Tag: InboundMarketing

How blockchain can be a force for good in the developing world

How blockchain can be a force for good in the developing world

Blockchain is a digital architecture most commonly known as the technology behind bitcoin, the virtual currency. A number of its applications have particular relevance to the developing world.March 17, 2017 —Anita is an in-home care nurse in the United States. Each month she sends a portion of her earnings to relatives back in the Philippines. These monthly gifts ensure that Anita’s two nieces can afford new clothes and school supplies, that her father can pay for quality healthcare, and that her brothers won’t have to worry about covering the costs of the family farm after an unusually harsh season.

Meanwhile, Anita’s monthly support means serious dollar signs for money transfer companies like Western Union. In 2015 alone, migrant workers sent an estimated $582 billion to relatives back in their home countries. With average fees of around 8 percent for international money transfers, the global remittance market has become a reliable cash-cow for traditional financial institutions.

While a $10 transfer fee might not sound like much, it represents nearly three times the daily cost of food for an entire low-income Filipino household. Thinking of all the uses her family might have for an extra $10 each month, Anita recently decided to switch to Abra, an online money transfer service that uses cutting-edge technology to perform secure transactions without any of the typical fees imposed by financial intermediaries. Abra — like Hong Kong-based OKLink or BitPesa out of Nairobi — is just one of a growing number of international money transfer companies that stand poised to upend the global remittance market by using blockchain, a digital architecture most commonly known as the technology behind the virtual currency, Bitcoin.

But what is blockchain?

In broad strokes, blockchain is a way to securely record transactions in a distributed digital ledger. This distributed ledger shifts the responsibility of verifying transactions from a single trusted authority, like a bank for example, to a shared effort involving every participant in a network. By allowing users to conduct secure transactions with one another directly, blockchain eliminates the need for regulatory middlemen. This allows companies like Abra to save time and money by avoiding the lengthy processing periods and fees imposed by traditional money transfer services.

Even more exciting is that companies like Abra are using blockchain to promote financial inclusion. By allowing unbanked individuals and communities to send and receive cash directly, blockchain-backed transfer services reduce the barriers that keep many of the world’s poor from gaining liquidity. Unsurprisingly, blockchain is rapidly proving to be a powerful force for good in the developing world, and disrupting the remittance market is just the tip of the iceberg. The distributed ledger at the core of blockchain has a dizzying number of applications outside of finance. While national governments have begun experimenting with blockchain-backed land registries, fresh players in the development world have started to explore alternative uses for immutable records and self-enforcing contracts.

Many of blockchain’s potential applications in the development world deal with streamlining internal operations. For example, an Italian startup called Helperbit is using blockchain to rein in the lack of transparency that often hampers disaster relief efforts. By using a distributed ledger to allow donors to monitor the allocation of their funds, Helperbit stands to promote accountability in the nonprofit sector while encouraging would-be donors to get involved. Meanwhile, a host of companies are putting blockchain to work in the field. Provenance, headquartered in London, is using blockchain to shed light on global supply chains and promote socially responsible and sustainably sourced products. A recent pilot study tracked Indonesian yellowfin and skipjack tuna from “catch to consumer” to demonstrate how blockchain can be used to verify sustainability claims and combat rights abuses in the international fishing industry.

Operating in a similar vein, the Brazilian lumber exchange company BVRio recently adopted blockchain backed timber registries to discourage illegal logging operations. The new blockchain registry provides an accessible toolkit for due diligence, encouraging sustainable sourcing in an industry long fraught with violations of environmental law. Like most disruptive new technologies, blockchain has its fair share of critics. Observers in the development sector are right to point out that blockchain’s uses might be seriously hindered by poor energy infrastructure and unreliable internet connections, conditions that frequently affect communities in the developing world.

Still, many of these claims may be overblown. As the market warms and the technology gains traction, blockchain-based services are becoming increasingly accessible to individuals in remote and technologically strained environments. Consider that multiple blockchain-backed currency exchanges can already be operated by SMS alone. With a little instruction, someone in sub-Saharan Africa equipped with nothing more than a pre-paid Nokia cellphone can benefit from blockchain.

Chuck Reynolds
Contributor

Alan Zibluk Markethive Founding Member

Nearly $2 billion has been wiped off bitcoin’s value in three days all because of a fork

Nearly $2 billion has been wiped off bitcoin’s value in three days all because of a fork

 

 

Just under $2 billion has been wiped off the value of bitcoin in under three days as a fight over the future of the technology underpinning the cryptocurrency wages on. Bitcoin was trading at around $1,142.60 at the time of publication, giving it a market cap of $18.53 billion, according to CoinDesk data. This is down from highs of $1,255.32 on Tuesday, which valued the total bitcoin pile at $20.36 billion.

Meanwhile, rival cryptocurrency ether is up over 84 percent from highs of $29.87 on Tuesday to trading at all-time highs of around $55 on Friday, according to Coinmarketcap.com. The market capitalization shot from $2.68 billion to $4.95 billion. It is the only other cryptocurrency to be valued at over $1 billion. Much of the inverse price movement stems from traders' worries over the future of bitcoin and the underpinning blockchain technology.

What's happened?

To understand the issue, it's key to look at how bitcoin transactions are processed. Transactions by users are gathered into "blocks" which is turned into a complex math solution. So-called miners, using high-powered computers work these solutions out to determine if the transaction is possible. Once other miners also check the puzzle is correct, the transactions are approved and the miners are rewarded in bitcoin.

But there's a massive backlog of transactions in bitcoin that are waiting to happen. The number of outstanding transactions is up more than four times from just six months ago, according to data from bitcoin wallet Blockchain. This is bad for a system that has promised fast and cheaper transactions than the traditional financial system.

Because of this, a group called Bitcoin Unlimited has emerged. This faction is suggesting increasing the size of the block which would allow more transactions to be bunched together and processed. Major bitcoin industry players including Roger Ver have backed the plan. But some developers in the community suggest that increasing the block size could be unsafe.

What's this about a fork?

