NPR Money - Why ACH (Direct Deposit) Transfers Take So Long
Ever wondered why it takes several days to get money from your bank to Dwolla or Coinbase? Those two services use the Automated Clearing House (ACH), sometimes referred to as direct deposit, network in the U.S. This NPR Money podcast by David Kestenbaum and Alex Blumberg (@abexlumberg) shows how the sausage is made for an ACH transaction.
Ruben Alexander (@BitcoinBash) created a transcript of the interviews published in a LetsTalkBitcoin podcast (@LetsTalkBitcoin) for those voting for candidates for the Individual Seat of Bitcoin Foundation board election.
A new version of the Bitcoin-Qt and Bitcoind clients, v0.8.4, includes a fix for a bug that can be exploited as part of a denial-of-service attack against the Bitcoin network. Without this fix, Bitcoin-Qt/bitcoind nodes that receive a specific message that can cause the client to crash.
A new version of the Bitcoin-Qt and Bitcoind clients, v0.8.3, includes a fix for a bug that can be exploited as part of a denial-of-service attack against the Bitcoin network. Without this fix, Bitcoin-Qt/bitcoind nodes that receive a specific over-size message can crash.
[Update: The Listen button for the audio player widget above isn’t loading the audio file properly. Instead the episode’s post on Capital Thinking has a flash-based audio player, or the MP3 can be downloaded directly.]
Online radio program Capital Thinking, hosted by Kevin O’Neill, interviews guest Carol Van Cleef for a conversation on the usage and implications of the digital currency Bitcoin.
Ms. Van Cleef is a Certified Anti-Money Laundering Specialist (CAMS) and licensed attorney and partner at law firm Patton Boggs, LLP. She frequently speaks on AML compliance-related issues.
In a post on BetaBeat by editor Jessica Roy (@JessicaKRoy) includes confirmation from Dwolla that funds held by Mt. Gox in the U.S. had been seized by the U.S. authorities. Excerpts:
“‘The Department of Homeland Security and U.S. District Court for the District of Maryland issued a ‘’Seizure Warrant’’ for the funds associated with Mutum Sigillium’s Dwolla account (a.k.a. Mt. Gox),’ [a representative from Dwolla] said. ‘Dwolla has ceased all account activities associated with Dwolla services for Mutum Sigillum.’”
[Note - Camp BX, based in the U.S., is the only other market exchange that allows accounts to be funded with Dwolla and performs withdrawal of USD balances to Dwolla. FastCash4Bitcoins performs cash-out service to Dwolla.]
Released following the Bitcoin blockchain fork on March 11th 2013 was an updated v0.8 client (v0.8.1) that temporarily respects an undocumented limit found in all prior versions of the Bitcoin-Qt/bitcoind clients.
That temporary grace period ends and on May 15th 2013 (12:00 am / 00:00 UTC) any node that still hasn’t been fixed to remove this limitation will eventually find itself rejecting valid blocks from the Bitcoin blockchain. It is possible that these unfixed nodes will see block confirmations but those blocks will not be part of the longest chain so it is critical that no commerce continue on or after May 15th using a node that hasn’t been upgraded.
Jeffrey Tucker (@JeffreyATucker), editor of Lassez-Faire Books and past editorial vice president of the Ludwig von Mises Institute, posts how deflationary currency brings a change to what we know about money. Excerpts:
“None of us in living memory has had experience with a currency that rises in value. The emergence of Bitcoin — a digital currency that has grown in purchasing power over time — has changed that experience dramatically.” - “The 20th-century experience flipped our expectations for what money should do. Especially in the postwar period, the falling value of the dollar punished savings and rewarded spending. This is exactly what the Keynesian economists hoped for. They wanted money always circulating and never ‘hoarded.’ ‘Deflation’ was to be avoided no matter what.” - “Bitcoin is often described as a ‘deflationary’ currency. This is exactly why Paul Krugman hates it so much.” - “Here’s what beautiful about this experience: It doesn’t matter in the slightest what Paul Krugman thinks. It doesn’t matter how many economic experts Paul Krugman lines up to oppose Bitcoin. It doesn’t matter how many Nobel Prize winners denounce it and oppose it. That’s because Bitcoin is not a “policy” invented by elite and privileged intellectuals. It is a market-based currency, one created by an entrepreneur and chosen by market players.” - “That is an essential postulate of the free society. When government gets hold of the money, freedom is in peril. When the market makes and manages money, freedom has a built-in reinforcement in half of every transaction. In short, just based on our experience with Bitcoin so far, we see the conventional wisdom of a century completely turned on its head. Fantastic!”
Is there a lesson to be learned from the March 11th hard fork?
Bitcoin as a new technological and financial innovation might not have reached its current level of success had it not been able to make one specific promise: “Confirmed” transactions will never be reversed.
This isn’t an actual promise that is written anywhere but it is the widely followed practice of treating Bitcoin transactions that have reached the threshold of six block confirmations as being transactions that have attained this confirmed status. Once reaching this status the transaction is relied upon as being finalized and that the status can never change at any time in the future.
However last month, that presumption was false.
A customer of the payments company OKPay took specific, deliberate measures to effectively cancel a Bitcoin transaction after it had already confirmed. This transaction had a value worth over $10,000 USD at the time it was made. The transaction had confirmed with six confirmations and upon reaching that status OKPay then had delivered away, per the customer’s instruction, a $10,000 USD payment using another form of non-reversible funds.
