulip bulb was recovered, those tulips might still be worth the price of a home. If no new tulip bulbs were ever created, tulips would be very rare indeed . I googled it, and the number is more than 1, so you can increase your tulip bulb count holdings every year.
I had a great Junior High School math teacher. A student asked him how to get rich. After a joke about not being a math teacher, he said, “Save fifteen percent of everything you make and invest it with compound interest and start early.” He taught us how to calculate compound interest, and since it was the Jimmy Carter days of high inflation, the compound interest rate was significant. That lesson stuck with me -- the power of compound interest, not the saving part. It turns out you need both to become rich.
Let’s tiptoe back to the tulips. These tulips were breeding at a geometric rate with nothing but the requirements of land, water, and sunlight to limit the growth. The motivation was wealth and everyone wanted to sell their tulips to recoup the cost of their original tulip investment. The only possible mathematical outcome of this exponentially-increasing tulip production was that the tulips would lose value as too many of them came into existence. This was foreseeable. I don't have the stats on how many mathematicians invested in tulip bulbs, but I'd guess the answer is none.
Bitcoin has a geometric curve too. The difference is that the multiplier for bitcoin is less than 1. It is, in fact 0.5. Roughly every four years, as determined by the original Bitcoin developer Satoshi Nakamoto, the rate at which new bitcoins will be generated will drop by half. An exponential curve with a multiplier less than 1 is known as exponential decay. The number of new bitcoins doesn’t explode like the rate of new tulip bulbs. New bitcoin production decreases and trends toward zero which is the exact opposite of tulip mania.
To summarize, tulip mania was mathematically unsustainable because tulip production grew exponentially while tulip consumption was limited by the total human population size. Bitcoin has an exponential decay of the number of new units to be distributed among the holders of bitcoin. These are apples and oranges, or tulips and bitcoins. Not the same thing at all.
The tulip bulb mania is closer to the quantitative easing policies of central banks. It is mathematically unsustainable. If I thought quantitative easing was a good idea, I’d use it myself and get one credit card to pay another, and then pay that with a cash advance from another credit card. If it worked long enough, I might even convince myself that it was great idea and that it saved me from the brink of financial ruin. I don't have the stats on how many mathematicians are invested in dollars, but I would hope none. Read More
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