The real concern is if Bitcoin Unlimited gains major support, it could have an impact on the underlying blockchain technology that supports bitcoin. Bitcoin Unlimited has about an 11 percent market share of all the "nodes" in existence. Nodes are the backbone of bitcoin's infrastructure and refer to those mining the transactions as well as those tracking the movement of bitcoin to make sure it is all working correctly.

Nodes can run Blockchain Unlimited software which would signal their support for increasing the block size. If 50 percent of bitcoin miners adopted Bitcoin Unlimited, there would then be two major blockchains and a "fork" would be created made of Bitcoin Core, the current main software behind the infrastructure, and Bitcoin Unlimited. Both blockchains would continue to run as long as there are nodes running them. But there would then be essentially two different coins — Bitcoin and Bitcoin Unlimited.

So why has the price fallen?

And this is why bitcoin has seen sharp declines in price, while other cryptocurrencies like ether have gained support. "Bitcoin traders may have wanted to offset some of their exposure should a fork occur or the scaling deadlock to continue, and ether seems to be the most promising alternative. Bitcoin-ether volumes have surged since and are currently rivaling bitcoin-fiat currency trading liquidity," Aurélien Menant, founder and CEO of Gatecoin, a regulated blockchain assets exchange based in Hong Kong, told CNBC by email on Friday.

Chuck Reynolds
Contributor

 

Alan Zibluk Markethive Founding Member

Things to be Learned About Bitcoin From Living On It For A Week

Things to be Learned About Bitcoin From Living On It For A Week

 It is possible to live on Bitcoin in San Francisco for a week. It cost me about 4.85 Bitcoins. I sometimes had to live on the fringes to get by. It is only recently possible to live on Bitcoin for a week. Three of the four merchants I relied on for my most basic need — food — only started accepting Bitcoin in the last month. It would have been much easier to do my experiment in Berlin. I could have just hung out all week in Kreuzberg, a neighborhood with the highest concentration of merchants accepting Bitcoin, including, importantly, a bar.

 

It’s disconcerting to live on Bitcoin with the currency volatility. The buying power of my little 5 Bitcoin bank has fluctuated wildly since I created it, from a BTC valuation high of $140 USD to a low of $90 USD. I bought 28 mini-cupcakes at the low point for .5896 BTC. They were $56 at the time (which is already crazy). Reevaluating at BTC's high point, I spent $86 on cupcakes. My expense report is going to be a nightmare. Bitcoin will not be able to stabilize as a currency until there are more places that list their prices in Bitcoin.

It’s hard to convince someone who has never heard of Bitcoin before to accept it as payment. You can simply choose to walk away from the person who won’t accept Bitcoin payment, but that is hard to do when the person is your landlord. Bitcoin is hard to explain to people. It is perhaps like what it was like explaining “Internet” in its infancy. The easiest way is to call it "the local currency of the Internet," "the Internet applied to money," or "stateless virtual money." Or given the mysteriousness of its unknown and now absent creator ("Satoshi Nakamoto") and the fact that thousands of people have turned their computers into autonomous mining drones working for mining pool operators that have spent and will spend years slaving away on Nakamoto's code to create new Bitcoins, this may actually be the Singularity's mint.

There will only be about 21 million Bitcoins made. That number will be reached in 2140. As of this writing, over 11 million Bitcoins are in circulation. Bitcoin is like digitally paying in cash, in that you can move money online from one person to another person without using an intermediary like a bank, a credit agency, a Paypal, or Western Union, and you can do so without attaching your identity to the payment. It’s like having your own email server and creating a different address for every message you send out. And it means no one can shut that wallet down — as happened to Wikileaks when payment providers refused to process payments sent to it.

But it is not like cash in that the movement of the money is traceable. The security of Bitcoin comes from the fact that the whole network sees that a particular transaction happened, and that money moved from one place to another place. It’s as if every time you paid in cash in the real world, the serial numbers were scanned so that you could trace the money as it moved around, making it near impossible to introduce fake new money.

So it’s less anonymous than you might think, but it would have worked very well for Junie Hoang, the actress who sued IMDb for posting her real age on the site. Hoang had scrupulously kept a pseudonym while working in Hollywood but when she paid for an IMDb Pro account, she had to use a credit card which revealed her real name. IMDb used her real name to find (and post) her birthdate. That wouldn’t have happened if she could have paid in Bitcoin. Other potential Bitcoin uses might include online purchases we don’t want to be associated with our identities. There’s been much attention paid to Bitcoin being the currency of choice for drug purchases on Silk Road, but it could also be useful for paying for the online purchase of porn or sex toys; embarrassing or illness-revealing medications; pregnancy tests (say if you don’t want the store you’re buying from to know you’re potentially expecting), or a donation to an organization where you wish to remain anonymous. As my colleague Andy Greenberg notes, Bitcoin accounts for 99% of the assets of non-profit Defense Distributed, maker of the 3D-printed gun.

In-person Bitcoin purchases rely heavily on QR codes. I’ve never seen so many people actually using QR codes. Living on Bitcoin is a great way to lose weight. As it is not widely accepted, you are prevented from spontaneous snacking. And because most transportation providers do not currently accept it, you must walk or bike a lot. I lost 5 pounds in a week. There are people who are very excited about the idea behind Bitcoin. They are the Bitcoin Believers. You can call them techno-libertarians or digital gold bugs. They like the idea of a monetary system not controlled by a government that doesn't have a Fed that can choose to print money when it wants to. They are generous. I received over 10 BTC in tips from enthusiastic readers.

There are people who are very excited about the financial opportunities behind Bitcoin. There is a whole economy of miners, mining equipment makers, payment processors, money exchangers, and speculators rising up around it. It is actually thriving. There are a ton of people trying to make money off of this thing. Some are legitimate businesses and some are pure gambles, such as the Redditor with a wife and child who used the $30,000 limit on his credit card to buy Bitcoin when it was valued at $14-25 USD and cashed out when it went above $200. He did not respond to a media request; he may still be celebrating.

