Market Weekly: Bitcoin Price Serene Amid Market Turmoil

 

Markets were on a rollercoaster last week, with wild swings of hundreds of points on major indices. The Wall Street Journal even fired up a liveblog to provide minute-by-minute commentary on the unfolding turmoil.

Amazingly, I'm not talking about the bitcoin markets. Instead, US equity markets ended their most volatile trading week in years, with the benchmark Dow Jones Industrial Average down as much as 207 points on Friday and Brent crude oil falling below the $80 a barrel mark.

Bitcoin trading was languid by comparison. The price according to the CoinDesk BPI began the week at $375.80 and closed at $388.75.

The week's trading hit a high of $407.12 on Tuesday and a low of $370.27 on Thursday. That's just $36.85 from peak to trough, or a swing of 9 percentage points.

This wasn't lost on Everett Rosenfeld of CNBC.com, who noted the flat bitcoin price as wider financial markets' prices began to plummet on Thursday. He wrote:

"While US equities markets tank, and gold is hanging near a one-month high, one famously volatile currency is roughly flat on the week."

Bitcoin's correlation to wider markets

Bitcoin's relationship to other assets has been the subject of research at Pantera Capital. In June, it examined (PDF) bitcoin's correlation to seven major global equity indices, the benchmark 10-year US Treasury note, crude oil, gold and the dollar index.

The hedge fund tracked bitcoin's correlation agains these major measures over the 12 months ended June 2014 and found no correlation between the cryptocurrency and established asset classes.

"Bitcoin's correlation with other asset classes over the last 12 months has been essentially zero. In other words, bitcoins 'march to their own drummer'," the fund wrote in its weekly research note.

Source: Pantera Capital Bitflash Weekly Review, 9th June 2014

It's worth remembering where we were this time last week. The 'BearWhale' had just been vanquished and bulls were ascendant. While market watchers like BitMEX's Arthur Hayes warned that $330-350 was a fair price target, the cryptocurrency's boosters had other ideas. His current price target is $430-$450.

While total traded volume declined to 2.52m coins traded, a drop of 15% compared to last week, there was some movement among share of traded volume among the major exchanges.

BTC China continued its upward trajectory, passing second-placed Huobi on Friday and opening up a gap of more than 20,000 BTC traded by Sunday. The ascendant exchange also bucked the wider downward trend, posting a volume increase of 13%.

At almost 60%, Bitstamp posted the largest decline over the week. Trading on Bitfinex, meanwhile, dropped sharply over the week, placing it below Lakebtc and ANXbtc.

A store of value in Venezuela's default?

The bitcoin price has been resilient, holding steady for much of the week. Is this set to continue?

NASDAQ's Martin Tillier suggests that forex traders are watching the US dollar for signs of weakness as the Federal Reserve hints that it may keep its current quantitive easing regime in place. As the dollar has weakened, the bitcoin price has strengthened.

"Bitcoin has become a very volatile, highly leveraged way of playing dollar moves for many traders. To purists who believe in bitcoin as a counter to the problems inherent in fiat currency this is anathema," Tillier wrote.

All this volatility, particularly in the oil markets, could signal more unrest ahead. Economists are on vigil for Venezuela, in particular, which is on the brink of defaulting on its foreign debt as oil prices drop. Noted Harvard economists Carmen Reinhart and Kenneth Rogoff have written that the chances of a Venezuela default are "close to 100%".

As Venezuela teeters on the brink, its citizens may turn to bitcoin to bypass currency controls and to preserve the value of their holdings. The Venezuelan currency, the bolivar, has almost halved in the last two years against the US dollar.

"Even though bitcoin is volatile, it's still safer than the national currency," a recent economics graduate told Reuters earlier this month.

If Venezuela is anything to go by, bitcoin may still prove its worth as a store of value. That's good news for believers in bitcoin's long-term prospects.

BitPay Launches Facebook App for Easy Bitcoin Sharing

Georgia-based bitcoin merchant processing specialist BitPay has announced a new tool aimed at spreading bitcoin adoption through popular social network Facebook.
Called Get Bits, the Facebook application allows users an easy way to trade bitcoin in-person by helping to arrange meetings between friends on the network.

 

Notably, Get Bits does not allow users to transact through the app. Rather, it serves as a way for independent buyers and sellers to connect via a commonly used platform.

BitPay framed the launch as one that sought to use the power of social networking to boost bitcoin, while leveraging Facebook's utility as a social login to preserve security in the process.

The company said:

"Because bitcoin is one of the only forms of payment which cannot be fraudulently reversed, selling bitcoin usually requires some level of trust in the buyer. To deal with this, Get Bits currently leverages the world’s largest 'web of trust', Facebook."

Users can sign into Facebook to view a list of friends that are using the program. From there, Get Bits allows users to gift and trade bitcoin or invite others to the program.

BitPay further advised that users should exercise caution during in-person exchanges, adding:

"If a friend is interested in buying a significant amount of bitcoin from you, please consider exchanging in a physically secure environment."

The launch comes amid a boom in the number of bitcoin companies seeking to leverage social media to spread digital currency adoption. In May, San Francisco-based QuickCoin launched a social wallet, while Uruguay-based Moneero launched with a social focus in July.

Bitcoin Malware Used to Exploit the Russia-Ukraine Crisis

A group of hackers tried to leverage the current conflict between Ukraine and Russia by distributing malware aimed at Bitcoin wallets. Bitdefender Labs, a cyber-security company with a keen interest in the digital currency market, issued a report where it highlighted how the alleged hackers masked one type of malware as another.

Kelihos

Apparently, the perpetrators dispensed software programs that they claimed capable of unsettling the digital activities of the Western governments combating against the Russian territory.
In fact, the program secretly installed Kelihos, a malware package which was first identified 5 years ago. Kelihos can steal the content of a Bitcoin user’s wallet, and it features numerous other negative effects, too. The group’s most recent attack was aimed at Ukrainian Internet users, and it looks like 40% of those users were already impacted. Doina Cosovan, analyst for Bitdefender mentions:

“Some of the IPs might indicate the origin of servers specialized in malware distribution or other infected computers that became part of the Kelihos botnet. As most of the infected IPs are from Ukraine, this either means that computers in the country were also infected, or that Ukraine itself is home to the main distribution servers.”

Leaving aside the Bitcoin theft, it looks like Kelihos can also enslave a host computer to a worldwide botnet, thus permitting hackers to use that device and send out spam or even scan data and continue to spread malicious software.

A fake nationalist initiative

In the Bitdefender report, it was mentioned that hackers attempted to pass the “software” as a means for affected users to generate turmoil for the Russian government. Apparently, the message that came with the malware claimed the hacker’s location was inside Russia.

“We, a group of hackers from the Russian Federation, are worried about the unreasonable sanctions that Western states imposed against our country. We have coded our answer and bellow [sic] you will find the link to our program. Run the application on your computer, and it will secretly begin to attack government agencies of the states that have adopted those sanctions.”

Bitdefender explained the message also included a link; clicking on that links means downloading Kelihos, and this is how the hackers were able to take control of a person’s computer.

Always under threat?

