“Bitcoin is a fraud,” – JP Morgan CEO Jamie Dimon.

I just can’t stop thinking about how dumb these Dimon quotes are. In case you missed it, the CEO of JP Morgan Jamie Dimon had harsh words for Bitcoin yesterday.

He, during a Barclays conference, called it a “fraud … worse than tulip bulbs, it won’t end well” and that any JPMorgan “trader trading Bitcoin” will be “fired for being stupid.”

Later in the day during an interview at CNBC’s Delivering Alpha conference, he said Bitcoin “is just not a real thing, eventually, it will be closed.”

“Someone’s going to get killed and then the government’s going to come down,” he said. “You just saw in China, governments like to control their money supply.”

Just the way he incoherently is babbling against Bitcoin belies his lack of understanding or even basic research on what its strengths, weaknesses, history, and capabilities are.

This reminds me of a time in my career I spent meeting with newspapers, trying to get them to see the writing on the wall with blogging. For a period of time, in between my career transition as a technology consultant and software developer into a digital journalist, I thought I could straddle the line between both worlds and talk to newspaper publishers, my clients at the time, about the power and opportunity for digital publishing.

On more than one occasion, I sat in a room with an elder suit who patiently listened to my pitch, and then when I was done and opened up for questions dismissively waved his hands.

“Son, our company has been around for over a hundred years,” they’d say, as if they were all reading from the same script. “This internet thing is a blip on the radar. We’ll outlast it.”

It’s hilarious to imagine that level of ignorance now that all publishing is digital publishing, but this was the honest attitude of heritage publishers at the time.

… and look at the type of world we live in with digital publishing. The market landscape is a mix of heritage media that made the transition (like the Washington Post and your local TV affiliates, for instance), and new performers that found out how to bootstrap and thrive in the new landscape (like the Mashable’s and Buzzfeed’s of the world). The roads they took to get there are littered with the bodies of the companies that I wasn’t persistent or talented enough to convince that the internet wasn’t a fad, plus thousands of others.

That the CEO of JP Morgan is claiming that “Bitcoin is a fraud” is rich, coming from the company who, amongst many other banks, represented highly risky financial instruments as safe enough that when they inevitably collapsed (as many predicted they would), the government felt compelled to bail them out to the tune of trillions. It’s also particularly ironic that the same company calling one of the most widely admired financial tech advancements in history a fraud has had such a poor moral and ethical compass as to what constitutes non-criminal behavior, they’ve been forced to pay over $28 billion in fines since that bailout.

Why would he make these explosive statements about Bitcoin, particularly when his company is openly exploring blockchain technology and how to apply it to their work, particularly when one of their former executives (Blythe Masters) has been so famously pro-Bitcoin? Well, there are a few things at play here.

Profits are down 20%. This is probably the biggest thing. Dimon, on many occasions, has expressed his ambivalent disdain for Bitcoin, but he’s saved the unloading of both shotgun barrels for today. The theory some analysts have expressed to me is that there are a great many bitcoin-friendly IRA and 401k options popping up amongst JP Morgan’s competition, an area where they’ve been loathe to go. It’s not a reach to speculate that during one of the most notable meteoric times for cryptocurrencies, people are moving their accounts away from JP Morgan Chase to more crypto-friendly options and contributing to the shortfall.

JP Morgan is under the mistaken impression, as a company, that you can divorce the blockchain from Bitcoin. I’ve been averse to going too deep on this topic publicly because several companies I respect also hold this opinion (including the company that dubbed me a futurist, IBM). In speaking to members of JP Morgan’s fintech innovation team about this news item last night, they expressed the opinion that they view crypto as an “outgrowth technology” of the blockchain. They said this with such conviction that I had to do a sanity check and make sure there wasn’t some obscure historical reference to the term “blockchain” pre-Satoshi Nakamoto. Turns out, I’m not insane, and JP Morgan is dead wrong. Bitcoin is the reference architecture for blockchain. Removing tokenization and crypto components from blockchain strip out key features that make the technology as powerful and compelling as it is (expositing on this topic is something I’m happy to do at length, but would distract from the topic of this post. If you see me in a bar, come with a nice whiskey neat and ask me this question, and block off the rest of your night).

General denial. Just as blogs didn’t really kill off the idea of the media company, blockchain and bitcoin don’t make obsolete the concept of banks. Very much like the media landscape, however, there is going to be a very drastic redefinition of what banking means. This is inevitable. It probably means the death of multimillion dollar CEOs of international banking conglomerates, and he’s feeling general revulsion at the concept of the floor dropping out from underneath him. More on these concepts later – they’re much deeper than the analysis on this news event will allow for exposition on, but it’s a transformation I’m obviously watching closely, and developing some specific predictions around.

I started writing this around 9 AM, when markets were plummeting down below $4,300 to the $3,750 range. As I’m typing this around 3 PM, markets are rebounding, now coming back closer to $3,840. It’s unfortunate that the opinion of one man has shaken confidence as much as it has, but this is one of the effects of disintermediation between experienced investors and the buckets of money they manage.

As they used to say about all Microsoft software in the ’90s: it’s not a bug, it’s an undocumented feature.

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Ask Doctor Bitcoin: What does a Trump Administration mean for Bitcoin?

DrBitcoinHeader800x465If you’re an American, last week was really weird. Without a doubt, most folks had reconciled with the fact that we’d have America’s first female president, only to have the apple-cart upset at the eleventh hour. We’re now ushering in the age of Trump, and that means a great deal of un-imagined consequences and uncertainty, which are generally not great things for markets.

So what does a Trump Presidency mean in the context of blockchain? I’ll try to examine this from a few perspectives, since both politics and blockchain are many-tentacled beasts.