If you're not a techno-libertarian or a Bitcoin opportunist, the appeal of Bitcoin is still revealing itself.
(1)
It lets you make digital purchases in stores without revealing your identity (by using a credit card with your name and number on it). It would let you do the same thing online. 
(2) Merchants can avoid paying high transaction fees and don't have to worry about fraudulent purchases that result in charge-backs. "When a transaction is done, it's done." If merchants were to offer discounts to Bitcoin shoppers, that would make the currency more appealing.
(3) For spending internationally or while abroad, you don't have to worry about converting your money to the local currency, and the conversion fees that go along with that.
(4) It allows people to make purchases when they are banned by other traditional payment providers.

"PayPal alone blocks access from over 60 countries, and many credit card companies have similar restrictions. Some are blocked for political reasons, some because of higher fraud rates, and some for other financial reasons," said WordPress in a blog post when it enabled Bitcoin payments. "Whatever the reason, we don’t think an individual blogger from Haiti, Ethiopia, or Kenya should have diminished access to the blogosphere because of payment issues they can’t control. Our goal is to enable people, not block them."

Timothy Lee is likely right that we don't really know all the ways it could be used yet: "Bitcoin allows wealth to be reduced to pure information and transmitted costlessly around the world—something nobody knew how to do before 2009. Its applications won’t be immediately obvious, especially to ordinary users." I won't totally believe in Bitcoin until I can buy a fresh cup of coffee with it. Bitcoiners are the new vegans. Merchants that offer their goods to this niche community can tap into a fervent and loyal customer base. OkCupid, WordPress, Reddit and others have already figured that out.

I am not the first person to try to live only on Bitcoin. In the summer of 2011, a 25-year-old electrical engineer went on a road trip from Connecticut to Los Angeles, only using Bitcoin the whole way. He accomplished this mainly by meeting up with people from the Bitcoin community to whom he paid BTC to buy things for him in U.S. dollars. He also got over 500 BTC in donations from the Bitcoin community. "It was pretty wild," he told me.  "When I left 1 BTC = 1 USD; 1 tank of gas == 35 BTC. When I hit LA during the 2011 peak 1 BTC ~= 30 USD; 1 tank of gas == 1.2 BTC." He also survived, though he would not have had he obeyed my rule of only buying from merchants who sell goods and services for Bitcoin.

I couldn’t have done any of this story because I couldn’t pay for my smartphone with Bitcoin. The major flaw in my experiment: it would have been near impossible without the data plan on my Verizon iPhone — which is one of the things I couldn't pay for with Bitcoin.

Bitcoin is on the U.S. government's radar. The Treasury Department told Bitcoin exchanges in March that they need to do due diligence to prevent money laundering. James Freis, counsel at Cleary Gottlieb and former director of the Treasury Department's Financial Crimes Enforcement Network,  says Bitcoin is unique in that it's not possible to regulate the administrator (the absent Nakamoto) — the administrator is now a diffuse network making Nakamoto's code a reality — but it can regulate the companies that exchange Bitcoin for cash. Freis says the guidance offered by the Treasury department doesn't mean Bitcoin is legal or illegal, but that the exchanges "have to follow the rules.” Freis is skeptical about Bitcoin's future. "Bitcoin only has value because people accept that as a form of payment," he says. "But that acceptance could go away in an instant.”

Chuck Reynolds
Contributor

Alan Zibluk Markethive Founding Member

Questions about Bitcoin you were too embarrassed to ask

Questions about Bitcoin you were too embarrassed to ask

This has been a big week for Bitcoin. On Monday, the Senate Committee on Homeland Security and Governmental Affairs held the first-ever Congressional hearing on Bitcoin. Later in the day, the currency's value reached an all-time high of more than $800. That has left a lot of people scratching their heads. What's Bitcoin? How do you use it? And why would anyone want to? Read on for answers. (Inspired by Max Fisher's classic explainer on Syria)

What's Bitcoin?

Bitcoin is an online financial network that people use to send payments from one person to another. In many ways, Bitcoin is similar to conventional payment networks like Visa credit cards or Paypal. But Bitcoin is different from those and other payment networks in two important ways. First, Bitcoin is decentralized. For-profit companies own the Visa and Paypal networks and manage them for the benefit of their respective shareholders. No one owns or controls the Bitcoin network. It has a peer-to-peer structure, with hundreds of computers all over the Internet working together to process Bitcoin transactions.

Bitcoin's decentralized architecture means that it is the world's first completely open financial network. To create a new financial service in the conventional U.S. banking system, you need to partner with an existing bank and comply with a variety of complex rules. The Bitcoin network has no such restrictions. People don't need anyone's permission or assistance to create new Bitcoin-based financial services. The second thing that makes the Bitcoin unique is that it comes with its own currency. Paypal and Visa conduct transactions in conventional currencies such as the U.S. dollars. The Bitcoin network, however, conducts transactions in a new monetary unit, also called Bitcoin.

That seems really weird! Why would anyone use a payment network based on an imaginary currency?

It is weird. Almost everyone who encounters the idea for the first time (including me) has the same reaction: That can't possibly work. But so far the market has proved the skeptics wrong:

Bitcoin has captured the imagination of venture capitalists. A startup called Bitpay, which processes Bitcoin payments on behalf of vendors, raised more than $2 million earlier this year. Coinbase, a startup that helps consumers buy and sell bitcoins, has raised $5 million. And last month, a Bitcoin startup called Circle raised $9 million. Why are people so excited? Bitcoin enthusiasts believe that Bitcoin's peer-to-peer architecture and low barriers to entry will allow the creation of a new generation of innovative financial services, in much the same way that the Internet's open architecture led to innovative new online services. There are also many Bitcoin fans who see the currency as an antidote to the inflationary tendencies of central banks, though, as we'll see later, this argument for Bitcoin is misguided.

This just sounds like a bubble. Do people use the currency for anything besides speculation?

I just mentioned Bitpay. It provides a good sign of Bitcoin's growing popularity for "real" transactions. In September 2012, the company announced that it had signed up 1,000 merchants to use its service for accepting Bitcoin payments. Just a year later, the company said, it passed 10,000 merchants. Bitpay works with a wide variety of merchants. Some sell online services like Web hosting or virtual private networks. Others sell jewelry and electronics. There are even restaurants and cupcake shops that sell their wares for bitcoins.