Despite the security improvements, there will always be people that can crack even the toughest and most secure alarm systems. Many upgrades were made in the way crypto currency fans store their digital currency. And yet, the threat of malware attacks aimed at Bitcoin will most likely ramp up in parallel with digital currencies’ increasing popularity.
With every day that goes by, the attempts to steal digital currency like Bitcoin are expanding. Kaspersky Labs notes that 22% of all malware attacks linked to finances targeted Bitcoin. Malware attempts come in the most convincing disguises, and they’ve managed to fool millions. This malware issue has attracted lots of attention from regulators and government officials, and it often serves as the basis for investor and consumer warnings on the subject of digital currency.
Agencies like the Securities Exchange Commission and the US Consumer Financial Protection Bureau have already warned against using cryptocurrencies and the malware problem is apparently the key reason for people to be wary of cryptocurrencies.
We at CoinTelegraph believe that instead cryptocurrency ‘regulation’ by a centralized authority, which probably knows less about Bitcoin than your average Bitcoiner, we decided to present our readers with a list of possible cyber threats that they could encounter to avoid falling for the most common pitfalls when dealing with digital currencies.

Bitcoin Scams 101

Fraud – a scammer claims to sell digital or physical good and airline mileage but asks users to pay upfront. Basically, you send bitcoins but they don’t send out the goods; scammers may also use fake passports. Since Bitcoin is like hard cash, the transaction is irrecoverable once sent.
Pyramid schemes – the operators claim to offer “interest” for deposits in bitcoins. The method apparently generates “interest” through various methods, such as loaning digital currency to some of their site’s users. Rather than pay interest, the website’s operator pays using the new funds coming in.

Cloud hashing Ponzi – alleged mining groups sell mining capabilities in fractions; your initial investment will eventually be lost as they will claim the hashing difficulty increased.

Pre-order scams – some manufacturers may ask users to place an order (e.g. for mining equipment) and pay in advance; they accept Bitcoin payments but they don’t refund bitcoins if the price goes up; they may even declare bankruptcy to come clean.

The pump & dump – there are numerous digital currencies available and many are created with the sole intention of getting rich quick - the developer that is. People find out about the new coin, it is hyped up on crypto forums to increase its value and then the holdings are liquidated.

Phishing attempts – receiving fake emails that claim to be from famous Bitcoin companies. Users will be compelled to click a link that will take them to a fake website where they are prompted to enter the login info of the real site. If there’s no 2-factor authentication set up for your account, then it will probably be empty next time you look.

Gambling sites– since there’s no way to ban Bitcoin universally, it is ideal for gambling. Nonetheless, just like with any type of gambling platform online, there is always a possibility that it could be fake with back-doors permitting insiders to see your player cards and private information.

IPO/premine – an initial public offering allows investors to buy shares in a company, with the hope that one day, their value will increase in the future. Some of these companies are nothing more but mirages, however. But just like the tricky world of OTC stock markets, users are advised to research in advance prior to making an investment. This usually involves premining, which means that the developers set some coins aside for themselves before the public was able to download the client and mine their own coins. When the coins increase in value, the developers can potentially end up being the biggest holders.

Interview With BTCsec Founder, The Forum That Published the Gmail Hack

Sometimes only brutal hacking attacks leads us to think about the security of our private information and virtual life. Last week email addresses and related the passwords of 4,929,090 users of Gmail, Yandex and some other services were published on one of the most trusted Russian cryptocurrency security forums – BTCsec.com.

On September 9, user tvskit from Russian Bitcoin security forum BTCSec.com, first reported the dump of the 28.7 MB file containing more than 4.92 million of Gmail accounts and passwords, as well as several thousands of credentials from Russia's largest email service Yandex. According to the user, 60% of these credentials are valid. Since then, a forum administrator purged the passwords from it.

This is not the first hacker attack in the network, but stealing of almost 5 million accounts is indeed shocking fact. Why, who did this, was it a single theft or were hackers collecting all this information for years?

Ivan Tikhonov is the founder of the BTCsec.com and Bitcoin expert. Moreover, he is a Bitcoin activist since 2011, and helps people learn about Bitcoin technology and benefits. We were able to get an exclusive interview with him and ask the most important questions about the case.

Nina Lyon: In my opinion BTCsec.com is one of the most popular and reliable sources for the Russian speaking crypto community. The fact that so many addresses and data’s were hacked and published shocked a lot of people and most of us are searching for the answer –how and why? Maybe it's a soft spot in the email system or the information was leaked from a third-party service, and most importantly - who could get access to this information? Maybe you could also tell us what was your reaction when you saw this list?

Ivan Tikhonov: The market of email addresses and database sales existed for some time before, but it never reached such a large drains of databases in public access. BTCsec.com is not the primary resource of these bases but we were among the first who published this bases but removed passwords. It was done so that people could check out if their mailboxes are in the list. But as far as there are no passwords in the list – no additional malicious intent from third party is possible.

The main purpose of the publications was reached - the broad resonance in public, articles in the media, and reports on television. Users now pay more attention to the security of their data, postal services also responded and locks doubtful or compromised accounts.

Speaking about the primary source database – it is obvious that this is not a simple leak from a single resource but a collected base from different resources that was collected over the years. At the time of publication, the list of hacked Yandex accounts was quite up-to-date but Google was valid only for 60%, moreover there were addresses from Yandex, Yahoo and others too. Though, many users admitted that some passwords were never used for these mailboxes while other [passwords] were outdated or changed 8-10 years ago. It is worth mentioning that a lot of accounts in the list were up-to date.

I talked to many people who have found their data in the list. And the most interesting cases were not about passwords that do match to the box or was used previously for these accounts, but the cases when the password to the mail account has never been used, though users admitted that this is the password that they use on other sites. Most of these were the passwords for some single-use accounts on fishy websites. Sometimes people say that they used a password on fishy sites but never used/entered for the email mentioned in the list. So we may make two possible conclusions: first - people are mistaken as many of them couldn’t remember and name services they used these passwords at. The second - that the algorithms hackers use to collect data improves and now they are able to connect disparate data from multiple sources into a single database.

Also the analysis of passwords in the database showed that there were both very simple passwords like 123456 or qwerty123 and complex that are difficult to get/match by brute force or dictionary attack. This means that some of the base could be made by running spammer databases dictionary of the most often used passwords, some were collected from compromised resources, some stolen via phishing, Trojans and other malicious software.

Recently, a series of high-profile break-ins using the error in the OpenSSL library, so-called Heartbleed, it is possible that the part of this database has been collected with because of this error.

Today there are various ways how to cheat the user. For example: the scammers create a website that looks like a real one. The user goes to this website and feels no issues and goes to the other tabs in the browser. When the malicious site understands that the user is watching the other tabs and it changes its contents to a copy of one of the services the attackers want to get access to. The user remembers that there were nothing suspicious in the tabs he just opened, so he or she clicks the tab of this “changed” site without checking the address bar or certificate and enters the real data to access. After receiving the required information fraud site throws the user to this website service so the user doesn’t even realize that his data were just stolen.

Nina Lyon: That’s true. This is interesting but a couple of my friends found their accounts in the list and admitted that it was their single-use address. Now they realized that such a danger does exist and now they do think about protecting their data.

Ivan Tikhonov: The information about the first Yandex database being stolen was published on the forum but never received  effect. but I saw quite active reaction on habrahabr.ru after the publication of the post a day after from some member called lagudal. That is why, after the publication Mail.ru and Gmail.com databases I also began to create such a topics:

• 4.5 million passwords from Mail.Ru mailboxes
• And now gmail.com: almost 5 million addresses published

It helped make people pay attention for real.

Nina Lyon: Also, I have a strange feeling - why would anyone decide to publish nearly 5 million addresses now? And if there is some underlying reason that most of stolen addresses belong to Russian-speaking users?

Ivan Tikhonov: Why these databases became widespread right now or whether it was planned or spontaneous leakage – I have no exact answer.  Speaking about Yandex and Mail.ru, I agree that most of them are Russian-speaking audience. But the largest database, Gmail.com, was global. I received a lot of messages from people all over the world asking to verify their addresses. Also there are databases of the lesser-known foreign services that were also hacked or stolen but received less publicity.