With regard to what’s being affected, let’s break it down by these categories: “Bitcoin specifically,” “Crypto-currencies in general,” and “The Future of Blockchain Technology.”

Bitcoin, specifically…

Let’s start here: Looking to the night of the election, initial uncertainty expressed itself in a precipitous fall in the Dow Jones Index fund futures, as well as a corresponding explosion of value in Bitcoin. The DJI futures dropped by 1000 points, and Bitcoin blew up by around 50 points, at peak. Very quickly, though, as is common with Republican administrations, the markets found their footing and has since risen to record highs.

DJIA post 2016 Election

Meanwhile, Bitcoin has been subject to a more global set of value-inflencers, but one can clearly see the effects of the election and subsequent resignation on the market price in this 30-day view.

Bitcoin post 2016 Election

What does this mean long-term, though? Should we expect things to remain this stable in the next several weeks and months? I don’t think anyone can definitively say that or anything else. For one, Trump has yet to take office, but even more importantly, it’s still unclear how much of what he’s said is going to make it into actual policy. Trump has literally held every position on every issue during the course of the campaign. Many of the most bombastic campaign promises have now been repudiated in the first few hours after his winning the election.

Basically: the most certain thing about the next four years is how uncertain things really are. This is probably the most reliable way to attempt to predict the market over the next four years (and, incidentally, a strong argument for tried and true conservative investment methods like dollar cost averaging).

One of the things likely to increase in uncertain times, particularly for the immigrant workforce, is foreign remittance. This, of course for Bitcoin, is actually good news. Via Justin O’Connell of Cryptocoin News:

Trump still wants a wall. That’s what he said earlier this week, when Trump revealed his plan to block remittances from illegal immigrants to their families – calling it “welfare” – he failed to demonstrate his understanding of the Internet and contemporary, borderless commerce. If it’s not remittances, immigrants in the US will figure out a way to send their money home if they want to do so. For now, it’s not going to be Bitcoin. But, if Trump does block remittances, you better believe that sooner than later increasing numbers of remitters will look into this blockchain technology. A Trump Administration would propose a rule mandating companies like Western Union Co to require customers prove they were earned legally.

Of course, Bitcoin does not (nor does any other cryptocurrency) require such a rule. It may pose an issue for “legitimate” (read: FinCen-compliant) Bitcoin sellers, since they’d be subject to the same rules as a Western Union. It would, however, be great news for the so-called “grey-market.” Individual Bitcoin-sellers that fall under the legal radar and outside their scrutiny due to low volumes could see their businesses increase, which will ultimately have a positive effect on market price as value transfers to the blockchain while in transit to its final destination.

CNBC and Juniper Research tend to agree. In a report issued this summer said as much:

“If Donald Trump becomes president of the U.S., there is the very real prospect of turmoil on world markets — the Economist Intelligence Unit ranks his presidency within the Top 10 global risks,” said Windsor Holden, head of forecasting & consultancy at Juniper Research, in a statement. “However, bitcoin trading would thrive in such an environment, at least until the impact on major fiat currencies becomes clear.”

Crypto-currency, generally…

This is where things start to get interesting, and really cool depending on your general level of geekery and political inclinations.

First, it’s important to note that while Bitcoin saw an election related bounce, most cryptocurrencies did not. This bolsters the general global perception that Bitcoin, like Gold, is a safe store of value in uncertain times. Bitcoin rose by 3%. Gold rose by 4%. Most cryptocurrency prices, however, were largely unaffected or at least non-correlative to Bitcoin.

“A page in the book of history has turned, and there is an opening to think about some of our problems from a new perspective,” Bitcoin enthusiast, Peter Thiel, who will serve on Donald J. Trump’s presidential transition team, told the New York Times after the election. “I’ll try to help the president in any way I can.”

Something that may help you navigate what the next four years may mean for other crypt-currencies, however, is the realization that cryptocurrencies are becoming more specialized, utilitarian and mature. For instance, take a look at the types of cryptocurrencies that dominate the top ten cryptos ranked by market capitalization:

Nov 2016 coin market cap

Bitcoin still reigns at the top of the chart, but following it you have…

  • Ethereum, at nearly $1B in market cap, which is more of a disruption to traditional cloud like Azure, Rackspace and Amazon AWS than to other cryptocurrencies.
  • Ripple, a coin so fundamentally different than other cryptocurrencies it’s difficult for most Bitcoiners to grok.
  • Monero and Dash, coins devoted to facilitating grey and dark market activity in a way Bitcoin doesn’t aim to.
  • NEM, which is a network designed to, amongst other things, attempt to create a secure messaging network via blockchain.
  • Augur, which is a blockchain-based project aimed at creating a tool for real-world event forecasting.

If you look at the top-ten charts from a year or even six months ago, many of the blockchain projects were also-rans, simple tweaks to existing SHA-256 or Scrypt algorithms. Now you’re seeing a lot of different attempts at facilitating real application value via blockchain protocol. As such, these projects will be broadly affected by who’s in office, but more directly affected by the merits and pitfalls of their own governance and technology choices. One would do better to look at this new class of blockchain market entrants like startups, rather than competing cryptocurrencies.

This, of course, leads me to talk about

The Future of Blockchain Technology under a Trump Administration

trumpymctrumpertonThis is where my personal politics shine through a bit more than in these other categories. Personally, I’ve trended to a political philosophy that has in recent years been termed as Voluntaryist.

Voluntaryism is a philosophy according to which all forms of human association should be voluntary as far as possible (academics over the age of 25 may recognize this philosophy as being, basically, re-branded anarchism). This philosophy is in no part influenced by the things I’ve learned about blockchain technology and cryptocurrency.