And yes, Bitcoin has significant illicit uses. Programs like Satoshi Dice allow people to gamble online. Until recently, a Web site called Silk Road helped dealers sell millions of dollars of illicit drugs. It's hardly unusual for new payment technologies to attract illicit use. Pornography was a big draw for both the first VCRs and the early consumer Internet. New payment technologies often attract criminals looking for new ways to move their funds without government scrutiny.

Another application for bitcoins that is expected to become more important in the future is international payments. Right now, wiring money internationally involves slow, expensive and inconvenient services like Western Union. Bitcoin is international, and its fees can be much lower than conventional wire transfer services. There's still work to be done to make such a system affordable and user-friendly. But it has the potential to disrupt the international payment industry.

Who created Bitcoin?

No one knows for sure. The currency was created by a person who identified himself as "Satoshi Nakamoto." While the name sounds Japanese, Bitcoin's creator never provided any personal details. He collaborated with other early Bitcoin fans through online forums but never met with other members of the Bitcoin community face to face. Then, starting in 2010 he gradually reduced his involvement in the currency's development. His last known communication came in 2011.

We don't know who Satoshi Nakamoto is, but we do know that if he ever surfaces, he will be an extremely wealthy man. Millions of bitcoins were created in the currency's first two years, and Satoshi likely owns hundreds of thousands of them. At today's prices, he would be a millionaire many times over. Before leaving the scene, Nakamoto passed his torch to a mild-mannered developer named Gavin Andressen, who is currently the project's lead developer. Andressen now works under the auspices of the Bitcoin Foundation, the closest thing the anarchic Bitcoin community has to an official public face.

Where do bitcoins come from?

In a conventional financial system, new money is created by a central bank, such as the Federal Reserve. But the Bitcoin network doesn't have a central bank. So the system needed an alternative mechanism for introducing currency into circulation. Bitcoin's designer solved this problem in a clever way. As I said above, hundreds of computers scattered around the Internet work together to process Bitcoin transactions. These computers are called "miners," and Bitcoin's transaction-clearing process is called "mining." It's called that because for every 10 minutes, on average, a Bitcoin miner wins a computational race and gets a prize. Currently, that reward is 25 bitcoins, worth around $12,500. These prizes provide a strong incentive for more people to join in Bitcoin's transaction-clearing process, helping the currency to remain decentralized.

This reward declines on a fixed schedule: Every four years the reward falls by half. So, from 2009 to 2012, it was 50 BTC, now it's 25 BTC, and starting in late 2016 it will fall to 12.5 BTC, and so forth. If you do the math, you'll find that there will never be more than 21 million bitcoins in circulation. Right now, there are almost 12 million bitcoins in circulation, so the Bitcoin money supply will never be more than twice its current size.

Isn't that a huge problem? I learned in economics class that deflation can cause economic problems.

It's true that deflation has traditionally been associated with economic problems, but there's little reason to think this will be a problem for Bitcoin. That's because deflation is only a problem if it is what economists call a "unit of account" for a nation's economic system. Right now in the United States, salaries, mortgage payments, rents and other long-term financial commitments are priced in U.S. dollars. As a result, if the value of the dollar rises unexpectedly, these "sticky prices" can cause severe economic distortions. Unable to cut wages, employers have trouble making payrolls. Unable to renegotiate their debts, homeowners have trouble making their mortgage payments. Tenants get stuck with rents they can't afford. The result is a recession.

Hardly anyone uses Bitcoin as a unit of account. You'd be insane to sign a contract promising to repay a loan of 100 BTC in 10 years or to take a job where your salary was priced in bitcoins. Even the Bitcoin Foundation, which pays its employees in bitcoins, still sets its employees' salaries in dollars, converting employees' dollar-based salaries into the corresponding number of bitcoins on each payday. As a result, fluctuations in the value of bitcoins don't cause the kinds of economic disruptions that fluctuations in the value of traditional currencies do.

How do I get bitcoins?

One option is to mine them yourself, but that's not a good choice for beginners. For everyone else, your best bet is to purchase them with a conventional currency. Web sites known as exchanges will let you trade bitcoins for conventional currencies with other users. Even more convenient are companies like Coinbase, which will withdraw cash from your bank account and convert it to bitcoins at the current exchange rate. A few Bitcoin ATMs are popping up, which will directly trade paper money for Bitcoins. Here's a video of someone using a Bitcoin ATM in Vancouver:

Okay, I bought some Bitcoins. Now what?

Next you'll need a place to store them. Bitcoins are stored in "wallets," which in this case are just files that contain encryption keys, or secret codes that allow you to transfer your bitcoins to other people. There are several options. One is to store them yourself using one of the Bitcoin programs available for Mac, PC and Android. Another option is to entrust them to a third-party Web site known as a "online wallet." A third option is what's known as a "paper wallet," where you print out your encryption keys and store them in a safe place, such as a safe deposit box.

Each has risks. If you choose to store your bitcoins yourself, then you could lose them to a hacker, a hard drive crash or a lost mobile device. But if you choose to use a third party, you need to worry about that third party swindling you or becoming bankrupt. The Bitcoin market is largely unregulated, so there are few legal protections if you happen to choose the wrong online wallet service. Paper wallets avoid the pitfalls of other methods, but they're tricky to set up correctly, and of course you're out of luck if you lose the piece of paper.

Okay, I have some bitcoins and found a secure way to keep them. What do I do with them now?

There are thousands of Bitcoin merchants online who will sell you everything from jewelry to electronics to illegal drugs. You can also spend bitcoins in "real life." To spend them in person, you need a Bitcoin mobile app. Generally, the store you're buying from will show you a QR code representing the Bitcoin transaction. You then scan that QR code with your phone, and the mobile app will send the required number of bitcoins to the store. Then you walk out the door with your purchases.