Fortunately, in this instance, the customer did end up voluntarily returning the bitcoins and OKPay didn’t suffer much financial loss as a result but this illustrates the exposure to a risk that exists for those who accept Bitcoin for payment.
This risk that merchants, exchanges and individuals are exposed to is the double spending attack that comes as the result of either of two attack methods:
Brute force from a fractional amount of Bitcoin mining capacity combined with a bit of luck, or,
The overpowering force attained by matching or exceeding the entire sum of all existing Bitcoin mining capacity.
These attacks can be successful because of Bitcoin’s decentralized architecture. A simplified way to describe Bitcoin is to equate it to being a ledger of value assignments.
A savings account at a bank might be described as being a ledger in the same manner where the ledger holds a record of all deposit and withdrawal transactions. However, with a bank account there are methods for the bank to reverse or cancel a transaction.
For example, if a check is deposited into a savings account but then the check bounces the bank would then later reverse the deposit transaction and might even instantiate a new transaction to assess a fee.
The Bitcoin ledger is designed to provide neither of these two capabilities to anyone, anywhere.
Bitcoin does this by using math to assess a relatively enormous cost for attempting to change the past record of the ledger transaction history.
When a transaction is included in a block in Bitcoin’s blockchain, and then additional blocks are built atop that block, only through the expenditure of a great amount of computational effort (and/or a significant amount of luck) can that historical record be rewritten. With each additional block extending the chain further, the amount of computational effort necessary to change the history becomes so extreme that any attempt to do so gets prohibitively expensive. Without an economically viable use case for performing such an attack, it is generally accepted that the threshold of six confirmations is sufficient to recognize a payment transaction as being settled.
Tens of millions of dollars worth of value are transferred daily now in which the recipients extend their trust based on the presumption that a confirmed transaction with six or more confirmations has reached its final, permanent status.
The March 11th Hard Fork
On that day at about 10:39 pm UTC a previously overlooked limitation in the Bitcoin client reared its head. Following that event some exchanges, merchants, and individuals were processing payment transactions unaware that part of the Bitcoin network wasn’t able to accept the historical record being produced. The Bitcoin blockchain had forked with one side after the split advancing relatively normally but the other side, using client software with the limitation, was following a different path of the blockchain and was advancing at a snail’s pace.
The fork was the result of new software — the version 0.8 Bitcoin-Qt/bitcoind client that had been released just a couple weeks earlier. The v0.8 client uses a different database engine and thus it was ignorant of the limitation imposed by a configuration setting used with all prior versions of the Bitcoin client. The new v0.8 client allowed a block to be built that prior versions of the client (pre-v0.8) couldn’t process.
Only a small fraction of the Bitcoin mining capacity was still using the pre-v0.8 client software however most merchants and exchanges had not yet switched over to v0.8. Many releases prior to v0.8 are still supported so a solution that wouldn’t exclude those users was needed.
Those using the v0.8 client were seeing transactions reported as having confirmed (with six or more confirmations) and at the time that was an accurate status. However unknown at the time was that this incident would be resolved through having a vast majority of mining capacity abandon the v0.8 client and then revert to a prior release (or to use an emergency patch hastily made available for v0.8 miners). This action would cause the confirmed status for those transactions to be meaningless — giving those exchanges, merchants, and individuals a false sense of security.
The defection by the miners was essentially a 51% attack as it was a conscious effort made to direct mining work to a forked branch that was not the blockchain tip that had the greatest height. However this was not done with malicious intent nor was it an attempt to defraud.
In the short term, much mining capacity is controlled and directed by a handful of mining pool operators. It took about ninety minutes before individual reports of trouble led to the realization that Bitcoin’s network had split. From there the Bitcoin-Qt/bitcoind development team began notifying some pool operators and exchanges as to the situation and others in the community delivered the alert through various informal communications channels including other IRC channels, Twitter, the BitcoinTalk forum and more.
Within a very short time frame some pool operators, including the largest — BTC Guild, concluded that the economic majority would not object to the pools abandoning the blockchain that was longest at the time in order for them to instead support the pre-v0.8 fork. The aim for this support was to cause that pre-v0.8 fork to gain a vast majority of mining capacity sufficient to quickly converge the chains causing that pre-v0.8 fork to become the new longest chain.
The presumption was that transactions that had become confirmed in the v0.8 side would also soon be included in the pre-v0.8 fork. But that would not be instantaneous nor was there a guarantee that it would occur for each and every transaction.
For about eight hours many transactions that had already confirmed on the v0.8 blockchain would not yet be included in blocks on the pre-v0.8 fork.
BitconTalk forum user “macbook-air” reported that after discovering this delay he created and broadcast an intentional double-spend transaction against OKPay to “void” his pior payment to them. That double spend transaction attempt made its way into a block, eventually, causing the original Bitcoin transaction (worth about $10K) to become forever invalid on the pre-v0.8 fork.
When the chains converged, the transaction that OKPay received and had seen as confirmed essentially then died. OKPay’s v0.8 client would then show the transaction with a 0/unconfirmed status and eventually the transaction would be purged. It would then appear as if the confirmed Bitcoin transaction worth over $10K USD had never occurred.
This was the first fork involving a confirmed transaction since an August 2010 incident — an event that had occurred before Bitcoin was being relied on for transactions of any significant economic value.