I read a lot of speculations and opinions that it was planned publication aimed to tighten the nuts sink in the future, so to make laws and oblige, for example to use the telephone number identification, or even to make everyone use new governmental mail service. I wouldn’t ignore such possibility but I must note that we have very popular conspiracy theories, even too popular. I wouldn’t attribute the conspiracy to banal stupidity or carelessness.

Nina Ray: As a journalist I wanted to ask your opinion – maybe it is an example when we must look on Bitcoin technology of security and anonymity as an option to improve archaic registration system and passwords on different websites?

Ivan Tikhonov: If we speak about the identification system improvement – I think it is an expected step that must be taken but not only because of such a leaks and hacker attacks . If we take a look on the recent laws taken in the Russian Federation you can easily see their direction/intention. I may remind you a few: the mandatory /obligatory identification of network users, ban of anonymous Wi-Fi, ban to fund transfers between the unidentified accounts of citizens, and increased limits on transfers, draft bill of equating virtual currency to monetary surrogates and their ban, popular bloggers and websites registration and disclosure. There are others but the intention can be seen - laws aimed to make greater transparency and reduced or eliminated anonymity of citizens. So I wouldn’t be surprised if they add mandatory identification by checking mobile phone numbers.

Speaking about how Bitcoin technology could help in this case – I've been talking about adding more decentralized services. Of course we cannot exclude the human factor, but such a service can protect us from large centralized services being hacked. The first steps to make this possible are already taken, for example bitmessage, but a lot of things must be improved in this technology, it is only in its infancy. I would like to see something that binds the functionality of gmail and skype on a decentralized basis. Such a product is destined to become popular.

Stellar and Ripple Hacked: Justcoin to the Rescue

On October 11, a Justcoin digital currency exchange user posted XRPtalk that they had received an email from the Justcoin team alerting them of a hack due to the vulnerability of its tfPartialPayment feature. On October 8, an unknown 3rd party had exploited the systemic flaw in the way Ripple and Stellar handled transactions gaining them access to the platform’s hot wallet-stored funds.

“Dear Justcoin user,
You are receiving this email because you have a balance of XRP at Justcoin. XRP deposits, withdrawals and trading have been disabled for the last three days. This is an explanation of what has happened and what the status is.
A network-wide weakness in how both Ripple and Stellar communicated transactions was exploited by an unknown third-party to to deposit false IOUs through Ripple/Stellar to Justcoin. These were consequently withdrawn to their own payment networks as native currencies. The result was that our hotwallets were emptied. Most of our customers' funds is in cold storage but the amounts were still significant. Justcoin will not operate as a fractional reserve and therefore we decided to lock down all services affected until we had a solution ready.”

The full length letter can be found here.

The experts, the real thought leaders like Gavin Anderson, have been warning Bitcoin users that Bitcoin is still a “work in progress” and as such is subject to failures. We have seen more than a few in the last 18 or so months as the price volatility reflected these growing pains.

When Mt Gox went down, the effect was seen across the Bitcoin ecosystem and since then the same thing has happened several times. But while Bitcoin is still new and subject to slip ups, in many cases those mistakes are not the fault of the system as much as it is human error or negligence. Now the news is that Ripple and Stellar have also been hacked as well and it looks like this one can be traced to the latter.

There is still a great deal of confusion in the community as to exactly what has happened at Ripple Labs and at Stellar, which was designed by the same person, Jed McCaleb and consequently may have the same potentially fatal flaws. Interestingly enough, McCaleb was also the original founder of Mt Gox. These problems can range from a centralized authority holding a large chunk of initial funds to questionable management decisions by administrators. But the newest problem seems to have been one of a technical nature, albeit one that should have been fixed months ago.

The current problem appears to have come from the tfPartialPayment function unique to the Ripple paradigm. Both Stellar and Ripple require a “special trust” in certain nodes that leave those nodes vulnerable to attack. The problem was noticed by users on the Justcoin exchange on October 8, 2014 when one of the team members noticed a large, and unusual, digital transaction. Once Justcoin noticed the transaction, they immediately shut down the entire site to protect the assets and immediately informed both Stellar and Ripple Labs of the potential problem.

The event is relatively easy to explain. Ripple has many features for their users but they also have many others that have not been implemented and a few that are not even known to many outside developers, which could be why Ripple Labs did not notice this particularly strange transaction.

The transaction was for 1,000 BTC but if anyone checked the Meta - it showed that only 0.001 BTC had actually been sent. Upon tracking back, it appeared that the sender did not even have 1,000 BTC to send to anyone so basically it appeared as if the hacker was trying to fool someone into thinking that they had actually sent the thousand Bitcoins when they actually only sent a tiny amount. The problem arose, however, when transaction actually went through. So far Ripple has said it fixed the bug on October 9 on RippleTrade and Stellar also appears to have fixed the bug but Ripple.com/graph does not appear to have been fixed as yet.

One disturbing point is that gateway, Ripple Labs official gateway, was fixed more than two months ago and it would seem reasonable that Ripple would have spotted the potential problem and sounded warnings to its community. It was also reported that Ripple seems to have been aware of the problem as early as July 21 and so far several exchanges have also been attacked in the same manner.

Stellar is reporting that their nodes have been patched and tfPartialPayment has been permanently removed and RippleTrade is also reporting that it has been patched along with several of its exchanges as well.

Remembering the advice of Gavin Anderson, users should understand that even with the most competent developers, the software being used is still in BETA and must be constantly tested. It is somewhat comforting to know that while Ripple seems to have dropped the ball in as early as July the team at Justcoin was able to catch the hack before it did any significant damage.

Why Marc Andreessen is Long on Bitcoin and Short on Apple Pay

 

Apple Pay is the next big thing that’s “freaking out” financial services companies right now, but, in the long term, bitcoin will prove to be the real innovation, Marc Andreessen has said.

Andreessen was participating in a fireside chat with Bloomberg West anchor and Studio 1.0 host Emily Chang yesterday in San Francisco on the final day of Salesforce‘s annual cloud computing conference, Dreamforce 2014.

This week marks 20 years since Andreessen created Netscape Navigator. He now sits at the helm of venture capital firm Andreessen Horowitz.

With the Netscape anniversary in mind, Andreessen told Chang that he anticipates more change in the payments space in the next five years than there has been in the previous 20, and that there would be two major drivers of that change: Apple Pay and bitcoin.

“What we say from our [Andreessen Horowitz’s] standpoint is that, in the long run, bitcoin is by far the most innovative and radical thing,” he said, adding:

“It’s the thing that will actually have a big impact over 20 years, but Apple Pay is the thing that’s going to have a big impact in the next three years. And the combination of those two is going to cause enormous change.”

The chicken-and-egg problem

Apple CEO Tim Cook introduced ApplePay last month, describing it as an “entirely new payments solution”. Andreessen, however, diplomatically asserted that it is anything but that:

“[Apply Pay] is innovative, but in a way [it's] very consistent with the status quo. If anything, its big selling point is it doesn’t require massive structural change.”

He went on to describe the dilemma that exists in today’s payments industry, maintaining that there is a network effects problem in that no one will use a new payments system until both the merchant and consumer sides of the industry embrace it fully.

“You have to get through the chicken-and-egg problem to get to the other side of universal adoption. Apple Pay is very cleverly calibrated to skip right through that […] It sort of plugs right into the existing system.”