Of course, right now the options for face-to-face Bitcoin transactions are rather limited. Earlier this year, Kashmir Hill of Forbes lived on Bitcoin for a week. Because she lived in tech-savvy San Francisco, she was able to find enough Bitcoin-accepting merchants to get by, but just barely. So Bitcoin is far from being a practical currency for day-to-day use.

Should I buy bitcoins?

Probably not. There are two reasons you might want to buy bitcoins: to purchase goods and services or for speculation. Right now Bitcoin isn't a very practical payment technology for ordinary users. The software is too complicated, and the risk of loss due to hackers, forgotten passwords, hard drive failures and so forth are too large. Also, Bitcoin is extremely volatile right now, so your wallet could go from having $100 worth of Bitcoins one day to $50 the next. And right now, as Hill discovered, the technology just isn't used widely enough to make it a useful option to have in your pocket or purse. For most people, conventional payment technologies like credit cards are going to be more convenient.

What about speculating on Bitcoin? Once again, the currency probably isn't a good choice for ordinary users. The security and reliability risks of Bitcoin loom much larger if you invest thousands of dollars in the currency. You don't want to run the risk of losing thousands of dollars because you forgot a password or had an unexpected password failure. And the currency is extremely volatile. It might keep going up, but it could also lose 90 percent of its value next week. In other words, you should only jump on the bandwagon if you have a strong stomach.

If people shouldn't buy bitcoins, then what is all the fuss about?

Once again, the analogy to the Internet is instructive. Until the 1990s, the Internet wasn't a practical technology for ordinary folks to use, either. It used complicated text-based programs, and you had to be a computer expert to use it effectively. But it would have been foolish for an observer in 1990 to dismiss the Internet as too nerdy for mainstream use. Over time, entrepreneurs took the basic infrastructure of the Internet and built innovative and user-friendly online services such as Google, Facebook and YouTube.

Bitcoin boosters are betting that the same will happen with Bitcoin. The "raw" bitcoin network isn't very accessible, but startups like Coinbase and Bitpay are slowly fixing that. Some day soon, someone may develop Bitcoin's "killer app," a program that provides a financial service that has clear advantages over conventional banking. That might be an international money-transfer network with lower fees, a practical system for online micropayments, or something else that no one has thought of before.

Could bitcoins ever replace conventional money?

It's possible, but it doesn't seem very likely. People want to use the currency that most other people use, and in the United States that's going to be US dollars for the foreseeable future. And that's a good thing: if Bitcoin became the standard currency of the US economy, then its fixed money supply would create a serious risk of the next economic downturn snowballing into a depression.

However, there could be a lot of room for Bitcoin to complement conventional financial networks. After all, Paypal gained traction because the conventional financial networks of the day weren't meeting all of users' needs. Bitcoin's open architecture could allow it to be even more disruptive. People are unlikely to ever eschew conventional financial networks altogether, but there could be a substantial market for Bitcoin-based services that perform certain services more effectively or affordable than conventional alternatives.

Chuck Reynolds
Contributor

Alan Zibluk Markethive Founding Member

How scared are banks of bitcoin AND what will they do about it?

How scared are banks of bitcoin
AND
what will they do about it?

 

Whether we consciously think about it or not, banks are intertwined with our lives. We need them, but more importantly, they need us. It’s something to consider, given that there are times the banking industry can sometimes be frustrating, to say the least. Although startups like Simple are trying to bring a friendlier face to banks, it is the underlying system itself that is resistant to change. When faced with the emergence of something like bitcoin, it is worthwhile paying attention to how the banking industry behaves. Many who are working towards building a bitcoin economy believe that banks will need to change.

Risk versus reward

Banks by their nature are always looking to reduce their exposure to risk while balancing out profits from making loans as well as investments on their clients’ behalf. As it stands right now, bitcoin must seem infinitesimal compared to a bank's regular business operations that it is probably not worth contemplation.

Gareth MacLeod, who is a co-founder of Canada-based Tinkercoin, has been able to convince a bank to do business with his company.

“Banks are conservative institutions”, MacLeod says. “From their perspective, they stand to gain very little from working with bitcoin businesses, and stand to lose a lot. Even the largest bitcoin businesses would represent only a few hundreds of thousands of dollars of revenue to a bank, which is pennies to them.”

Global credit card fraud is on the rise. For payment processors, bitcoin could just complicate things. Tinkercoin has experienced rejection by a major credit card company, which is not surprising given that fraud protection is a standard accouterment to possessing plastic. “Their potential losses are in the tens of millions if the business is subject to fraud, or the business runs afoul of the regulators.” MacLeod’s experience with banks and financial companies gives an outsider some perspective on the challenges working hand in hand with the savings & trust down the street.

The onus is on bitcoin companies

The case for bitcoin may be that the companies building bitcoin businesses will simply have to find ways to comply with financial regulations before regularly interfacing with banks. Coinsetter, a bitcoin-based trading platform that bears more resemblance to currency trading than that of Mt. Gox, is geared towards that view. The CEO of Coinsetter, Jaron Lukasiewicz, has had numerous conversations with banks and is certain that the path forward is complete compliance from the start.

Coinsetter’s trading platform, still in beta, allows for investment strategies like margin trading.

“Bitcoin companies, especially exchanges, can succeed by creating strong AML programs before entering into discussions with banks”, says Lukasiewicz. “The more they can guarantee that bitcoins aren’t being sent to bad places, the better.”

In terms of entrepreneurship, this is a vastly different strategy to employ when compared to a regular startup. As anyone who has started a business or worked in a bootstrapped entity, it’s all about doing whatever it takes to get off the ground. With bitcoin, it’s going to be different: if you don’t have the right rules in place from the beginning, there is a risk that you will get shut out of the system and possibly fail.

A guaranteed market

Again, a bank’s propensity to do business with a particular person or entity comes down to risk. It may be that a maker will need to guarantee a market for bitcoins. Remember when Mt. Gox couldn’t handle the trading on its own platform and had to shut down for 12 hours? Banks do not want something like that to happen. Ever.