Increasingly, technology has been solving societal problems before government has had a chance to put it’s pants on. As I noted in a recent IBM IoT Futurist twitter conversation, the privacy implications of AI in society are vast and need to be addressed immediately to have a real effect for consumers, however the agency governing such things (the FTC) has only one recorded mention of artificial intelligence in their history, and it was a largely ignored set of remarks at an esoteric symposium at NYU last summer.

Conversely, there are real, existential threats to the internet using new technologies (like the aforementioned IoT) that even the leaders in enterprise have no answer for that in-market, proven blockchain already present silver-bullet solutions for.

Meanwhile, you have Donald Trump making incoherent assertions on the campaign trail, and how he’s going to shut down the Internet to prevent terrorism. This is not the administration from which innovative technological solutions or regulation will flow. They’ll still be grappling with whether Trump should be allowed access to his Twitter account while Blockchain endeavors to solve some of the most difficult problems of our age.

  • Tezos tackles decentralizing governance itself.
  • OpenBazaar tackles decentralizing all commerce.
  • NameCoin tackles decentralizing power over the Internet.
  • DevCoin tackles decoupling open source funding from enterprise interests (but itself serves as a model for funding public works projects).
  • Hyperledger is an IBM-initiated project that makes dead-simple using blockchain for a variety of functions, including logistics and supply-chain management.
  • Farmshare, which aims to make trustless the concept of community-supported agriculture.
  • NXT and Ethereum, both of which aim to be a platform of deployment for decentralized applications – a disruption not only for traditional IT, but new-wave cloud service providers (cloud being an arena in which legislation hasn’t even fully caught up to yet).

In all of these cases, there is very little an administration of any stripe could do to impede the progress of these technologies once they’ve been unleashed upon the world, which is a bit of the beauty of blockchain itelf. These tend to be meritocratic, autocratic solutions to societal ills; that is to say, that if they work, they self perpetuate, and if they don’t work, they fail and are replaced by something that does work.

In short, regardless of who’s in charge, the world of blockchain broadly looks bright, indeed.

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2 ways Blockchain technology could have last week’s massive IoT-launched DynDNS attack

I’m attending IBM’s “World of Watson” event this week in Las Vegas, and one of the most murmured-over topics of conversation is the massive malicious application of IoT to execute one of the world’s biggest distributed denial-of-service attacks in the history of the Internet.

In case you missed it, the short version is that millions of connected devices with known vulnerabilities were used to launch an attack on DynDNS, a company that provides DNS service for a broad cross-section of the internet.

From their company blog:

Starting at approximately 7:00 am ET, Dyn began experiencing a DDoS attack. While it’s not uncommon for Dyn’s Network Operations Center (NOC) team to mitigate DDoS attacks, it quickly became clear that this attack was different (more on that later). Approximately two hours later, the NOC team was able to mitigate the attack and restore service to customers.

While it’s been the subject of quiet hand-wringing of IoT advocates and loud criticism from those making their living selling security services, the silver-bullet solution to the problem was clear to me immediately: blockchain.

NameCoin: The solution to a great many looming ills on the internet.

FadiChehade-1024x713I’ve talked about it a few times on my personal blog as well as elsewhere after then ICANN CEO Fadi Chehade came TheCUBE in January of 2014 and dropped a bit of a bombshell: the world has eighteen months to come up with a new governance model for the internet. We asked him on the show if Chehade thought world leaders are prepared to take on the complex and very layered information needed to understand and implement a new model for governance.

Chehade laughed fadingly.

“They are scrambling. Most countries are scrambling, few countries are prepared,” said Chehade. When pressed again for a more direct answer of if they can figure it out in 18 months, Chehade shows his hand. By dodging the question in pulling from in prepared facts dance that avoids saying yes or no definitively, Chehade says in turn says no and rather empathically.

Throughout the interview, he discussed the reasons why the governance model wasn’t tenable (it has to do with perceived political corruption and conflict of interest that other world states hold about America, and its former role in overseeing ICANN). The whole interview is riviting, and worth a watch.

Despite acknowledging that distrust of humans and the organizations built around them is the root of the issue, ICANN hasn’t to this day sought to explore a blockchain solution to the problem, despite it being one of the oldest proof-of-concept applications of blockchain technology.

From the NameCoin foundation’s website:

Namecoin was the first fork of Bitcoin and still is one of the most innovative “altcoins”. It was first to implement merged mining and a decentralized DNS. Namecoin was also the first solution to Zooko’s Triangle, the long-standing problem of producing a naming system that is simultaneously secure, decentralized, and human-meaningful.

It was and continues to be a very elegant solution to the corruption problem. Because it’s commonly merge-mined with Bitcoin, it’s not succeptible to a 51% attack like many other niche cryptocurrencies. It operates according to some rules inherent to the protocol, and isn’t subject to human whims or influence. In short, it solves the dilemma Chehade describes.

More germane, decentralization solves the issue a DDoS attack on DNS systems would present. The record of domain ownership is public information and self administered by the protocol, so targeting one specific set of DNS servers would be a minor inconvenience rather than a far-reaching catastrophe. Literally anyone can pop up a node, block explorer and bolt on a DNS service with NameCoin with no cost other than the hardware it runs on (for a more technical explination, head to this GitHub repo).

Securing the Internet of Things with Blockchain.

I had a conversation with an IBMer when I first arrived about the DynDNS attack, and how IBM’s cognitive analytics could have possibly prevented the attack by hardening security on the specific attack vectors by recognizing patterns in the attack. It is an interesting and highly complex solution to a very difficult problem, but I think the blockchain poses a much more elegant solution to this particular issue (and is implementable with already in-market technology).