The Successful $10K USD Double Spend Attack
With Bitcoin using a peer-to-peer architecture, transactions made by a client node are communicated to only the peers that node happens to be connected to. Those peers each first verify the transaction is valid and then relay the transaction to the other peer connections. Within seconds most every Bitcoin client node in the world is aware of that spend transaction.
An attempt to broadcast a transaction that spends funds that have already been spent will not get relayed by that node’s peers because they will reject the transaction as a double spend. At least that’s the general design.
When a client node gets started or restarted it is ignorant of any transactions except those confirmed transactions in the blockchain it already knows about. When that node receives a transaction, it has no way of knowing if that transaction is being rejected elsewhere as a double spend and gladly adds that transaction to its memory pool for eventual inclusion in a block. With the Bitcoin-Qt client that transaction will be displayed as a 0/unconfirmed transaction. Normally this causes little problem because until a transaction has reached confirmed status, any merchants accepting payment on 0/unconfirmed (or anything less than 6 confirmations) are generally aware to not presume that the unconfirmed transaction is final.
A client node will hold a list of the transactions that have not yet confirmed but those transactions consume memory. This list of transactions are stored in what is called the node’s memory pool.
The tens of thousands of client nodes around the world are being run on computing hardware that ranges from enterprise-level server systems to the lowest end of the old spare laptops. To accommodate that range, the Bitcoin client purges unconfirmed transactions when valid newly arriving transactions would overflow the memory pool. This makes a node receptive to receiving, verifying, storing and relaying a double spend transaction that it previously might have rejected as being invalid.
Because nodes generally have only a few connections a particular node’s absent mindedness isn’t very harmful because that node’s peers will generally still know about the original valid transaction and will continue to reject the double spend.
When the mining pools and solo miners downgraded to pre-v0.8 clients or restarted with the emergency v0.8 patch, a large number of nodes started up around the same time and each started with a clean memory pool. This was a dangerous time for merchants and a forum post by a core member of the development team recommended that merchants stop processing transactions. For merchants and exchanges like OKPay that had already delivered value based on confirmed payment status, that message came too late.
The bitcoin client follows a protocol to protect against a number of denial-of-service attacks. Because of this, transactions propagate first with an initial transaction broadcast, and then only sporadically when the sending node realizes that some time has passed and the transaction has not yet been included in a block.
This gives a double spend attacker plenty of opportunities to repeatedly broadcast the alternate transaction in hopes that a transaction will reach a miner who will see the transaction as valid and then include it in a block. And that is exactly the approach macbook-air took — spewing the double spend transaction every ten seconds until either the original transaction or the double spend got included in a block. Within minutes of first trying, Macbook-air’s double spend was successful. The transaction that OKPay had seen as confirmed with six transactions was now invalid. The bitcoins OKPay had received were now gone.
Where’s The Flaw?
The bitcoin client evolves to protect against existing or anticipated threats. This unplanned hard fork scenario was not something impossible to envision however with the limited resources of a mostly all-volunteer development team, the risks and remedies for successful double spending in this type of situation might not have been given the proper attention deserved.
Even if this had been carefully thought through at one point in time, Bitcoin network activity changes over time. Recent scalability issues including both how blocks are now becoming full in increasing number as well as how transactions are being purged from each node’s limited memory pool sooner now are items that might not have been given proper weighting in any earlier studies of unplanned hard fork scenarios.
Should this same type of event occur today, some recommendations might be considered:
On startup of a node, allow the memory pool to be initialized first from a set of transactions. A set of transactions could have been prepared and made available to miners (or created by miners themselves) that included all transactions that existed in the soon-to-be-orphaned blocks, from where the fork began. This is an emergency mode protection but since pool miners knew they were abandoning a chain in which merchants had already received transactions showing confirmed status this courtesy would have caused macbook-air’s later transaction to be seen as an invalid double spend.
Aggressively re-broadcast transactions from the abandoned chain, including those from that side’s memory pool. Essentially Macbook-air was more aggressive at broadcasting double spend transactions and won the “race” as a result. It has not been publicly disclosed (and possibly something not even studied) why several hours after mining with the v0.7 client the miner that included Macbook-air’s transaction (again, BTC Guild) didn’t yet know of the previous transaction that OKPay had seen as confirmed on its blockchain, or if instead that transaction had been seen but later purged from the node’s memory pool. The larger exchanges, merchant processors, and others might have the means and incentive to perform this added service to make sure transactions involving them get aggressively rebroadcast but that leaves vulnerable the individual merchants and traders. Perhaps a commercial service could provide this.
Re-evaluate whether six confirmations is enough. At the time the first alert was received on v0.8 clients, transactions in the soon-to-be-orphaned blocks had over a dozen confirmations. Perhaps merchants who deal in larger transactions and have no recourse against losses might wish to impose a confirmation threshold that has less risk. Requiring two dozen confirmations is something that could cause recognition of payments to be delayed for about four hours, but if OKPay had that policy they would likely have been alerted as to the problem long before sending out the USD funds that its customer had requested. Lead developer Gavin Andresen was quoted as saying 24 hours (120+ blocks) is the threshold to be “100% safe”.