On April 11, 2013, Mt. Gox suspended trading on its exchange for 12 hours. Banks do not want something like this to occur. John Paul Engel, who runs the boutique management consulting firm Knowledge Capital, believes that a big player in finance is going to have to get involved in decentralized currencies. Only then will bitcoin become legitimized in the eyes of credit card companies, payment processors, and the local thrift. A respected market maker would have to step up and guarantee a market in bitcoins.

Engel believes some institutions will need to “effectively provide a bid (buy) and an ask (sell) spread on a constant basis. The organization would need to have the credibility and the resources to guarantee it. Someone like a Goldman Sachs or Berkshire Hathaway. Someone with deep enough pockets to ensure the float.” Goldman Sachs being a bitcoin market maker? It sounds like something from fiction, but it’s probably closer to reality than ever before.

Banks have two choices

Banking innovation in financial services as a result of bitcoin is likely to take some time. The process that the banking industry goes through to enact any sort of change is slow and calculated. It all goes back to that risk versus reward proposition. Financial institutions have little incentive to “fail fast”, a common method of moving forward in an entrepreneurial or startup scenario. It's what bitcoin startups would prefer to go through in order to develop products and services, but is not realistic.

Many banks are fearful that the sector is about to go through wrenching change. At this point, it appears that banking may have reached a fork in the road. They likely have two choices. Institutions could begin to work within the new, continuously evolving framework of digital money. That would require them to start by recognizing that there is a shift in financial technology and embrace that movement.

Or, they could put a friendly face on an old system. That would be the route that is being put forth with products like Simple. This is whereby a contemporary type of interface masks the traditional, antiquated banking system that is running in the background. We’ll probably end up seeing different banks choosing different routes depending on their attitude of disruptive tech like bitcoin. What do you think about banks working with bitcoin companies? Is it fair that banks don’t want to do bitcoin-based business? What do you expect banks to do when faced with the proposition of decentralized virtual currencies?

Chuck Reynolds
Contributor

Alan Zibluk Markethive Founding Member

Hard Fork Will Slow Bitcoin Price Down

Hard Fork Will Slow Bitcoin Price Down

  

With the ETF decision out of the way, the focus in the Bitcoin community has turned back to the scaling debate. While some proponents of an increase in block size are in favor of a hard fork, South African Bitcoin entrepreneur Vinny Lingham feels that this would negatively impact Bitcoin.

Scaling arguments

The Bitcoin network seems to be choking at the moment, with unconfirmed transactions piling up, transaction fees shooting through the roof and a general sluggishness across the network. Microtransactions have more or less ended, with high transactions fees making them unviable. Everybody agrees that there is a problem but unfortunately, consensus eludes the Bitcoin community on what the solution should be. The Core team believes that retaining block size at 1 MB is crucial to maintaining the distributed nature of the Bitcoin network, while others advocate increasing the block size to increase the network capacity.

Bitcoin Unlimited

Bitcoin Unlimited (BTU), which seeks to transfer power to decide on the block size to the miners, has emerged as a frontrunner to handle this problem. The proportion of nodes who have “signaled support” to Bitcoin Unlimited has increased steadily to over 30 percent. It has overtaken SegWit, currently backed by the Bitcoin Core team, which has 28 percent of nodes supporting it.

The increasing support for Bitcoin Unlimited has had some unintended consequences, with a bug in the software (since rectified) resulting in a number of codes crashing and doomsday scenarios being predicted if Bitcoin Unlimited becomes successful. Once the number of miners signaling support for Bitcoin Unlimited crosses 50 percent, it is possible for a miner to generate a block size greater than 1 MB, thereby forking Bitcoin.

Why is Vinny Lingham against a hard fork?

Vinny Lingham believes that Bitcoin has the potential to reach $3000, only if there is no hard fork.

“Danger on the horizon. If Bitcoin forks, all bets are off and we can kiss $3k BTC in 2017 goodbye…”

Vinny believes that Bitcoin’s greatest asset is its brand awareness, which will get diluted if there is a hard fork. It could lead to confusion for the common man of which Bitcoin is the real one. Merchants might avoid both BTC and BTU because of the confusion. It could also result in rival factions dumping both versions of Bitcoin at exchanges, thereby depressing the price.

Vinny points out to what happened to Ethereum Classic when the Ethereum Foundation sold off their coins. Moreover, the network effect would decrease with users divided between BTC and BTU, thereby lowering the overall value of Bitcoins in circulation. While the block size debate has sharply polarized the Bitcoin community, working together would be the only way to ensure that Bitcoin’s value is not destroyed.

Bitcoin Price Shrugs Off Bitcoin

 

Bitcoin’s price remained stable as news surfaced of a bug in Bitcoin Unlimited (BU) shutting down half of its nodes. On Tuesday, BU’s node numbers dropped suddenly from around 800 to 400, with developer Andrew Stone and investor Roger Ver subsequently confirming that an attacker exploited a bug in the protocol.

 

Stone wrote on Tuesday:

“We are seeing an abnormal, hard-to-create input result in a negative outcome so we are classifying this as a network attack.”

The events unleashed a frenzy of social media activity which even engulfed some of cryptocurrency’s best-known names. Core developer Peter Todd took to Twitter to deny any involvement in the bug, about which he tweeted an hour after the malicious episode began. Responding to Todd, tech blogger Avatar X alleged that fellow developer Greg Maxwell had said that two further bugs were present in BU which had “yet to be fixed.” Meanwhile, received hostility. One BU node operator accused him and other responsible parties of “plain incompetence” as panic gripped a community to whom Ver had only last week unveiled a brand new mining pool.

Chuck Reynolds
Contributor

Alan Zibluk Markethive Founding Member

Someone Wants to Stick a Fork in Bitcoin

Someone Wants to Stick a Fork in Bitcoin

 

Which bitcoin will prevail?

A dispute among the people involved in bitcoin is revealing a paradox of the digital currency: The same resistance to human meddling that drove its popularity may also be its greatest limitation. It seems that the only way to get anything done is to split the currency in two.