Bitcoin is different. It’s the exact inverse of Apple Pay, according to Andreessen, but because of the same chicken-and-egg scenario, larger transaction volumes could be a long way off:

“Bitcoin is truly radical, Cryptocurrency, more broadly, is a truly radical, truly revolutionary, fundamental breakthrough in computer science, completely different way to do transaction processing, potentially a replacement for a very large amount of the status quo, but has the big chicken-and-egg challenge.”

Betting on bitcoin

Venture capital isn’t a batting-average business, Andreessen went on, but rather a “slugging-percentage” business. He remains open to the prospect that bitcoin may or may not work. For every 10 bets he takes on startups, he assumes he’ll lose five – a typically venture capitalist approach to take.

“It’s not a question of how often you’re right,” he said. “It’s a question of when you’re right – how right are you?”

Andreessen added:

“I would put bitcoin squarely in that kind of bet. I’m completely enthusiastic to take that – that’s a classic venture capital risk to take. People who understand that risk should feel very good about taking it.”

Andreessen Horowitz, he estimated, has invested almost $50m in bitcoin companies to date – including Coinbase and TradeBlock – and is actively searching for more bitcoin-focused opportunities.

Rounding off the talk, Andreessen declared his confidence in the concept of cryptocurrency and the likelihood that it would become “vitally important”.

He concluded:

“I think it will be in the form of bitcoin, but, even if it’s not bitcoin, it will be something else. Even if it’s not this year, it will be five years or 10 years. It will happen, and it will be a very big deal. From that standpoint I both do care what happens in the short term, since we have to live in the short term, but I also have tremendous faith in what’s going to happen in the long run.”

Robocoin Customers Report Trail of Late Deliveries After Reddit Exposé

 

Pioneering bitcoin ATM maker Robocoin has come under fire after an angry customer took to Reddit to publicise its grievances about how it was treated by the firm.

The customer, a company called MetaLab Design in Victoria, Canada, claimed the ATM it ordered from Robocoin was severely delayed and defective when it arrived. It said it was still waiting to be refunded after returning the unit.

Within a day of airing its grievances on Reddit, MetaLab said it got its money back from Robocoin. It proclaimed today on the message board that “Internet justice has been served”, saying:

“With the intense spotlight of Internet Justice focused on Robocoin, we got our $25,000 back along with a hangdog apology from [Jordan Kelley, Robocoin chief executive].”

While MetaLab no longer has to pursue its refund, its complaints are shared by several other Robocoin customers CoinDesk interviewed. These customers also said they had to wait months for delayed deliveries and described their dissatisfaction with other aspects of dealing with Robocoin.

Another Canadian operator’s story

Matthew Sargent operates a Robocoin ATM in a shopping mall near the oil sands of Alberta, Canada, through his company, CoinRangers. His description of ordering a Robocoin machine is nearly identical to MetaLab’s telling of events, although he says his machine was fully operational when it was delivered.

According to emails seen by CoinDesk, Sargent ordered a Robocoin ATM on 23rd November and was told his machine would be delivered in early March. A month earlier, the Bank of Canada had introduced $5 and $10 notes made of polymer, the final phase of a process to replace paper banknotes that began in 2011.

Sargent, conscious of this, emailed Kelley on 7th January to ask if his unit would work with the new notes. Kelley replied minutes later, but didn’t answer the question. Sargent asked if his unit was on schedule, to which Kelley replied, “Yessir”.

For the next two months, Kelley reassured Sargent that shipping was on schedule every time he asked. On 6th March, however, Kelley told Sargent that they were delaying their Canadian shipments until the end of the month, a few weeks off the original delivery date.

On 24th March Kelley informed Sargent that the delay was due to the new Canadian polymer notes, which required special note dispensers from Fujitsu. Three days earlier, Kelly had told MetaLab the same thing, according to the email screenshots it published on Reddit.

Similar delivery problems

On 10th June, Sargent received an email from TurnKey Kiosks, a company in Arizona that manufactures the ATMs for Robocoin. TurnKey informed him that its delivery company, UPS, was having trouble getting shipments into Canada because they were not being cleared by customs.

MetaLab’s emails show that TurnKey also gave the same reasons for the delay in shipment three days later.

TurnKey’s email to Sargent read:

“We have been having issues with UPS clearing our Canadian shipments. Our UPS contact had been on vacation and returned today. But the shipments we had sent out last week are being held up in Canadian customs. For some reason UPS are not clearing these Canadian shipments. We held back your kiosk because we did not want it to be held up in customs.”

Sargent was given four options to ensure his machine made it across the border, ranging from sending it anyway and letting him clear it with customs officials at the border himself to hiring a custom broker called Geodis Wilson who would do the paperwork for him. Sargent decided to use the recommended broker, paying around CA$2,000 for Geodis Wilson’s services.

MetaLab’s emails show that TurnKey also gave them the same reasons for a delay in shipment three days after Sargent received his email. It also paid CA$2,000 for a customs broker.

Expenses incurred by delays

Both Sargent and MetaLab eventually received their ATMs in mid-June. Sargent got his machine on the week of 16th June, the same week MetaLab received its unit.

By the time Sargent had his machine running, he had paid CA$4,500 for three months in rent and the broker fee of CA$2,000. The delivery delay had cost him CA$6,500. MetaLab reported that it had spent CA$3,000 because of the delay.

Another dissatisfied Robocoin customer is SatoshiPoint, which ordered two machines from the firm. Co-founder Jonathan Harrison said his machines were delayed five months, despite constant reassurances from Kelley.

Harrison says he was promised the machines by January and only received them in May. Both machines arrived without defects and one is operating in East London’s Old Street Underground station.

“It has been a really bad customer experience,” Harrison said.

Software dissatisfaction

After the long wait for a Robocoin machine, some customers remained dissatisfied with the units. The major source of frustration is Robocoin’s software, Harrison and Sargent said.

Harrison said he has been resisting Robocoin’s efforts to update his machine’s operating system. The new software requires ATM customers to use a Robocoin wallet, but Harrison says this is a form of centralisation that he rejects.

“They are definitely trying to coerce people into upgrading to this centralised bank 2.0 system, which is not really on. We bought an ATM not a wallet system. We don’t like the high pressure we’ve been put under,” Harrison said.

Kelley says that operators can “absolutely” choose to update their system. He added that updating the system is “strongly recommended” because it is more stable and provides a more consistent user experience for users of Robocoin machines. He says that the wallets generated by his machines are “essential” to increasing the number of bitcoin users.

“Is it perfect yet? No. But we believe it is a valuable solution to serve the underbanked and remittance markets,” Kelley said.

Sargent, meanwhile, said he intended to link his unit to the Canadian exchange Cavirtex. He said he asked whether this would be possible, and was told that it would be. When the machine arrived, however, he found that he couldn’t link it to his local exchange. Instead, he found it was hard-coded to conduct trades on Bitstamp.

“I spent a lot of time working with [Cavirtex],” he said. “I told [Robocoin] I was going with that exchange, they said it wasn’t an issue at all. When I got the machine, as far as I know, they never gave me an option to change.”

Despite being the first company to launch a bitcoin ATM, Robocoin today trails market leader Lamassu in the number of operational units it has on the market. It is still in second place by a comfortable margin but new entrant BitAccess is gaining on it quickly, according to data from the CoinDesk Bitcoin ATM Map.

Satisfied Robocoin customers

One operator that reports a largely positive experience with Robocoin is Cointrader. The firm used to be known as Bitcoiniacs. It operates the first bitcoin ATM – a Robocoin unit – and was largely responsible for thrusting the ATM-maker into the spotlight, after reporting a transaction volume of CA$1m within a month of launching.