One of the lowest hanging fruits would be device firmware hashing, which works a little like this:

  1. screenshot-2016-10-26-at-1-23-21-pmA device (like a connected thermostat or a lightbulb) essentially has a complete system on it akin to any other computing device. It has a lightweight OS, usually imaged on a chip or an SSD and a wireless connection to a hub or the internet itself.
  2. In a world where it’s secured by the blockchain, it would periodically “phone home,” by connecting to the internet, looking up it’s nearest Bitcoin node, and looking for the most recent ledger entry that contains a hash file, or even possibly an encrypted boot image for the device.
  3. It will compare the hash files with the hash files on the device itself. Because the blockchain is immutable once a write operation has occurred, if the hashes do not match, the device can immediately know whether it’s been tampered with or had it’s boot image altered.
  4. As a hardcoded part of the boot sequence, you can have the device re-image itself (or brick, depending on the situation) when it fails the checksum.

This is not dissimilar to an immune system flagging a foreign body. In this way, scaling security for a wide variety of devices becomes simple, and it’s attainable today. This method not only adds a layer of security it adds longevity to IoT devices, particularly for devices created by startups with uncertain futures.

Every IoT-style light bulb or thermostat requires a ‘cloud,’ or someone else’s computer, in other words. Surely, no manufacturer will want to maintain a portion of a database servicing such devices for 10 or even 15 years. ‘A publicly accessible computing protocol married to a database with impenetrable security;’ this basically describes both Ethereum and a perfect scenario for IoT. Any device with the built capability can spend ETH from it’s wallet to communicate via the blockchain.

Getting there isn’t a real big challenge, surprisingly.

disney-chainThe beauty of these solutions is that there’s no need to re-invent the wheel on this. IBM has a great set of tools I’ve learned a bit about this week in Hyperledger, which can be very useful for a variety of functions where a semi-private blockchain can come in handy. There are some great low cost solutions for launching IBM’s Hyperledger implementations, but growing it to meaningful size could get quite pricey (some implementations can be upwards of $10,000 a month).

Implementing a device-level hashing function can be quite cheap, though, and run off existing public blockchains. A non-Turing-Complete implementation can literally cost pennies to maintain, and an Ethereum implementation could be only marginally more expensive.

Likewise, a NameCoin-like solution could not only be a silver bullet solution to ICANN’s security weakspots, but a profitable venture to engage in. A NameCoin has a market value of greater than zero (a $3.7 MM market cap), and it’s essentially nothing more than a functional prototype. Depending on the approach to the creation of the ledger, the foundation that develops the solution can fund itself for the foreseeable future with a crowdsale of their initial token (or pre-mine, depending on the underlying ledger type).

And the excuses against taking the leap into blockchain are rapidly shrinking. Just this morning, Disney corporation announced the release of the opensource framework they’re going to use to issue their own blockchain-based tokens and coins; it was an interesting announcement, but they key take-a-way is that those still resisting blockchain based solutions are now getting lapped by a literal Mickey Mouse solution.

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Ask Dr. Bitcoin: What is Dollar Cost Averaging?

DrBitcoinHeader800x465The typical cryptocurrency enthusiast goes through a few steps as they continue their journey, particularly if they see any early gains with their crypto investments.

  1. Initially, they’ll put in some sum of money – usually small – into a cryptocurrency and see some amount of gains and get excited. They’ll either be excited by the gains themselves, or they’ll be excited by the process of learning how easy it is to do (compared to the mountain of challenges one has to go through in a more traditional investing situation).
  2. Subsequently, if they’ve invested via an exchange, they may try their hand at day trading. If they invested by buying from someone in person, they’ll watch the price of the coin several times a day, perhaps obsessively with a dedicated screen, rejoicing and decrying minute moves in the market.
  3. After burning out on watching the market obsessively, they settle on either buying and holding (and putting their head in the sand on price), or taking a measured approach to watching the price on a periodic basis.

I know this is the journey I took – and my third step included a detail that has become common amongst advanced bitcoin users: buy-and-replace.

Essentially, using a constellation of tools that allow me to easily buy and spend my bitcoin, I kept a relatively stable amount of bitcoin in my account by buying goods and services with BTC and then immediately re-buying that same amount. As I grew more comfortable with holding large amounts of money in bitcoin regardless of what the price per bitcoin was, I added another step to this – I’d buy-and-replace, but when I replaced, I’d buy whatever I spent plus an additional 10%.

Screenshot 2016-08-15 at 9.10.55 PMOver the first year or so of doing this, I noticed that the amount of bitcoin I held grew rather quickly as compared to years past, as did the total value of the amount – which was particularly interesting considering that it was a bear year (that is a year where the price on average decreased over the course of the year).

I thought I had stumbled onto something unique, but my larger-than-expected gains were due to a time-worn technique called Dollar Cost Averaging (DCA). Dollar cost averaging is an investment technique of buying a fixed dollar amount of a particular investment on a regular schedule, regardless of the share price. The investor purchases more shares when prices are low and fewer shares when prices are high. The end result is that a disciplined investor can spend a sum of money spread out over time in a fluctuating market and net more value than investing a lump sum of the same amount.

I invited one of my friends (as well as my family’s financial adviser) David Salmon of Primerica over to the offices better explain the concept using a couple of analogies he uses when asked about the concept. He uses two stories to help explain it that are particularly illustrative, and can likely help you formulate an investment strategy of your own that will help you take advantage of fluctuations in the markets that will allow you to not sweat the small (and large) market changes that are all-too-common to cryptocurrency.

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Ask Dr. Bitcoin: What does the Bitfinex Heist mean for cryptocurrency?