One thing to realize is that it doesn’t necessarily even take a software bug for a confirmed transaction to eventually become invalidated. In his paper Analysis of hashrate-based double-spending, Meni Rosenfeld describes how with just 10% of the hashing capacity of the Bitcoin network, one out of a thousand trials would cause a blockchain reorg for six blocks in which double spending of transactions with a confirmed status could be the result. With even greater hashing capacity, the number of trials needed decreases significantly.
Every party that accepts Bitcoin for payment has some degree of exposure to these double spending risks. The question about the risk isn’t being asked perhaps because no other payment systems are decentralized and the concepts of a “51% attack” and “race attack” are foreign and not easily explained.
It might be easy to dismiss the risk as with this very rare event there there were maybe only a few hundred transactions that were at risk anyway. And of those, there was just one successful double spend reported. This was the extent of the damage over several dozen months of continuous operation. But instead this might just have piqued the interest of those seeing for the first time a new attack vector and should this type of scenario ever play out again, the outcome could be losses that are much, much steeper.
In one of her first contributions to NewYorker.com, Maria Bustillos (@MariaBustillos) excels with her introduction of Bitcoin for that site’s audience. Excerpts:
“[The fearmongering typical for most media coverage of Bitcoin] is a red herring, and has so far prevented the rational evaluation of the potential benefits and shortcomings of crypto-currency.” - “Cash is also anonymous; it is also used in money laundering and illegal transactions. Like bitcoins, stolen cash is difficult to recover, and a cash transaction can’t readily be traced back to the source. Nor is there immediate recourse for the reversal of transactions, as with credit-card chargebacks or bank refunds when one’s identity has been stolen. However, I find it difficult to believe that anyone who has written critically of the dangers of bitcoin would prefer an economy where private cash transactions are illegal.” - “‘I think if the U.S. government decided that Bitcoin was a bad thing and told me [to stop development of Bitcoin] I’d stop doing what I’m doing, quite frankly. But that wouldn’t be very effective […].’ [said Gavin Andresen] .” - “In response to a question about his politics, Casascius’ Mike Caldwell had this to say:I am not an anarchist; I believe in the rule of law and a civilized society. But I also believe that unchecked power is a threat to the common good, and that anything that the public can do to challenge that power is a benefit to society. As an individual, if you accept bitcoin in exchange for your goods or your work, that is a vote for economic fairness’.”
A person’s acceptance and/or transmission of convertible virtual currency cannot be characterized as providing or selling prepaid access because prepaid access is limited to real currencies.
Bitcoin is not a debt instrument nor is there any “backing” by a commodity or some promise that it can be be redeemed for value. Therefore it is not being recognized as a “real currency” by FinCEN. This helps Bitcoin avoid the regulations that specifically apply to “prepaid access” (formerly referred to as “stored value”) products.
More good news:
A user who obtains convertible virtual currency and uses it to purchase real or virtual goods or services is not an MSB under FinCEN’s regulations.
This means a holder of bitcoins can spend those funds without any MSB registration requirement or reporting concerns regarding money transmission.
From there the guidance starts to get murky, or Murcky. Bitcoin Foundation’s general counsel posts his interpretation:
Nicolas Mendoza (@NicolasMendo) follows up to his May 2012 article in Al Jazeera with the more recent developments. Excerpts:
“What we have here is radically different from the current system where money creation is based on debt, politically motivated, surrounded by secrecy, inflationary, unilateralist, colonialist, and exploitative of powerless nations, etc. The flaws in the design of modern currency are at the roots of the social and ecological disasters we face today.” - “An economy built on debt-based currency can only “grow”, the 2008 economic collapse showed us, by putting more people deeper into debt. Inevitably, this leads to a society where the many always owe more and more to the few, eventually making democracy a farce. Bankers, as Robert Fisk puts it, are the dictators of the West.” - “The P2P money creation system that Bitcoin proposes is truly something else as it deflates the dark power of debt-based money in society; it allows envisioning a world where the wheels of debt are no longer at the origin of economic activity.”
There is a developing situation in which a bug in the Bitcoin client software is causing a blockchain fork. Those using Bitcoin-Qt v0.8 should not trust the transactions as being non-reversible even if the client shows the transaction having received six or more confirmations.
This latest on the situation may be monitored on the #bitcoin-dev IRC channel.
[The tl:dr on the bug … the v0.8 client software allows a larger transaction that the previous releases did not. As a result v0.7 clients aren’t accepting those blocks.]
[Upate: The original post on the BitcoinNews will include any updates.]
Forbes contributor and Bitcoin Foundation board member Jon Matonis (@JonMatonis) writes an update on BitcoinFund (from Malta), the first Bitcoin Hedge Fund. Excerpts:
“Institutional investors and hedge fund managers have secretly sought a regulated investment vehicle for bitcoin placements. Malta-based Exante Ltd. has the solution with their new Bitcoin Fund.” - “Authorized and regulated by the Malta Financial Services Authority, Exante offers the Bitcoin Fund with an initial minimum subscription of $100,000 and a 0.5% upfront subscription fee.” - “U.S. persons and U.S. institutions will not be able to access the fund directly.” - “The fund charges an annual management fee o.5% of Net Share Value payable monthly in order to provide the sophisticated security and wallet management that one would expect with such large amounts at stake.” - “Using Shamir’s Secret Sharing algorithm, the container password is then split into three parts utilizing a 2-of-3 secret sharing model.” - “Exante intends to provide a two-way secondary market for the trading of fund shares [which will] provide shorting opportunities without having to own the underlying asset.”