Hugh Halford-Thompson, head of Cointrader’s UK operations, where it runs a Robocoin machine in the trendy London neighbourhood of Shoreditch, has a favorable impression of Robocoin and Kelley’s customer service.

“I’ve been working with them since April, and they’ve been really good for the business,” he said.

Halford-Thompson added that delivery of his machine was delayed, but that he expected it for a new product like a bitcoin ATM.

“It was delayed, but nowhere near that much [compared to MetaLab]. I was expecting it to be delayed a lot more because it’s a new product,” he said.

He added that he was satisfied with Robocoin’s new software, even though Robocoin remotely updated the software on his machine several weeks ahead of schedule by accident.

“I was unsure about it at the start, but it is a far more stable platform. It is more reliable and it works a lot better,” he said.

Robocoin’s mea culpa

Although Kelley responded to MetaLab’s Reddit post with defiance with a now-deleted reply, he has now published an unreserved apology on the message board. He told CoinDesk that his first response was a “judgment error” that was committed in a moment of high emotion.

“My intention to share my perspective came across as defensive excuses. Frankly, it did more harm and I wanted a redo,” he said.

Kelley showed similar contrition in a statement sent to CoinDesk, again apologising to Metalab and “the bitcoin community”, citing failures in execution and communication on his part. Ultimately, he says, “Reddit’s wrath” forced him to recognise his mistakes:

“It should not have taken Reddit’s wrath for me to realize the extent of my mistakes and take long overdue accountability.”

A few examples of mining software

While the actual process of mining is handled by the mining hardware itself, special software is needed to connect your miners to the blockchain and your mining pool as well, if you are part of a mining pool. The software delivers the work to the miners and receives the completed work from the miners and relays that information back to the blockchain and your mining pool. The software can run on almost any operating system, such as OSX, Windows, Linux, and has even been ported to work on a Raspberry Pi with some modifications for drivers depending on your mining setup.

Not only does the software relay the input and output of your miners to the blockchain, but it also monitors them and displays general statistics such as the temperature, hashrate, fan speed, and average speed of the miner.

There are a few different types of mining software out there and each have their own advantages and disadvantages, so be sure to read up on the various mining software out there.

cgminer_4.2.2_windows.rar

miner 50 web sofware pool btc

bfgminer_4.7.0_win64_1_.zip to bct vga miner all pool miner

 

State of Bitcoin Q3 2014: Ecosystem Maturing Amid Price Pressure

Download the full report in PDF form.

We are pleased to release our latest quarterly State of Bitcoin update.

This article will run through some key findings from the new report, which focuses on data and events in the third quarter of 2014 up to the present day. 

Overall, this quarter could be characterized as a ‘Tale of Two Bitcoins’. 

On the one hand, significant bitcoin venture investment continued and much progress was made in furthering adoption, particularly in bitcoin’s use as a medium of exchange.

On the other, there was a steady erosion in the price of bitcoin throughout the quarter (Slide 10), which was further punctuated by a sharp plunge of roughly 20% at the start of Q4.

Slide 10: Significant Events and Price Response in Q3 2014

Price still a focus

Last quarter we noted how some noteworthy bitcoin observers felt that there has been too much emphasis placed on bitcoin’s price. However, out of the 10 most read stores on CoinDesk during the second quarter, four were about bitcoin’s price.

In the third quarter this interest has only increased, as almost twice as many of the top 10 CoinDesk stories were focused on bitcoin’s price (Slide 20).

Slide 20: Top-10 Most Read CoinDesk Stories in Q3 2014

Given how the fourth quarter has begun we do not expect interest in bitcoin’s price to abate any time soon.

Q2 price gains lost in Q3

In the media business it is often said that bad news sells more than good, so perhaps the fact that bitcoin’s price fell nearly 40% in Q3 helps explain the greater relative interest in price in the most recent quarter. 

The third quarter also featured a remarkable price coincidence: after rising 39.4% in Q2, bitcoin’s price fell by a nearly identical amount in Q3 (Slide 9). 

Slide 9: Comparison of Bitcoin’s Price Moves in Q2 and Q3

A wide range of theories have been put forth to explain bitcoin’s price decline, ranging from macroeconomic factors (such as a strong US dollar) and regulatory concerns (like the BitLicense), to a lack of speculative investment momentum (Slide 15).

Slide 15: Significant Bitcoin Events and Price Response in Q2

One of the more widely debated and somewhat counterintuitive theories proposed by Citi and others on why bitcoin’s price saw a steady decline throughout Q3 is increasing merchant adoption.

This theory goes as follows: growing merchant acceptance by companies like Dell is creating selling pressure as these companies quickly liquidate bitcoins they accept for national currencies. 

However, right now there are arguably too few merchant transactions to have a significant influence on price (for example Overstock is only averaging $15k per day in bitcoin sales) while a single bitcoin exchange like Bitstamp can do upwards of several millions of dollars in bitcoin trading volume each day.

Additionally, while it’s true that in the short-term timing differences may lead to commerce supply-demand imbalances, over the medium-term bitcoin-to-fiat conversions by payment processors should be balanced by fiat-to-bitcoin conversions by bitcoin-spending consumers (Slide 13).

Slide 13: The Virtuous Bitcoin Commerce Cycle

All-time bitcoin startup VC investment crosses $300 million

While Q3 did not match the second quarter’s $73m in venture investment, the third quarter saw a substantial $60m of new venture capital invested in bitcoin startups.

To date, including early Q4 deals such as Blockchain’s $30.5 million round a total of $317m has now been invested in bitcoin startups since 2012; 71% of this figure ($224m) has come in 2014 alone (Slide 27).

Slide 27: Bitcoin Venture Capital Investment Summary

2014 VC investment to exceed 1995 Internet

One of the more widely discussed elements of earlier State of Bitcoin reports has been our comparison of the level of investment in early Internet startups versus investment in early bitcoin startups. 

VCs such as Marc Andreessen have compared bitcoin’s overall potential, as well as its current stage of development, to the Internet circa 1993.

Our comparison was meant to assess whether VCs are backing up their lofty bitcoin statements with their wallets. And notwithstanding a number of methodological issues which we discussed previously with making this comparison (including inflation and changes over time in the cost of launching a startup), we feel the comparison is still interesting and useful.

We are currently projecting a total of $290m to be invested in bitcoin startups for the calendar year of 2014. This figure would well exceed the $250m invested in first sequence Internet startups in 1995 (Slide 32).

Slide 32: Bitcoin vs early Internet VC investment ($s millions)

*Note: Only includes first sequence venture deals; late-stage 1995 Internet investments totaling $257.6m are excluded.

Sources: PricewaterhouseCoopers, National Venture Capital Association, CoinDesk, Dow Jones VentureSource, VentureScanner.

The 2014 run rate for publicly-disclosed VC investment in bitcoin startups would also equal nearly three times more than the total investment VCs made in bitcoin startups in 2013. 

In short, a ‘wall of money’ continues flowing towards bitcoin startups. This massive investment made by venture capitalists is shaping up to be one of the most important bitcoin stories for 2014.

More commerce and consumer traction

Bitcoin has seen much faster adoption as an alternative store of value, or object of speculation, than as a medium of exchange.

In the third quarter Dell became the largest retailer by far to begin accepting bitcoin for payment for anything on the Dell.com site (Slide 44).

Slide 44: Largest Bitcoin Accepting Retailers

Companies like Dell and Purse.io also are giving consumers compelling reasons to actually spend bitcoins by offering savings off full retail price of anywhere between 10-30%. 