IMG_6069So last night, as my team was readying itself for one of the most well-attended #BigDNT presentations in memory, my attention was elsewhere, as one of the most precipitous price falls in Bitcoin history was underway. I posted to my Facebook account a quick update at the time:

So if you’re wondering why Bitcoin is dropping in price today (and why your other crypto portfolio is hurting as well), one of the leading American crypto exchanges has had a major hack, and has lost around $70-85 MM of user funds, according to reports on Reddit and Twitter.

Bitcoin will recover, but it’s unclear if Bitfinex (the affected exchange) will.

This further highlights the need for decentralized exchanges.

Technologies like Ethereum and OpenBazaar are the primary beneficiaries of today’s events (after the thieves themselves, of course).

Those are the hard facts. Here are some more:

  • Bitfinex was one of the highest volume crypto exchanges on the planet, and was based in Hong Kong.
  • They have temporarily ceased trading after the company reported a security breach that led to the theft of a large number of bitcoins.
  • The amount believed to have been stolen is 119,756 bitcoin, which at the time of writing is valued at $65.6 million.
  • Bitfinex said in a blog post that they were investigating the breach to determine what had happened, but they “know that some of our users have had their bitcoins stolen.”
  • Some of the blame almost undoubtedly rests with their security partner BitGo.
  • The theft itself is said to have been reported to legal authorities.

The market very quickly punished the Bitcoin price, dropping within hours of the news all the way to $465 per BTC before “dead cat bouncing” back well above 560. As of the time of this blog post, the price was steadily rising past $550 per coin.

Screenshot 2016-08-03 at 11.01.30 AM

What does it mean, though?

13876114_1718535025076699_4679288151748508142_nWhile this is certainly a highly significant event in the world of cryptocurrency, it’s not the most significant, it won’t be the last of its kind, and it will not kill cryptocurrency in general or Bitcoin in particular. The market capitalization of Bitcoin is nearly $9 billion, and $85 million only represents a small fraction of that.

There will certainly be many experts with very salient advice about what went wrong and how it could have been prevented, but the most fundamental thing to address in my opinion is the issue of centralization.

Bitcoin and most cryptocurrency was designed with many core principles in mind, and fundamentally these principles require decentralization. In the minds of the early founders of Bitcoin, decentralization represents the ability of Bitcoin to survive corruption, security threats, and “bad actors” like thieves and criminals (or more cynically, bad actors like regulators and administrators). Simply put, if you don’t have a central authority regulating and hoarding large pools of capital, you get rid of many of the existential threats that exist and threaten traditional monetary systems.

What’s interesting, though, is that while the means of decentralized transfer and maintenance of the system was built into the design of Bitcoin, one key piece was left out: the means of deriving market value or currency exchange. As such, to fill that gap, people and organizations started creating what basically look like traditional marketplaces – places where capital pools and becomes vulnerable in the typical ways that banks and other capital pools are vulnerable to bad actors and bad circumstance.

How does this benefit Ethereum?

This is why in my original post I said that this leaves Ethereum and OpenBazaar as the primary beneficiaries. Both of these technologies enable large-scale decentralized exchange. The technologies and digital organizations that enable this are still nascent and lesser known, but the concept is solid, and the outcome is real: trustless exchange of value in an environment less attractive to hackers. These large pools of capital are always going to be a honeypot for those that would like to make off with the money. In a decentralized exchange situation, you can store your own value in wallets that you control until it’s time to make an exchange, at which time the value exchange happens.

Any technology companies or cryptocurrencies that continue to adhere to the principles of openness, transparency and decentralization will be the primary beneficiaries of the natural evolution of this technology, and now is the tail end of the time to be considered a first mover in this space. It was in response to some of the large heists several years ago that OpenBazaar and other decentralized marketplaces were started. It won’t take too many more major heists like this to further push users towards experimenting and using as a natural course of things these decentralized technologies.

[Notes: A small portion of this post was quoted verbatim from a SiliconANGLE post by Duncan Riley, re-used under their published Creative Commons BY-SA license. -mrh]

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YoCoin, a local Dallas-run cryptocurrency.

IMG_6204On Thursday evening, I was invited to give a brief talk at the meetup for a new cryptocurrency, YoCoin. I was first introduced to the group by happen-stance, when two locals from the marketing team for YoCoin came in to make a Bitcoin purchase. I’ve had the good fortune in the intervening time to get to know them and investigate the cryptocurrency they’ve been working on.

Initially, I wasn’t particularly interested in yet another alt-crypto. There are so many of them out there, it’s impossible for even someone who monitors the alt world full time to keep track of much more than their names. I did go and check out YoCoin after they told me a bit about their business during one of the times they came in to buy from me, and I discovered that while it was a mostly unremarkable scrypt currency algorithmically, the adoption curve was quite impressive.

YoCoin launched around the beginning of the year, and has shot up from a couple pennies per coin to a peak of over $.30 per coin a few weeks ago (it’s now around a quarter).


What piqued my interest is why it shot up so high, so I talked to Bruce and Sam, the gentlemen marketing the coin locally. The thrust of their approach has to do with focusing on merchant and user adoption outside the bubble of crypto and finance geeks who usually go in for these things. That’s interesting to me, because that’s essentially what’s been cryptocurrency’s biggest issue: they’ve usually a rock solid technology-base, but no way to market it to people who aren’t crypto-anarchists or grey-market enthusiasts.

In a world with thousands of scrypt-coin clones, what’s interesting about YoCoin is it’s team and their commitment to market smarter (read: outside the bubble) and develop better UX and UI than what cryptocurrencies are generically known for.

I’ve been hoping for local Dallas action in the crypto space, and now we have it. I’ll be watching YoCoin closely to see how it evolves.


[Disclosure: YoCoin is in talks with Barista Ventures (where I’m a Venture Partner) to execute an app development deal. YoCoin is also a frequent buyer of Bitcoin from Roger Wilco, my new content marketing startup.]