Mt. Gox today notified its customers via e-mail that the Mt. Gox redeemable codes used for transferring U.S. dollars (USD) and Canadian dollar (CAD) funds will no longer be issued beginning April 10th, 2013.
The message reads:
Generation of USD and CAD redeemable codes will not be possible due to legal issues.
The codes, sometimes alternatively referred to as vouchers or coupons, enable account-to-account (A2A) transfers between Mt. Gox customers. The codes have been popular for those trading over-the-counter as a method for exchanging between other payment systems such as Dwolla to or from a Mt. Gox exchange account.
For instance, after selling bitcoins on Mt. Gox a trader Bob might be looking to receive $100 of Dwolla funds quickly so that he can make a purchase where only Dwolla is accepted for payment. Alice has funds in her Dwolla account and is looking to transfer those funds into Mt. Gox for immediate credit. So Bob and Alice agree to trade. Alice sends $100 to Bob using Dwolla, Bob creates a $100 Mt. Gox redeemable code and sends that securely to Alice. Then Alice redeems that code into her Mt. Gox exchange account. When that happens, Dwolla only knows of a $100 transfer from Alice to Bob. Mt. Gox only knows of a $100 transfer from Bob’s account to Alice’s account.
Because the codes are pseudonymous, they function as a bearer instrument. In the example above, rather than redeeming Bob’s voucher code herself Alice could have later traded that redeemable code with any other party or the code could change hands multiple times even before being redeemed.
This may explain why “legal issues” were cited. When Seattle-based Coinlab transitions Mt. Gox’s customers from the U.S. and Canada next month, these redeemable codes would likely be considered as forms of “prepaid access” (formerly known as “stored value” instruments). In the U.S. an issuer of prepaid access is required to be licensed as a money transmitter — something Mt. Gox has not done and discontinuing this product means they likely won’t be applying for that status.
Mt. Gox isn’t the only organization to get caught up with these restrictions. Last week the State of Illinois issued a cease and desist order to payments provider Square for their prepaid access product (digital gift cards) which differ very little from Mt. Gox’s redeemable codes.
Mt. Gox will continue to offer redeemable codes for bitcoins (BTC) as well as for another dozen fiat currencies that the exchange offers for its customers funds (e.g., EUR, GBP, JPY, HKD, NZY and more).
Some merchants, such as Cinfu hosting, had been accepting the MTGUSD redeemable code as a payment method alongside other digital currency payment methods. These merchants could simply switch to another currency that is still supported (e.g., MTGEUR) however Mt. Gox’s U.S. and Canadian customers will likely be unable to hold wallets for any foreign currency.
Some exchanges, including Bitcoin-24.com and WeExchange.co, currently accept MTGUSD redeemable codes as a funding method. Other exchanges that previously used these tools no longer do. Exchange intermediary BitInstant, for example, now transfers funds directly to a specific Mt. Gox account rather than delivering a redeemable code to its cash-paying customers.
There are other issuers of USD redeemable codes, such as AurumXChange’s VouchX vouchers but no other issuers have taken any steps towards dropping support for the redeemable codes.
Mt. Gox had never shared publicly how much transaction volume occurred through these redeemable codes so the impact of them being discontinued is unknown. Perhaps the over-the-counter traders will be the only ones to notice.
A significant new release of the Bitcoin-Qt and Bitcoind clients from Bitcoin.org, v0.8.0, is now available for download.
This v0.8 release includes a number of new features, performance improvements and bug fixes and is the first major feature release since the v0.7 release about five months ago. This release was designed to improve performance and to handle the increasing volume of transactions on the network.
A subset of the improvements, features and fixes includes:
Compatibility with new security features in OSX 10.8 and Windows 8.
New, dramatically faster database platform for storing the blockchain (No longer is BDB used except for wallet.dat)
Parallel operation for improved performance on systems with multiple CPUs and multi-core CPUs.
"Bloom filtering" for supporting requests from lightweight peer nodes.
Fix for the “change address ordering” regression issue which impacted transaction privacy.
With a huge increase in the amount of transaction activity the Bitcoin network is receiving, previous versions of the Bitcoin.org client had been taking an unacceptable amount of time to synchronize the blockchain. This release will reduce the amount of time to reach the synced status to a level that should be acceptable for those with even the least capable computing hardware.
The first time v0.8 is ran the program will migrate the blockchain data and reindex, a process that can take several hours on lower end computing hardware. Proper shutdown from a previous version before installing this release is required.
While it is recommended to back up the wallet.dat before performing this upgrade, the update will not overwrite an existing wallet or blockchain database.
When performing a new installation (versus upgrading from a previous release), a file called bootstrap.dat may obtained as a torrent and placed in the Bitcoin data directory to speed the installation process.
I was on NPR’s Morning Edition this AM talking with Cyrus Farivar about the legality of gambling using bitcoin. What I find telling is that the casino operators, who are making a tidy profit, are keeping everything in bitcoin and at no point converting to dollars or other currency.