While we have shaved our end of year forecast slightly we are continuing to see strong growth in the number of merchants accepting bitcoin (Slide 42). 

Slide 42: Bitcoin Accepting Merchants – Total Current and Forecasted 2014 Year End

There were 1.2 million new bitcoin wallets created in Q3, representing 21% growth quarter-over-quarter. We continue to forecast 8 million total bitcoin wallets by the end of 2014 (Slide 47).

Slide 47: Bitcoin Wallets – Total Current and Forecasted 2014 Year End

We hope you enjoy the State of Bitcoin Q3 2014 report. We thank you, our readers, for making CoinDesk the world’s leading source of bitcoin news, analysis and perspective, and we very much welcome your feedback and ideas on how we can make the State of Bitcoin even better.

Sincerely,

Bitcoin Miners Debate Risks and Rewards at Las Vegas Convention

This week, the first-ever conference aimed at bitcoin miners, mining companies and those with an interest in the sector kicked off amid the glitz and glamour of downtown Las Vegas.
Hasher’s United, hosted this year at The Tuscany Hotel and Casino from 9th to 11th October, included panels focused on a number of practical and conceptual topics and brought together speakers like venture capitalist Tim Draper, GAWMiners CEO Josh Garza and BitAngels co-founder and chairman Michael Terpin. A number of companies in the space including China-based manufacturer Bitmain, cooling technology specialist Green Revolution Cooling and more were also in attendance.
Many in the 100-strong crowd were small- or medium-sized bitcoin and altcoin miners, most of whom have been mining for at least the past year-and-a-half. As some told CoinDesk, the event provided an avenue for miners to both interface with companies in the space and learn new ideas to apply to their existing strategies.

Opening talk on crypto’s future

The first panel, which included Draper, Garza and Terpin, cast a wide net by asking a simple question: where is crypto headed today?
Though focused primarily on the technological advancements made possible using digital currency, the panel members – as well as many others on the first day of the event – found their way back to one of the industry’s hottest topics: the price of bitcoin.
Draper noted that he may have been “too conservative” about his prediction of $10,000 per bitcoin in three years. He remarked that miners who exchange their bitcoins for fiat currencies are a significant part of the selling pressure we’re seeing on the markets today.
Draper explained that this dynamic should reverse in the future, saying:

“[Miners are] a force-selling component and nobody’s buying. But as these companies evolve and all of these businesses allow us to use bitcoin for more and more purposes, that will be what drives the price up.”

Terpin polled the crowd by asking how many sell a certain percentage of their bitcoins for fiat currencies like the dollar. One only miner raised their hand when Terpin asked if they sold 100% of their bitcoin for dollars, and about one-third of the crowd indicated that they don’t sell any of their generated bitcoins.
Garza voiced the least concern regarding the price, saying that ultimately, the value of bitcoin is underpinned not so much by the consumers and merchants who use and accept digital currency but by the miners who facilitate the whole network.
“Miners believe in the currency the most,” he said.
Garza later drew applause when he said that GAWMiners pushes strongly for acceptance within its business-to-business dealings, saying that his company has told others that “if you won’t accept our bitcoins we won’t do business with you.”

The panel also discussed how the future of digital currency usage will see a rapid increase in the development and deployment of smart contracts. Draper said that he is currently exploring options for use in his venture capital dealings, adding that the legal and accounting professions risk being upended by smart contracts or programmable transactions.
Terpin argued during the panel that, as far as the US is concerned, the move toward digital currency adoption won’t be as smooth as Draper was predicting. The problem, he said, was that American bitcoin users haven’t been presented with a viable use case for the technology.
“I don’t think there’s a killer app in the US beyond investing if you have a bank account,” Terpin concluded.
The panel also spoke briefly on the topic of the underbanked and bitcoin in emerging markets. All three participants touched on the potential of bitcoin-powered remittances, but acknowledged how the infrastructure isn’t quite yet in place for emerging market use of bitcoin to take off.
“The question is: how do you get bitcoin to all these people?” Draper asked.

Industry dives deep

Following the broad opening panel, the first day of Hasher’s United featured a plethora of talks and discussions on some of the issues facing miners today, potential revenue sources and strategies for maximizing efficiency and profits.
There were also a series of presentations made by companies in the space, including one by Genesis Mining which saw the unveiling of Project X, a new product that enables cross-coin mining without the need to purchase separate contracts. Several altcoin developers, including litecoin creator Charlie Lee and the teams behind ultracoin and unbreakablecoin also held demos and exhibitions during the event.

Lifeboat Foundation advisor and CoinDesk contributor Hass McCook led a talk on the business foundations of bitcoin, breaking the digital currency mining and services sectors down to their basic structural elements. He argued that some miners do themselves a disservice by not adopting more formal business practices, a problem that, in some ways, holds back the broader industry.
He explained that the market fundamentals remain solid, providing a unique opportunity for miners to create value-added services based on the creative demands of their customer base.
McCook added:

“There are so many things that bitcoin can do for us, we don’t know 90% of what it can do for us yet. These [use cases] will come out as smart people continue developing products.”

Predicting that “95% of bitcoin startups will fail,” McCook offered his vision for the future crypto-economy. He predicted that, owing to the homogenous nature of bitcoin hardware and the general trends we’re seeing in the industry today, the digital currency market ten years from now will be characterized by greater consolidation, the creation of so-called “super-services” and the proliferation of block chain technology in a number of key industries.


He acknowledged that the process won’t be simple, and that further price discovery will likely occur. On the other hand, McCook said that events such as the notorious ‘bearwhale‘ may become less frequent as usage ignites and major players hold less bitcoins overall.

Mining’s behavioral challenges

One of the more notable panels of the day centered on the topic of game theory and the question of how this area of research can be applied to bitcoin mining and the wide-ranging security vulnerabilities facing the sector today.
The talk included insights from Cornell University researcher Emin Gun Sirer, Princeton University assistant professor Arvind Narayanan, University of Maryland PhD candidate Andrew Miller and Sean Bowe, creator of model development platform SimBit.
Miller, who shared his research on the types of attacks centered on bitcoin mining pools, including so-called vigilante attacks that essentially sabotage the act of collective mining.
He offered a series of potential changes to the reward structure, including changing the dynamic nature of block rewards to encourage less malevolence. At the same time, Miller suggested that the consensus-base nature of bitcoin development and the technology’s history could prevent otherwise worthwhile fixes from being integrated:

“Any time there will be a consideration in the future of a possible change, there will be some kind of complicated tug-of-war over the tradeoffs and the prior investments that might be affected by it.”

Sirer, co-author of a controversial paper on a mining network vulnerability known as selfish mining, opined that the mining sector itself isn’t the simplest ecosystem to map out and analyse from theoretical and behavioral perspectives.
“It’s difficult to model what miners want,” he offered.
Narayanan argued that game theorists who work in the bitcoin space need to do a better job of interfacing with other parts of the ecosystem in order to obtain more reliable data.
He said:

“What I think is that the theorists and academics working on bitcoin need to work out to the community, the miners, and have a firm grasp of some of these strategies’ implications in order to input into the game theory models.”

Sirer disputed this, offering examples of how his team reached out to both community members and the bitcoin core development team. Bluntly acknowledging the “pushback” he experienced following the release of the selfish mining paper, Sirer thanked the core team for being open to the eventual development of a fix to the vulnerability.
During a question-and-answer session after the panel, one miner asked about the risk of 51% attacks on the network given the rise of large mining pools in the past. The participants stated that, ultimately, there is little to do in a distributed system like bitcoin mining beyond community outreach to keep mining conglomerates honest.