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Dell’s move to Bitcoin reflects their philosophical core.

Michael Dell on theCUBE with John Furrier and Dave Vellante at DellWorld 2012.

Michael Dell on theCUBE with John Furrier and Dave Vellante at DellWorld 2012.

Maybe I nicked this statement from someone, or maybe I come up with it, but a phrase I use a lot when I talk to people about Digital Autonomous Organizations is “.. the economy and the state are engineering problems, not political ones.”

What struck me from the Dell announcement around Bitcoin acceptance is this is reflective of a core belief in at least a version of this philosophy.

In late 2012, Michael Dell came on my show(theCUBE) to talk about the changes in the industry and at Dell, and had this to say:

“When I look at the big opportunities that exist in the world and the big unsolved problems, be they in medicine, in education, in energy or the environment, I think that these are problems that technology will solve.”

“I think about the innovation that’s occurred over the last couple decades that I’ve been in this industry where IT used to be this sort of back room activity with a couple of guys wearing pocket protectors involved in, and now you essentially can’t even run a business if technology isn’t involved.”

A few months after he said this on our show, he went on to take Dell private, a move that’s allowed them to go deep into bleeding edge technology moves like Bitcoin and 3D printing.

Dells moves in 3D printing have forced competitors to get serious about the business as well (like HP).

We might be at the knee of the curve here; Dell’s acceptance of Bitcoin just might push other major enterprise players to start thinking about Bitcoin in the same way.

[Originally posted by me to /r/bitcoin. Feel free to upvote it there if you like it.]

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Ask Dr. Bitcoin: Is Bitcoin Anonymous?

DrBitcoinHeader800x465A common misconception is that Bitcoin is an anonymous currency. What it offers is a kind of ‘pseudo-anonymity’ (or ‘pseudonymity’), which means that if the someone were inclined to trace Bitcoin transactions or investigate Bitcoin addresses, they can do so just by looking at Blockchain.info, BlockExplorer, or any a number of open source tools used to perform forensics on the blockchain.

The blockchain is a ledger wherein all Bitcoin transactions are recorded. It offers pseudonymity, since people’s names and addresses aren’t reflected in the ledger, but the Bitcoin addresses can still be tied to a person through good old detective work. It might entail a little digging around, but as Silk Road founder Ross Ulbricht was unfortunate enough to discover, the owner can certainly be traced.

A new Bitcoin wallet, ‘Dark Wallet’, aims to protect the identity of users by taking pseudonymity to anonymity. Dark Wallet is a project created by Cody Wilson and Amir Taaki. Wilson gained attention last year when he fired the first-ever printed gun, while Taaki is the anarchist developer behind the DarkMarket, a decentralized online black marketplace that aims to become the next Silk Road.

Wilson and Taaki launched an Indiegogo campaign last October for their Bitcoin wallet, and it was quickly funded in cash and Bitcoins. Dark Wallet can be downloaded and run with the Chrome browser.

Just go to https://github.com/darkwallet/darkwallet, click ‘Download ZIP’, unpack the ZIP file, go to ‘chrome://extensions,’ enable Developer Mode, click ‘Load unpacked extension’ and select the unzipped folder.  This is a pre-alpha preview which means users can expect glitches and instability from the software.

How Dark Wallet works


darkwalletSo how can software protect one’s identity? Dark Wallet uses a technique known as CoinJoin, which has been around since the early days of Bitcoin. CoinJoin makes it possible to anonymize transactions by combining random Bitcoin transactions so the blockchain records two transactions as one. Before, you’d have to have coding skills or crypto-prowess to use CoinJoin, so not everyone enjoyed the anonymity it offers. Dark Wallet makes it simple for any Bitcoin user to mask their identity.

For example, Mike is buying a My Little Pony stuffed toy from an online seller, and at the same time, I could be buying a truck of weapons-grade plutonium from an online black market to power a new alternative-energy car battery I’m working on. Both Mike and I use Bitcoins to pay for our purchases. What Dark Wallet will do is combine the two transactions so it will be reflected as one on the blockchain (along with many other wallet users). This makes it impossible to determine who bought what. Dark Wallet will also allow users to run CoinJoin even when they’re not making any purchases or payments, in order to mix their Bitcoins and send them to another address owned by them. This makes it harder to determine the identity of Bitcoin owners.

The more CoinJoin is used, the harder it will be to trace who owns the Bitcoin.

“When you start to join transactions, it muddles them,” said Taaki. “As you start to go down the chain, you can only be 50 percent sure the coins belong to any one person, then 25 percent, then one out of eight and then one out of sixteen. The conditional probability drops very fast.”

Enticing for criminals


Bitcoin-Image2778935760Since the inception of Dark Wallet, Wilson has been plagued with questions as to its purpose. Dozens of critics have suggested it will make money laundering even easier, encouraging more illegal activities.

By telling people you can buy things using Bitcoin and Dark Wallet anonymously, the obvious fear is it will be used to buy illicit drugs, illegal ammunition, or even fund pornographic sites catering to pedophiles.

Back in December, Jon Matonis, executive director of the Bitcoin Foundation, said in an interview that Dark Wallet’s effort is consistent with the foundation’s goal of promoting and developing Bitcoin into a private, government-free currency, but admitted that he is concerned with some of the aspects of the Bitcoin wallet. For one thing, even the name “dark wallet” has negative connotations which could cause people to assume it’s been designed for illicit activities.

Because of these concerns, some are wondering if the authorities may attempt to prevent the launch of Dark Wallet.

Stephen Hudak, spokesman for the U.S. government’s Financial Crimes Enforcement Network, declined to comment specifically on Dark Wallet, but stated that agency is “well aware of the many emerging technological efforts designed to subvert financial transparency.”