Today’s CHART OF THE DAY covers Bitcoin’s increase in the exchange rate. Excerpts from a corresponding article by Max Raskin (@MaxRaskin) on Bloomberg:
“Bitcoin has more than doubled in the past 12 months, strengthening to $16.37 from $5.88.” - “Greater demand for virtual currencies could have a negative impact on the reputation of central banks, according to a report published by the European Central Bank in October last year.” - “Steve Hanke, a professor at Johns Hopkins University in Baltimore who helped to establish new currency regimes in countries such as Argentina and Bulgaria [said about Bitcoin] ‘I think it’s a competitive threat. Maybe virtual currencies will be so convenient that they will pose a threat because of their ease of use.’”
A major theorem of cryptography is that anything that be done with a trusted authority can be done without1 a trusted authority. This theorem can be applied to currencies, too. Anything that can be done by a central bank can be done without a central bank . The central bank for the United States of America, as you probably already know, is the US Federal Reserve. The stated dual mandate of the US Federal Reserve System is:
“The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy’s long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.”
Vitalik Buterin, writer for Bitcoin Magazine (@BitcoinMagazine), describes today’s rally that has taken the Bitcoin BTC/USD exchange rate above its high water mark from 2012. Excerpts:
“Today’s maximum of $15.68 at the time of this writing [is] the highest that the Bitcoin price has been since July 6, 2011.” - “The [network data] figures, which attempt to measure Bitcoin’s actual usage rather than public opinion or interest in the currency as search volume and all market statistics inevitably do, show the same pattern: the values rose during summer 2012, dropped off in the fall, but then began to quickly pick up again in November after WordPress started accepting the currency.” - “The 14-day average is also now as high as it ever was, and may well go even higher.”
GoWest (@GoWestBTC), blogging on TheBitcoinTrader.com, shows some metrics describing where Bitcoin shined in 2012. Excerpts:
“The current market cap is actually at a peak for 2012, exceeding the spike in August. This can be attributed to the fact that tens of thousands of Bitcoins have been introduced into the economy since August.” - “These have shown steady growth over the past year: The number of items listed at Bitmit (an auction site that operates in Bitcoin), the number of users at Ogrr (an MMORPG marketplace), and the number of views of the ‘What is Bitcoin’ YouTube video.” - “Bitcoin’s top poker site, SealswithClubs, is gaining new users on a daily basis, with attendance at the tables on the rise.” - “The Bitcoin discussion on the TwoPlusTwo forums, the most popular poker discussion forum on the ‘net, has 3,000 posts and 165,000 views!” - “All-in-all, a very impressive year for Bitcoin. Here’s to an even stronger performance in 2013!”
Enginner and PhD student Minorman summarizes Bitcoin developments in 2012 with a blog post on SeekingAlpha. Excerpts:
“[Bitcoin] gained 1400% against the USD last year - and this same currency is again - by far - the best performing currency.” - “With block 210.000, 50% of all bitcoins to ever be issued are now in circulation. The next 25% will be issued over the next roughly 4 years.” - “The bitcoin business space has also started to attract venture capital in 2012.” - “Many, many more developments in 2012. Partial list [includes the] birth of provably fair gambling and Satoshidice, Bitzino and others.”
While the Mexican peso and the Polish zloty had a good year, there was one currency that outperformed them all — by an order of magnitude. That’s no secret to those reading this, but it will be to reader’s of Sober Look (@SoberLook), a financial blog with a global audience Excerpts:
“It’s not issued by a country, nor is it a precious metal or a rare-earth. Bitcoin is an electronic currency that can be exchanged for some goods and services, particularly online. The currency is not controlled by a central bank.” - “For more background on Bitcoins see this story from Wired Magazine (Wikipedia does a terrible job describing this process).” - “Therein lies the flaw of the Bitcoin concept: transaction anonymity attracts illicit activity.” - “So why has the currency tripled this year? A number of rumors have been circulating in the online forums trying to explain the rally.” - “Nevertheless Bitcoin is the 2012 winner for the best performing currency against the dollar.”
Forbes contributor and Bitcoin Foundation board member Jon Matonis (@JonMatonis) shares the argument by Austrian economists that price deflation is nothing to fear. Excerpts:
“Deflation is not a problem in the traditional monetary system and it will not be a problem in the bitcoin economy.” - “Although the supply of [bitcoins] will be relatively static with the exception of attrition through permanently lost coins, I will refer to the monetary phenomenon as deflation because as bitcoin’s asset value increases compared to political numéraires, its effect on price expression will be seen as deflationary.” - “An economy with a monetary unit that increases in value over time provides significant economic benefits such as near zero interest rates and increasing demand through lower prices.” - “‘During an inflation, you want to get rid of the money. You want to consume. You want to spend. But you don’t become wealthy by spending and consuming; you become wealthy by producing and saving’ [writes Doug Casey, of Casey Research]”. - “‘Deflation puts a break–at the very least a temporary break–on the further concentration and consolidation of power in the hands of the federal government and in particular in the executive branch.” [writes German economist Jörg Guido Hülsmann]”. - “Ultimately, the market will reach an equilibrium between investment and savings because in the absence of an equilibrium the benefits of a savings-only strategy would evaporate. Proper economic growth through sound investments will lead to a productivity-driven deflation.”
Paymium, operator of Bitcoin-Central exchange, will be operating that exchange following the regulations in the EU that apply to a Payment Services Provider (PSP). This was announced in a post on the BitcoinTalk forum by David Francois, Paymium’s CTO.