Why European Retailer Showroomprive Decided to Embrace Bitcoin

Showroomprive is a Paris-based online shopping website for clothes, cosmetics and household items that offers discounts of 30–70% off of leading brand-name products.

The firm’s more than $500m in annual revenue make it one of the leading e-commerce companies in Europe, with figures from 2013 placing it just behind LVMH Moët Hennessy, and the second largest private sales website behind Vente-privee.

These figures could increase, the company hopes, now that it has integrated bitcoin into its payment options.

In an interview with CoinDesk, cofounder and chief executive Thierry Petit said:

“I plan that probably between 5 and 10% of my payments in the next three or four years in Europe will be through the bitcoin system. If there is some additional technology and if some of the big players accept bitcoin then it will accelerate and change the game.”

Showroomprive has an active mobile app platform through which it currently generates more than 50% of its fashion-driven sales. However, at present, it does not accept bitcoin on its apps.

Looking to US leaders

Petit’s business targets consumers that are looking to buy leading brand-name products at the most affordable prices, so being able to offer his customers an additional payment option seemed like “something very disruptive and interesting”.

“For me as founder of the company – I’m an engineer to be honest and I love technology and seeing how it can disrupt our industry,” he said.

Bitcoin first piqued Petit’s curiosity about a year and a half ago, he said, and this year the major US corporations that began integrating it as a customer payments option turned him on a little bit more.

Petit said:

“A few months ago, we noticed that various tests had already been carried out in the United States, for example. More and more well-known e-commerce sites, like Dell or Expedia, have already integrated bitcoin as part of their services. That’s why we were very conscious that it may be a real innovation for our payment strategy. […] That’s why I wanted to be very pragmatic, to cut to the solution.”

Showroomprive first implemented bitcoin payments into its operations in the Netherlands because the market was primed for payments innovation.

“As for France,” he added, “we are adopting a practical approach, but we believe that consumer tendencies are evolving. The two are compatible.”

A change of heart

Petit said the learning process has been surprising for him, and that the doom and doubt communicated about bitcoin by so much of the media and financial industries made him wary of the concept – at first.

He said:

“The fact that people are now motivated by bitcoin, they know more or less what it is – this is a really positive point. I was a little bit afraid by bad comments in the ecosystem and it’s on the contrary, a lot of people think it’s a great innovation.”

He then turned to the regulatory sphere, where he spoke highly of French senator Philippe Marini and defended his approach to regulating bitcoin activity.

“In France that they want to [regulate] for something positive, and not to kill bitcoin,” he said.

A collaborative economy

Petit spoke to bitcoin’s practical uses and advantages to his business, citing perks like instant transactions and lower transaction fees.

He added that he’s observed a lot of new digital wallet companies and other technology platforms enter into the payments, banking and e-commerce space, and surmised that the growing trend might be the result of an increasingly mobile way of life.

He said:

“One thing that is not disrupted yet is the money. Bitcoin can disrupt the money through several actions – it can give the company immediate transfer, lower commission [...] it’s very interesting in terms of construction and as you can see, a lot of developments, like Airbnb, are coming to this collaborative economy.”

He added: “The payments industry at this time in Europe is like a war [...] maybe bitcoin will have something to play in this industry.”

Why Apple Pay Is a Threat to Bitcoin

Apple Pay isn’t even here yet and, arguably, it’s already winning the war against bitcoin.

Like the digital currency, Apple is disrupting the payments system, but people will probably use it more than they use bitcoin.

Cupertino has carefully focused on three areas to make sure that happens: front-end experience, financial institutions, and merchants.

So what is the cryptocurrency community going to do about it?

Apple Pay’s holy trinity

Apple nailed the customer experience side. For starters, it rolled out the system with the new iPhone, and with the announcement of the Apple Watch, both of which garnered unprecedented attention from the tech industry.

It sold 10 million iPhone 6 models in the first weekend. The watch is going to sell in droves. Not all of these customers will use Apple Pay, of course. But many will. And far fewer people own bitcoin.

Then, there are the merchants. Apple snagged deals with major brands before Apple Pay was even announced. Retailers including Whole Foods, Bloomingdales, Staples, Walgreens and Subway are already signed up.

The firm has also timed the system’s launch expertly: point-of-sale (POS) systems need Near Field Communication (NFC) capability to work, and POS systems that support these can be expensive.

However, many retailers will be mulling upgrades to their existing POS terminals anyway, thanks to a critical deadline next October, when US retailers will be required to use the chip-and-pin technology already available in major credit cards, as an added security measure.

If they don’t, then they could be liable for card fraud, rather than the card providers, who shoulder the responsibility today. If they are upgrading their POS systems anyway, NFC will seem like an easier decision.

On the financial side, Apple has secured Visa, MasterCard, and Amex, along with several major US banks.

Users will be drawn to the better security within Apple Pay, which prevents credit card details from having to travel through merchant networks. Apple Pay uses a token instead, to represent the card, along with a one-time dynamic number designed to help authenticate transactions securely.

Thumbs up for security

Then, of course, there’s the iTouch biometric system, which will be used to authenticate the user. iTouch may have its detractors, but is a lot better than the current paper signature system in the US (which retail clerks won’t necessarily even check), and will likely be better than PIN verification too, which as security guru Brian Krebs points out are easily skimmable.

Apple Pay may help to prevent credit card security breaches such as the Home Depot and Target thefts, which haunt the headlines on a worryingly frequent basis.

With conventional swipe-and-sign credit card systems as used across the US today, the card vendor is responsible for the data on the card’s magstripe. With Apple Pay, the merchant POS systems needn’t see the credit card at all.

New tricks, same old dog

All of this will be sweet music to banks, merchants and retail customers alike. It’s like nails on a chalkboard for the bitcoin community.

For starters, as some have already said, Apple’s partnership with the banks and payment processors still puts the incumbent system firmly in control. The only thing that really changes is the payment channel.

Apple Pay is therefore still anathema to bitcoin’s mission, which involves disrupting centralized control in the financial industry and returning real financial control to the user.

“If the bitcoin industry really wants to take on Apple Pay, it has to reinvent itself.”

Second, Apple is beating bitcoin in terms of the customer experience. Its ecosystem is exceedingly user friendly and customer focused.

The company has spent years perfecting a design and user experience language that is second to none in the tech business, and, whenever it turns its attention to an existing business model, it brings these tools to bear, recrafting entire industries in its own image.

People understand Apple phones, and thanks to Jony Ive’s team, they will quickly understand the Apple Watch. Moreover, they will crave these devices.

Bitcoin, on the other hand, is still striving for mainstream adoption. Notwithstanding positive news from the likes of PayPal, Circle, and Stripe, the concept is still opaque to many. The market for wallets is fragmented, and scandals like Mt Gox still scare many away.

By its very nature, bitcoin is a grassroots movement. It doesn’t enjoy the same top-down organisation that Apple does. That means that design, user experience, and security are inconsistent across its many implementations. That makes it hard for mainstream users to understand.

A craving for control

Apple’s ability to control every detail of the user experience is also the source of one of its biggest threats: it is an inherently fascistic company. A penchant for total control is a dangerous thing in a company that likes to reinvent entire industries.

Ever since the early 2000s, if not before, Apple has thrived on locking people into its ecosystem, and it excels at cementing this structure up and down the supply chain. We saw this with the launch of the iTunes store, which Apple integrated with the iPod and iTunes products upon its launch in 2003, signing deals with the major labels.

Jobs admitted this fact not long before his death, explaining in an internal 2010 email that he wanted to “explicitly lock customers in Apple’s ecosystem”.