“It’s certainly our business to be interested and vigilant with respect to any activities that may assist money laundering and other financial crimes,” he added.

The ‘F’ word


Wilson knows that Dark Wallet will probably be used for illegal transactions like the purchase of drugs, but that’s not his intention.

In a previous interview, Wilson insisted there’s a need for anonymous cash online, and stated that, “It’s not that I want you to buy drugs. It’s just that I think you should have the freedom to do it.”

Yup, the ‘F’ word. Freedom. That’s what Dark Wallet is attempting to offer to Bitcoin users. Skeptics may wonder what anonymity has to do with freedom.

Mcnealyemcworld2012Sun Microsystems co-founder (and @theCube alumn) Scott McNealy famously said once that “You have zero privacy anyway. Get over it.”  Much later on, Google CEO Eric Schmidt said “If you have something that you don’t want anyone to know, maybe you shouldn’t be doing it in the first place…”

The problem is that in these modern days, one never knows when one is breaking the law.

An interesting thought exercise is to attempt to imagine how many people (experts, if you will) do you think you’d have to gather into a room to understand the totality of just federally enforceable American law? How many people (again, trained experts in the law, so we can somewhat reduce the number) do you think would be required to understand the totality of federally enforceable American law that was passed for 2013? What about the totality of the tax code that was put into place in 2013?

Ignorance of the law excuses no man, as the axiom goes. I wonder if you can say that still truly applies when the number of experts required to know the totality of the law is hard to imagine, even for those with large imaginations?

When thought about in these terms, it’s not difficult to imagine how having a way to completely obfuscate one’s financial path can be handy. By providing a way to make anonymous purchases, people will be free to buy things they have longed for without worrying about being judged or prosecuted for committing a crime of ignorance.

The goodness that anonymity offers should not be overshadowed by how others can use it for wrongdoing.

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Ask Dr. Bitcoin: Can I donate Bitcoin to politicians?

DrBitcoinHeader800x465As someone who has a keen interest in cryptocurrency and has a history in political campaigning, I am one of those peculiar animals who knows Federal campaign finance laws and enjoys learning new things about them.

[Disclaimer: I am not a campaign finance lawyer. I’ve been a journalist for far longer than I was involved in campaign finance. My interpretation should not be taken as anything other than informed opinion. For best advice, seek an actual lawyer who specializes in campaign finance.]

As such, I’m happy to convey the news this week concerning US FEC guidelines around crypto-donations to federal campaigns. In short, the government says “OK.”

The US Federal Election Commission (which exclusively governs national election campaigns) has released a proposed draft that addresses Make Your Laws’ inquiry regarding Bitcoins.

Make Your Laws, an organization that facilitates political contributions, previously submitted a petition asking for Bitcoin contributions of up to $100 for campaign to be permitted. The decision regarding the matter was delayed as Bitcoin has raised many questions, specifically anonymous donors.

The proposed draft states that Bitcoin can now be accepted as campaign donations and the digital currency will be considered as in-kind contributions like stocks and art. This is great news for election candidates as it gives them more avenues for accepting donations, and could potentially allow them to tap into a new community of contributors. And this is even better news for politicos who are already accepting Bitcoin donations, even without the FEC’s consent, as everything becomes above board and less questionable.

But whether you’re an election candidate who’s elated by this news, or someone who wants to donate using Bitcoin, there are some things you need to know first.

Like all political donations, they won’t be anonymous


fecWhen donations are made in cash, political action committees are required to deposit that amount in a campaign depository within 10 days upon receipt. Since Bitcoin will be treated as an in-kind contribution like art or stocks, it can be held in a Bitcoin wallet indefinitely, but once it is liquidated, the amount should be put in a campaign depository.

MYL will handle Bitcoin donations and will require details like the name, physical address, occupation and employer of the Bitcoin donator. This is so it can verify that the amount being donated is legal, comes from an American citizen, and that the contributor is the owner of the digital currency being donated. MYL will then provide a one-time Bitcoin address for the candidate to accept the digital currency.

You can’t spend it, directly.


The FEC proposed draft stated that PACs can purchase Bitcoins using campaign funds for investment purposes, but the digital currency cannot be used to pay for anything campaign-related. It cannot be used to pay for services rendered by a campaign team or pay for campaign materials or ads. What they need to do is turn Bitcoins into dollars by selling them, put in the campaign depository, which can subsequently be used for disbursement.

Bitcoin price fluctuation is one of the areas where many entrepreneurs have stepped in to make cryptocurrency more user friendly.

Bitcoin price fluctuation is one of the areas where many entrepreneurs have stepped in to make cryptocurrency more user friendly.

Sai, the president of MYL, told us: “The reason for this has nothing to do with Bitcoin’s volatility, but
rather with a nuance of election law — whether it’s in-kind or
currency. The final draft (unlike drafts A & B) very carefully does
not actually say either way (though it says it should be reported like
in-kind and can be held like in-kind). If it were fully treated like
in-kind, then previous AOs create precedent that would allow it to be
used for barter, and they couldn’t come to an agreement on that, so
the opinion walks a fine line to avoid opining on it.”

For now, MYL advises contributors to keep Bitcoin donations small, about $100 worth as it is an amount of money that is not going to raise some of the bigger issues that might accompany a Bitcoin transaction.” It should be noted that MYL is only providing their interpretation on the guidance; the $100 of crypto shouldn’t be seen as a legally binding limit, only the limit they sought approval for.

Because Bitcoin exchange markets are open 24/7, its value is constantly fluctuating. Therefore, the  the FEC’s final AO suggests that PACs should value Bitcoin contributions based on the market value of the digital currency when the contribution was received.