Bitcoin-Central, one of only a few Bitcoin exchanges that have been in business for more than two years, currently operates a BTC/EUR exchange market and their newer BTC/GBP market [update: Bitcoin-Central will be closing their BTC/GBP market and offering only BTC/EUR exchange]. Bitcoin-Central will not hold customer EUR balances, and instead the funds will be held by Credit Mutuel, a major French bank. This service is made possible through Paymium’s partnership with Aqoba, a French PSP.
There was no go-live date (as a PSP) given but the announcement referred to features this change will bring, such as each account being assigned an IBAN number, as arriving “in a few months”.
A reply in the forum thread for the announcement was a question regarding who would be eligible to hold an account. The response given by Mr. Francois was that there would be no limitations regarding the citizenship of clients though he did admit the company would be experiencing “a learning curve”. This assertion of universal coverage was met with skepticism as Americans are generally excluded from being able to obtain an account with a foreign financial institution due to the resulting reporting requirements doing so would entail, thanks to FATCA.
Neither Paymium’s partner Aquoba nor Credit Mutuel has provided additional information thus far however a press release from Aquoba is expected. Last week French newspaper Le Monde published an article on Bitcoin in which Paymium’s COO, Pierre Noizat, was interviewed no mention of this development was included.
A post by Vitalik Buterin in Bitcoin Magazine (@BitcoinMagazine) describes the upcoming block reward subsidy halving. Excerpts:
“Projected to take place on Wednesday [November 28, 2012] at around 18:00 UTC, for the first time ever in Bitcoin history, the rate at which new bitcoins are generated will permanently be cut by a factor of two,” - “[The block reward earned by miners is] the only way that new bitcoins come into existence. Any bitcoin that you send or receive was at one point somebody’s block reward.” - “Bitcoin has a monetary policy that was coded into the system right from the start that reduces the rate over time. […] There will still always be one block coming out every ten minutes, but the number of bitcoins handed out as a reward in each block will come down in sharp steps.” - “The event that will happen on Wednesday is exactly this; after block 210,000 hits, every block thereafter will have a reward of only 25 BTC instead of the original 50 [for approximately the next four years]” - “The second hypothesis is actually the one attacked more frequently: that the supply shock has not yet been priced into the market. [Detractors believe that] even if the supply of bitcoins coming into the market from miners will soon cut in half, the supply from traders [who’ve always known this was coming] will make up for it, and the price will remain roughly the same.” - “There is also another very profound change that will soon take place in the Bitcoin mining ecosystem: the introduction of the ASICs. ASICs, or ‘application specific integrated circuits’.” - “Thus we are going to see not just a reduction in revenue for Bitcoin’s miners, but also a shift in who Bitcoin’s miners are.”
A blog post confirmed the closing [of Crypto X Change] today. This leaves a hole in the market for a new or existing competitor to fill the gap. There are several places to still buy and sell bitcoins in Australia and the market does not contain one big player which is a good thing and should keep prices down with…
Crypto X Change was one of two BTC/AUD markets in which both BTC and AUD funds were escrowed (meaning AUD funds are credited to the seller’s account immediately at the time the sell order is matched).
The post by Bicoin Oz provides a survey of the remaining methods in which bitcoins can be bought and sold in Australia.
Forbes contributor and Bitcoin Foundation board member Jon Matonis (@JonMatonis) wrote a post on the announcement that WordPress now accepts bitcoin payments. Excerpts:
“Leading web publishing service WordPress.com announced that they will begin accepting the nonpolitical cryptographic money Bitcoin as a payment method for various upgrades.” - “WordPress spokesperson Andy Skelton said, ‘Unlike credit cards and PayPal, Bitcoin has no central authority and no way to lock entire countries out of the network. Merchants who accept Bitcoin payments can do business with anyone.’ And thus the planet becomes immediately open to their products and services.” - ”’[Credit cards and PayPal are] unusable for those bloggers [under restrictive regimes] because they expose the payer’s physical identity.’ With user-defined anonymity and identity privacy, bitcoin offers unparalleled safety to dissident bloggers and free speech advocates.” - “WordPress may not stand as the lone giant for very long since Reddit CEO Yishan Wong hinted last week at the social news site’s willingness to begin transacting in Bitcoin for Reddit Gold subscriptions.” - “[Considering this move by WordPress, other] merchants will increasingly be asked: ‘What’s your Bitcoin strategy?’”
Douglas E. French, senior editor of the Laissez Faire Club (@LaissezFaireBks) is the latest to take notice of the ECB policy brief Virtual Currency Schemes and describes good reasons Bitcoin deserves the attention it is getting. Excerpts:
“The answer to the currency question may not be to reform government in a way that it can’t reasonably be reformed, but to turn loose entrepreneurial genius to solve the problem. […] This is a particularly risky area. There are currency entrepreneurs sitting in jail for competing with the government.” - “Not all individuals gain [knowledge of a currency’s worth] all at once. A small number of people recognize the marketability of certain goods before most others. These might be considered currency entrepreneurs.” - “While people contend that money must be this or must be that, or come from here, or evolve from there, Menger, the father of the Austrian school, seems to leave it up to the market. When a money becomes uneconomic to use, it loses its marketability and ceases to be money. Other marketable goods emerge as money.” - “Governments are destroying their currencies, and businesses know it. Entrepreneurs won’t just stand by and theorize. They’re doing something. They recognize a market opportunity. The banking industry realizes it.” - “We’re rooting for enterprising entrepreneurs to give the government a run for their money in the money business. Watch this space.”