At issue is the size of blocks, the batches in which transactions are processed and that make up the links in the so-called bitcoin blockchain. Currently, they’re so small that the whole system can handle only about seven transactions per second — nowhere near enough to compete with, say, Visa network’s 24,000 transactions per second. Some people think that’s a good thing! Bitcoin relies on thousands of internet-connected volunteers, and their operating costs should be kept as low as possible.

On the other hand, many are unsatisfied with the system’s speed. A faction known as Bitcoin Unlimited has released a new version of the software that can create bigger blocks and is now rallying the support of bitcoin miners, who process transactions in return for new currency. The plan is to gain enough minor support to build its own branch-off the chain. Meanwhile, the computer geeks who develop the core bitcoin software have offered their own solution, which not only increases capacity but also enables the creation of low-value payment channels adjacent to the main network — the idea being that people might not need every coffee purchase immortalized on a globally distributed ledger.

Bitcoin and the Blockchain

The standoff illustrates a vulnerability. Because bitcoin relies on a worldwide network of individual computers to maintain the blockchain, one group can — intentionally or not — become separated from the rest. The two networks will thus accumulate different information, creating competing chains. If the “fork” is unintentional, the networks eventually reconnect and discard the lesser chain. But if the fork is intentional, as in the case of Bitcoin Unlimited, it can continue forever.

The insurgents’ software will eventually disconnect from anyone who doesn’t support their blockchain. The most troublesome part is that both sides want to assume the identity of bitcoin. This would be like the Confederate states seceding from the Union, then insisting that they were the real United States and that the northern states had voluntarily left. Ultimately, it will be up to individual users to either choose one chain or recognize both as legitimate currencies.

This is one reason it’s so hard to tame bitcoin by, say, creating an exchange-traded fund so regular investors can get a piece of the action. The ETF filing for the Winklevoss Bitcoin Trust actually includes a provision specifying which bitcoin network it will support in the event of a split. Another ETF filing for Grayscale’s Bitcoin Investment Trust acknowledges that the fund will end up with equal values of two types of bitcoin, and must select one to keep in the fund. Thus far, Bitcoin Unlimited has secured support from the world’s largest mining operation, as well as adoption from about 10 percent of the bitcoin network. Unfortunately, the campaign suffered a minor setback this week thanks to a software bug:

Past rebellions have eventually faded. To make a credible attempt at a coup, Bitcoin Unlimited must recruit major exchanges, wallets, and other service providers. It’s not easy: People who treat their digital currency as real money tend to be risk-averse when it comes to new software. Even the developers of core bitcoin have not yet gained enough support to activate their upgrade. While the impasse might be aggravating for those who find bitcoin transactions too sluggish, it’s far better than a blockchain that is too easily modified. After all, immutability is supposed to be a feature, not a flaw.

  1. Incidentally, larger block sizes increase the risk of such partitions because nodes need to transmit more data to make sure everyone has consistent information.

  2. After a fork, the chain that is kept is the one that took more computational effort to create. It’s often the longer one, but not always.

  3. From the Winklevoss Bitcoin Trust S-1: “In the event of an upcoming modification to the Bitcoin Network that could potentially result in a hard fork with two separate and incompatible Bitcoin Networks, the Custodian, in consultation with the Sponsor, will elect to support the Bitcoin Network that has the greatest cumulative computational difficulty for the forty-eight (48) hour period following a given hard fork, in order to engage in bitcoin transactions and the valuation of bitcoin.”

    From the Bitcoin Investment Trust S-1: “If a permanent fork, similar to Ethereum, were to occur to bitcoin, the Trust would hold equal amounts of the original and the new bitcoin as a result. In consultation with the Index Provider, the Sponsor would select a Bitcoin Network (and therefore a single version of bitcoin). The Sponsor would simultaneously isolate the bitcoin on the Bitcoin Network that it did not select to segregate it from the Trust’s Bitcoin Holdings. The Sponsor’s intention would be to distribute to its Shareholders the bitcoin on the Bitcoin Network that it did not select.”

Chuck Reynolds
Contributor

Alan Zibluk Markethive Founding Member

What Blockchain Means for the Sharing Economy

What Blockchain Means for the Sharing Economy

Look at the modus operandi of today’s internet giants — such as Google, Facebook, Twitter, Uber, or Airbnb — and you’ll notice they have one thing in common: They rely on the contributions of users as a means to generate value within their own platforms. Over the past 20 years, the economy has progressively moved away from the traditional model of centralized organizations, where large operators, often with a dominant position, were responsible for providing a service to a group of passive consumers. Today we are moving toward a new model of increasingly decentralized organizations, where large operators are responsible for aggregating the resources of multiple people to provide a service to a much more active group of consumers. This shift marks the advent of a new generation of “dematerialized” organizations that do not require physical offices, assets, or even employees.

The problem with this model is that, in most cases, the value produced by the crowd is not equally redistributed among all those who have contributed to the value production; all of the profits are captured by the large intermediaries who operate the platforms. Recently, a new technology has emerged that could change this imbalance. Blockchain facilitates the exchange of value in a secure and decentralized manner, without the need for an intermediary.

How Blockchain Works
Here are five basic principles underlying the technology.

Alan Zibluk Markethive Founding Member

Google’s DeepMind has a plan for protecting private health data—from itself

Google’s DeepMind has a plan for protecting private health data—from itself

  

As part of its projects with Britain’s National Health Service, Google’s artificial intelligence unit DeepMind announced last week it’s developing a new way to protect confidential health data—from itself. Its problem: How to assure hospitals, and the public at large, that patient confidentiality isn’t compromised as it processes the sensitive medical health records entrusted to it.

DeepMind’s proposed solution is to create an indelible data log that can’t be tampered with. It would show when a piece of data was used, and for what purpose. Importantly, DeepMind itself wouldn’t be able to modify logs to use the data nefariously. The solution bears resemblance to the “distributed ledger technologies” or “private blockchains” that the financial world has been trying to create in recent years. While loathe to call it “blockchain”—DeepMind prefers the term “verifiable append-only ledger” to describe its health data system—it is interested in one property that the technology can confer upon its users: trust.