Reporting and monitoring


Receiving Bitcoin contributions should be reported like any other in-kind contributions, and if the Bitcoins are sold, it is the PAC’s duty to report how much the Bitcoins were sold for.  The same rule applies for Bitcoins purchased using campaign funds. The amount of Bitcoin purchased, how much money was used to acquire it, and how much money was received when the digital currency is once again sold, should all be reported.

It should also be noted that any transaction fees which arise from the use of Bitcoin should not be deducted from the original value of the contribution.

“The Committee must treat the full amount of the donor’s contribution as the contributed amount for purposes of the limits and reporting provisions of the Act, even though the Committee will receive a lesser amount because of [the] fees,” the proposed draft stated.

tl;dr: Accepting Bitcoin in campaigns is more complex than sending it.

It should be noted that the Federal regulations may be used as guidelines in state affairs, they do not directly apply as the Federal regulations only govern national elections (Presidential, Congressional and otherwise). I should also not that there have been several instances of politicians taking Bitcoin for political donations prior to the guidance from the FEC, and at least one who has since.

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Ask Dr. Bitcoin: How big of a terrorist threat is Bitcoin?

Dr Bitcoin at EMC WorldI’m traveling out West this week, in Las Vegas for EMCworld (catch the coverage I’m producing with the team on our live channel through Wednesday!), so for folks on the East coast, I’m sleeping in a bit later than them. You can imagine why I was a little bit alarmed this morning to get a call at 6AM Pacific time from Wells Fargo asking what Bitcoin was, how I used it, and if I sold it to other people.

I was caught in a net that Wells Fargo appears to be doing of their customers who interact with popular Bitcoin transaction facilitator, Coinbase. They seemed keenly interested in my expertise around Bitcoin and exactly what I was doing with this mysterious internet stuff (“So Bitcoin is like Paypal, basically?”).

Since the September 11 terrorist attacks, the US government has put in place numerous security measures to try and prevent such a horrific event from happening again. One of these measures is the USA Patriot Act, which gives different government agencies extensive powers to counter terrorist acts, which among many other things includes “Know your customer” regulations aimed at preventing regular folks from acting as money service providers, as a way of preventing terrorists and drug dealers from proliferating.

Another outgrowth of the Patriot Act and it’s regulations around money, a division of the Department of Defense is looking into Bitcoin and other digital currencies and their potential to help finance terrorist acts.

The Combating Terrorism Technical Support Office, which identifies and develops counterterrorism abilities as well as investigating irregular warfare and evolving threats, is now looking into how virtual currency may help fund acts of terrorism.

An unclassified memo by the CTTSO was obtained by Bitcoin Magazine, which revealed concern about how virtual currencies can be used to finance threats. The memo suggested what areas should be looked at to determine the level of threat virtual currencies actually pose.

“The introduction of virtual currency will likely shape threat finance by increasing the opaqueness, transactional velocity, and overall efficiencies [sic] of terrorist attacks,” the memo read.

The memo proposes solutions to be considered, such as identifying relevant case studies from the last 20 years and exploring funding instruments that supports terrorism; determining types of “red flags” that can emerge with the introduction of virtual currencies; investigating how virtual currencies can be used to predict future attacks; and developing and deploying strategies to prevent them, among others.

The memo depicts Bitcoins and other virtual currencies as something that can be used for both funding and counteracting terrorism.

DrBitcoinHeader800x465Many people believe Bitcoin is an anonymous currency. This is not entirely true, but there are measures users can put in place if they don’t want to obfuscate the path money takes.

This is obviously what concerns the authorities. Bitcoin and virtual currencies could easily be used to fund threats. Even so, that doesn’t mean Bitcoin transactions go completely under the radar – as Ross Ulbricht, founder of the notorious Silk Road website, found to his cost.

Smear campaign?

The problem is that instead of trying to understand Bitcoin before labeling it as good or bad, some people have jumped to conclusions due to the bad press its received in the past.

Pelle Braendgaard, the CEO of Bitcoin wallet Kipochi, explained in an interview that the cryptocurrency can actually help governments better understand what’s happening with their economies since every transaction is recorded on the block chain, unlike when using real money when no one has a clue where the money ends up.

Money laundering  1-13-14Yes, cryptocurrency can be used to fund terrorism (and Overstock.com and Nascar…), but it is quite unfair to single it out for that purpose. After all, US dollars can and are used to fund terrorism all the time. All of the so-called ‘worries’ about Bitcoin could be perceived as propaganda to dissuade people from using it.

The safest bet for would be terrorist sponsors will always be cash, something that can’t easily be traced back to them. Quite unlike Bitcoin, where every transaction is recorded publicly on the Blockchain.

During the U.S. Senate hearings on Bitcoin, FinCEN director Jennifer Shasky Calvery told Congress that “…cash is probably still the best medium for laundering money.”

It should also be noted that charitable foundations have been used to accumulate funds for terrorist activities too. A case in point is the Holy Land Foundation for Relief and Development, which was convicted in 2004 by the US federal court of funding Hamas, a Palestenian Sunni Islamic organization with a military wing that doesn’t care if civilians get hurt during operations (a story I covered very closely in my online coverage at the time as well as my post 9-11 radio briefings for WABC).

At the end of the day, at this juncture, Bitcoin poses an almost inconsequential security risk to what those who seek to curb money laundering for the purposes of national security and drug prevention mostly because of the market cap for the cryptocurrency. Bitcoin is still in the early days of its life; the market cap of Bitcoin is shy of $6 billion (and the market cap of all other alt-currencies is certainly shy of $2 billion). Globally, it is estimated that there is around $5.5 billion laundered each day. While the potential disruption of Bitcoin is great, it’s barely a blip on the radar when it comes to current criminal enterprises.

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