ShadowLife, a community focused on the protection of privacy, has a post describing what Bitcoin needs to succeed in the long-run. Excerpts:
“If you combine all black markets of the world together you’ll get a 10 trillion US$ economy, second only to the United States of America. In many developing countries it already comprises large parts of the economy and it is growing faster than the officially recognized gross domestic product (GDP).” - “One has to note that Crypto-Anarchy is not a philosophical utopia, but the attempt to shape life and society in the presence of disruptive technologies. The corresponding technologies have already arrived and we are facing a great divide: we will either live in the total surveillance state or in a Crypto-Anarchist libertopia.” - “A free society needs a free market and a free market needs sound money. […] The use of Bitcoin is a huge advantage compared to a barter or cash-only economy, because developed economies need money transfer, at the very least for B2B transactions.” - “So what does Bitcoin need to succeed in the long-run? In short, it needs no state, no banks, and OTC. The three hypotheses in more detail: 1.) The Bitcoin community should not try to get legality for Bitcoin, we should not ask the state to resolve conflicts in the community. 2.) The Bitcoin community should not focus on interoperability with the traditional banking system. 3.) Widespread availability of over-the-counter (OTC) Bitcoin exchangers is crucial for Bitcoin to succeed in the long-run and give us more freedom.” - “If the Bitcoin economy depends on the traditional banking system it is doomed to fail. Just imagine what would happen to the Bitcoin economy if Mt.Gox, which currently is responsible for about 80% of all Bitcoin exchanges, suddenly would have to close down. In my opinion, this shows the second hypothesis: The Bitcoin community should not focus on interoperability with the traditional banking system.” - “A widespread network of OTC exchangers is the system most resilient against state attacks, because it is heavily distributed and the banking system is skipped entirely.”
Forbes contributor and Bitcoin Foundation board member Jon Matonis (@JonMatonis) discusses Bitcoin with James Puplava of the Financial Sense Newshour. Excerpts from the audio (mp3) of the interview:
James: Governments, if they had their way, would do away with cash. That way they could monitor and track all transactions and supervise the underground economy. Do you think physical cash will ever by fully extinct? Jon:The cashless society utopia is a hot topic right now. The [proponents] all seem to neglect the privacy and non-traceability aspect of cash. I always encourage people to resist any attempts at digital cash unless you can still have the same two core attributes as cash has.
James: How many years before the government sees Bitcoin as a threat. Jon: They will definitely try to come after Bitcoin, just as they have against BitTorrent and the file sharing of films, music and other copyrighted material. They are not successful at preventing file sharing so they go against the end-points and the aggregators like Kim Dotcom in New Zealand. They can attack the perimeter but that doesn’t address the problem. The analogy can be carried over to Bitcoin as well — they aren’t going to be able to bring down the peer-to-peer network and instead would likely control the flow of funds to and from the exchanges. With one or two thousand exchanges worldwide there would be resiliency.
James: What are Bitcoin’s strengths and weaknesses? Jon: The main strength is the resiliency of the network and that the network itself is immune from shutdown by State actors or non-State actors. […] I’m convinced that no matter what type of digital currency system that people come up with, if you don’t address the confiscation issue you are only setting yourself up for abysmal failure down the road. As soon as you become successful, you have a target on your back.
Coinbase, the Bitcoin startup that aims to make Bitcoin as easy to use as PayPal, just took a big step closer to reaching their goal.
Just launched is Coinbase’s “linked bank account" feature which provides an easy way for those in the U.S. to buy bitcoins and have the funds come directly from a linked bank account. Additionally, proceeds from cashing out bitcoins are paid out directly as an ACH/direct deposit bank transfer.
This is not the first link between the ACH banking network used in the U.S. and bitcoin exchanges, but this is the first to provide buying power instantly without having to wait for the funds to first transfer. The coins that are purchased cannot be withdrawn until the bank transfer completes but the price paid is locked in at the time of purchase.
There are two methods for linking a bank account:
The “instant verification” method requires that the bank account’s username, password and other login credentials (e.g., login PIN) are provided
Alternatively the “challenge deposit verification” method causes two small deposits to be sent. This is the same method that PayPal provides when verifying a linked bank account with that service.
Coinbase does charge a fee of 1% plus a $0.15 per-transaction fee however there are few methods for buying bitcoins that come with a lower cost and the convenience from not having to spend more than a minute of time to purchase bitcoins adds value in itself.
The service is limited for now to $100 per purchase, but Coinbase expects to increase this once they confirm they are sufficiently preventing abuse (read fraudulent ACH transfers) — something that has either dogged or killed every other exchange that has tried, resulting in inconvenient hurdles and verification requirements for the remaining few who still offer ties to the ACH banking network.
Additionally, “down the road” Coinbase would like to expand the service to its customers outside the U.S. as well.
A Bitcoin-related service’s primarcy focus must be on the security to protect customer’s funds that it holds from theft or other loss. The level of security necessary to ensure this is very expensive but Coinbase is well funded, allowing them to invest the resources necessary to provide this protection.
This new feature is Coinbase’s response to the call for an easier way to buy and sell bitcoins. With a continously growing number of offerings where bitcoins are used for payment, this improved method for getting coins will allow Bitcoin’s reach to widen significantly.