Apple has used its hardware and software innovations to strongarm companies – and customers – into deals. In 2010, shortly after the launch of the iPad, it made magazine and newspaper publishers wanting to sell subscriptions via iPad apps subscribe to an agency model, in which it kept all of their subscriber and credit card information. Even Rupert Murdoch had to capitulate.

Apple also agreed to pay $450m to settle a civil action lawsuit, after it was shown to have engineered retail prices on ebooks in collaboration with several top publishers, using the power of the iPad.

Since its App Store emerged, Apple has been infamous for the strong and often ambiguous control that it exerts over its ecosystem.

Although its policy on virtual currencies changed in June, leading to the launch of several bitcoin wallet apps for iOS, the fact remains that the fortunes of App Store vendors – including those offering bitcoin wallets – are entirely subject to Apple’s whim.

The struggle ahead

So, Apple Pay will probably succeed, as customers flock to it, unaware of the control that they are giving up, and of the benefits that bitcoin could offer. History has shown repeatedly that the majority will trade control for convenience. If you have any doubts, just look at Facebook.

There are positive upsides, perhaps, if you squint. Yes, perhaps Apple Pay will drive NFC into the ecosystem so that bitcoin can use it. But then, by the time that happens, Apple Pay will already be there.

Apple Pay won’t obliterate bitcoin, of course, but it is going to shine very bright as a payment channel. It will attract large numbers of users with the convenience of instant mobile payments just as bitcoin faces its next major challenge: to move from being a largely speculative asset into a true currency, used every day by millions of users around the world.

Bitcoin needs to continue that transition, to introduce more liquidity into the market and to meet its real potential.

So if the bitcoin industry really wants to take on Apple Pay, it has to reinvent itself. Make itself friendly. Market itself to people so technologically ignorant that they’re one step away from microwaving their iPhones. That’s a difficult task to pull off.

How Bitcoin’s Block Chain Could Stop History Being Rewritten

 

Despite the recent drop in bitcoin’s price, cryptocurrency startups are now attracting more investment than ever and stories about major developments in the bitcoin ecosystem are being picked up by mainstream media on a regular basis.

The New York Times reported the news that popular bitcoin wallet provider Blockchain had raised $30.5m in financing. Last week, Time published an article titled How Bitcoin Can Save Journalism and the Arts, exploring bitcoin’s micropayment capability for creating a new model of content distribution that is free from advertising.

Yet, long before this new interest and innovation sparked outside the tech community, WikiLeaks editor-in-chief Julian Assange was seeing the promise of the bitcoin technology beyond currency.

The confluence of this stateless digital currency and the iconic whistle-blowing site first emerged when WikiLeaks faced a financial blockade by Bank of America, Visa, MasterCard, PayPal and Western Union, which reportedly blocked 95% of their revenue.

Bitcoin was used to circumvent the banking blockade. Here the advocates for the free flow of decentralized currency joined the fight for free speech.

The WikiLeaks-bitcoin alliance

In his conversation with Google executive chairman Eric Schmidt documented in his new book When Google Met WikiLeaks, Assange described bitcoin as “something that evolved out of the cypherpunks” and explained in detail the underpinning technology that made it possible for WikiLeaks to counteract the state’s economic censorship.

However, it seems this is just the tip of the iceberg of the WikiLeaks-bitcoin alliance and the revolutionary potential hidden within the encryption-based network. The ramifications of bitcoin technology go far beyond the economic domain.

Appearing in the form of a hologram at The Nantucket Project conference, Assange spoke of the significance of the block chain, the underlying technology of bitcoin, particularly in relation to journalism and holding those in power to account.

Assange addressed the use of the block chain to create an historical archive. Calling bitcoin “the most interesting intellectual development on the Internet in the last five years”, he described how the underlying architecture can be used for “providing proof of publishing at a certain time”.

See a video of Assange’s comments below:

The block chain’s premise seemed to unite with WikiLeaks’ mission. In April 2010, Assange took the stage at the Oslo Freedom Forum, where he warned of the enormous force of control and power within the Internet and increasing censorship that threatens the free flow of information.

He spoke of the vital role of human intellectual content in civilization and described how, in this age of technology, everything is moving to digital. This power, often accrued by an unelected few, has increased through control of digital storage and access to information. This makes possible the erasing or altering of information that is critical to the historical record. He pointed out:

“We are now approaching the state of Orwell’s dictum, perfect dictum, that ‘he who controls the present controls the past’. He who controls the Internet servers controls the intellectual record of mankind, and by controlling that, controls our perception of who we are, and by controlling that, controls what laws and regulations we make in society.”

Preserving history

Dismantling this force of control has been WikiLeaks’ mission. By employing its method of transparency in the form of ‘scientific journalism’, they aimed to open governments and reveal their actions behind closed doors.

Through liberating the flow of information that had been stagnated by secrecy, complexity and manipulation, the organization strove to break Orwell’s dictum and bring the power to shape history into the hands of ordinary people.

Four years later, WikiLeaks is still on the front lines of this battle. In his new book, Assange again addressed the escalating implementation of Orwell’s dictum.

Giving an example of an incident where the Guardian pulled six articles from 2003 without explanation, he emphasized how WikiLeaks’ primary focus was to preserve “politically salient intellectual content while it is under attack” by going after information that has been suppressed or deleted.

Doing away with trust

Assange found a solution in the evolving block-chain technology. This provides decentralized solutions to the problems of centralized time stamping, as this requires trust in central authority, making it susceptible to third-party alteration and intervention.

Bitcoin’s distributed trust network can offer immunity from central control of any historical record. Assange described the basic premise of this technology as a network of consensus where “you can prove a particular statement, particular consensus and particular contract that happened at a particular time globally and it requires the subversion of every single jurisdiction where people are running bitcoin to overturn that”.

“The invention of the block chain further empowers people and challenges the insidious culture of ownership and control.”

In a nutshell, he noted: “bitcoin’s underlying technology breaks Orwell’s dictum”.

Some people have already used the block chain to store more than just transactions. In his blog, Ken Shirriff documented the result of his search through the block-chain ‘database’, reporting his discovery of interesting things including Satoshi Nakamoto’s white-paper, an image of Nelson Mandela and a 2.5-megabyte WikiLeaks cablegate backup. This information is now securely documented and cannot be erased or modified by anyone.

Proof of Existence is an example of the application of decentralized proof. This online service provides a way for people to publicly prove the existence of documents without revealing the data or their identity through bitcoin’s decentralized trust network.

It is a continuation of the earlier waves of decentralization of information seen in the last decade with the rise of Wikipedia, through its open-source collaborative production of a historical record – an online decentralized encyclopedia.

Freedom from control

Just as the Internet brought the everyday person the power to create their own narratives, the invention of the block chain further empowers people and challenges the insidious culture of ownership and control.

With unprecedented currency crises and government corruption, people are increasingly looking for alternatives to state and corporate control. As more begin to move into bitcoin to avoid government debasement, it isn’t far-fetched to imagine how this stateless public asset ledger could also become a new safe haven for investigative journalism and whistle-blowers.

A lot has happened since that day in Oslo when Assange identified the conundrum of our age. As the battle to break Orwell’s dictum intensifies, we now have in our hands a great tool to open up society.

Bitcoin can not only be used to fund revolutionary journalism like WikiLeaks, but also offers a decentralized platform for anyone to directly combat state censorship of information and create transparency for those in power.

The invention of bitcoin is just one crest of the continuous waves of a cryptographic revolution. As Assange said, this could free us from Orwell’s dictum.

In a time of seemingly universal deceit, reclaiming our past on the block chain is quickly becoming a revolutionary act.