While the banks want blockchains to slash back-office costs while staying compliant, DeepMind needs blockchains to shore up public trust. Last year, DeepMind’s work with the UK’s health service was dragged into the public by a New Scientist investigation. The publication found that 1.6 million patient names, addresses, and other information from three London hospitals had been shared with Google’s artificial intelligence subsidiary. It triggered an investigation by the UK’s privacy regulator that is ongoing. DeepMind and the hospitals say they followed the rules.

Huge data sets are what make artificial intelligence work. For DeepMind, access to a trove of national heath data could give it a significant advantage in the race to develop AI techniques for healthcare (although it says the Streams app that it’s devising with the three London hospitals doesn’t involve AI). Nonetheless, DeepMind needs to assure the hospitals—and the public—that it’s handling sensitive medical data safely. “We hope that by building tools like this in the open, we’ll improve the level of trust that patients have with respect to this data access,” DeepMind co-founder Mustafa Suleyman says.

But for all its talk of transparency, letting patients access their own data logs isn’t part of DeepMind’s plan. Suleyman says it might happen one day, but that his firm’s obligation is to the hospitals. DeepMind is the data processor to the hospitals, which are the data controllers. “Our job is to help them do a better job of their own governance. In the long term, you can see the potential patient benefit … but it’s a bit early,” Suleyman says. This is a crucial distinction because under European data protection laws controllers bear heavier responsibilities (pdf).

So who owns what, when it comes to DeepMind’s health blockchain? The underlying data belongs to the hospitals, while the software belongs to DeepMind, says Suleyman. The data logs, created when the software processes the patient data, also remain under the hospitals’ control, DeepMind says. And what happens if there’s an error in logging the data since the records can’t be changed? The hospitals will have to figure that out, says Suleyman. “We provide that [data] set to the controller, namely the hospital. They already have a whole host of processes to deal with various degrees of error that may or may not have been made,” he says.

DeepMind says the system will be used sometime this year. It will be built on a foundation devised by Ben Laurie, its head of security and privacy. While at DeepMind’s parent company, Google, Laurie created a similar system to ensure security certificates issued by websites haven’t been tampered with, called the Certificate Transparency scheme.

For watchers of financial blockchains, DeepMind’s entry to it's space indicates progress for the technology powering these private blockchains. “It’s interesting, whatever it is,” says Simon Taylor, a co-founder of fintech consultancy 11:FS. “And in my opinion, a sign of where the market will move.” Not every business sector will need the sort of global, public, agreement on a ledger’s entries that cryptocurrencies like bitcoin require, he points out. Wall Street now has well-qualified company in the attempt to graft blockchain technology to existing industries.

Chuck Reynolds
Contributor

Alan Zibluk Markethive Founding Member

Congress Takes Blockchain 101

Congress Takes Blockchain 101

The heads of the Congressional Blockchain Caucus want their colleagues to know the technology has many uses besides currency.

 

Congressman David Schweikert is determined to enlighten his colleagues in Washington about the blockchain. The opportunities the technology creates for society are vast, he says, and right now education is key to keeping the government from “screwing it up.”

Schweikert, a Republican from Arizona, co-chairs the recently launched Congressional Blockchain Caucus. He and fellow co-chair, Democratic Representative Jared Polis of Colorado, say they created it in response to increasing interest and curiosity on Capitol Hill about blockchain technology. “Members of Congress are starting to get visits from people that are doing things with the blockchain and talking about it,” says Polis. “They are interested in learning more, and we hope to provide the forum to do that.”

Blockchain technology is difficult to explain, and misconceptions among policymakers are almost inevitable. One important concept Schweikert says more people need to understand is that a blockchain is not necessarily Bitcoin, and there are plenty of applications of blockchains beyond transferring digital currency. Digital currencies, and especially Bitcoin, the most popular blockchain by far, make some policymakers and government officials wary. But focusing on currency keeps people from seeing the potential the blockchain has to reinvent how we control and manage valuable information, Schweikert argues.

A blockchain is a decentralized, online record-keeping system, or ledger, maintained by a network of computers that verify and record transactions using established cryptographic techniques. Bitcoin’s system, which is open-source, depends on people all around the world called miners. They use specialized computers to verify and record transactions and receive Bitcoin currency in reward. Several other digital currencies work in a similar fashion.

Digital currency is not the main reason so many institutions have begun experimenting with blockchains in recent years, though. Blockchains can also be used to securely and permanently store other information besides currency transaction records. For instance, banks and other financial companies see this as a way to manage information vital to the transfer of ownership of financial assets more efficiently than they do now. Some experiments have involved the Bitcoin blockchain, some use the newer blockchain software platform called Ethereum, and others have used private or semi-private blockchains. 

The government should adopt blockchain technology too, say the Congressmen. A decentralized ledger is better than a conventional database “whenever we need better consumer control of information and security” like in health records, tax returns, voting records, and identity management, says Polis. Several federal agencies and state governments are already experimenting with blockchain applications. The Department of Homeland Security, for example, is running a test to track data from its border surveillance devices in a distributed ledger.

The growing demand in the private and public sector for blockchain services has spawned a plethora of startups and enticed hundreds of millions of dollars of venture capital. But the nascent industry is handicapped by an uncertain regulatory landscape at both the state and federal level, says Perianne Boring, founder and president of the Chamber of Digital Commerce, a Washington, D.C.-based trade association.

How should governments use blockchain technology?

Services for transferring money fall under the jurisdiction of several federal regulators, and face a patchwork of state licensing laws. New blockchain-based business models are challenging traditional notions of money transmission, she says, and many companies are unsure where they fit in the complicated legal landscape.

Boring has argued that financial technology companies would benefit from a regulatory safe zone, or “sandbox”—like those that are already in place in the U.K. and Singapore—where they could test products without the risk of “inadvertent regulatory violations.” We don’t need any new legislation from Congress yet, though—that could stifle innovation, even more, she says. “What Congress should be doing is educating themselves on the issues.”

Chuck Reynolds
Contributor

Alan Zibluk Markethive Founding Member