Bitcoin

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Why Facebook’s $19bn Acquisition of WhatsApp is Meaningful for BitcoinNicholas Tomaino (@ntmoney) | Published on February 21, 2014 at 17:30 GMT | Analysis, Coinbase, NewsinShare7Share60

Nick Tomaino is currently on the business development team at Coinbase, and is also a first-year business school student at the Yale School of Management. Prior to that, he worked in venture capital, most recently for Softbank Capital. 

With Facebook’s $19bn acquisition making headlines yesterday, WhatsApp has become the first truly successful consumer technology company to avoid advertising as a business model.

Instagram and a few other early stage companies have been acquired advert-free (and thus without revenue), however, WhatsApp generates millions of dollars directly from its users and has always been committed to protecting these consumers from advertising.

The company makes its money by charging consumers 99 cents to download the application, which allows them to completely remove advertisements from the equation. WhatsApp’s ability to make its users the customerrather than the product is one of the main reasons the team was able to build such a phenomenal company.

WhatsApp’s story highlights the beginning of a major shift in consumer technology – away from advertisements and towards direct-to-consumer monetization through micropayments.

Financial mismatch

A massive shift to direct-to-consumer monetization for consumer tech companies could be really good news for the bitcoin world.

The primary reason that advertising has been the business model of choice for consumer tech companies in the 25-year history of the Internet, is that the existing financial infrastructure is not built for the Web.

It’s generally a difficult and time-consuming process for a consumer to enter credit card information and make an online payment. Additionally, micropayments (generally considered payments under $1) are not economical for merchants to accept because of the fees on the merchant side.

Stripe and PayPal, for example, charge a 30-cent fixed fee per transaction, and that fee is standard for all the traditionalpayment processors.

This friction has forced consumer technology companies to rely on the advertising business model, which makes the advertisers the customer and the consumers the product.

Need for change

Online advertising has persisted for these reasons, even though it is generally detested by consumers and also prevents companies from maximizing the time spent building great products. Effectively, it forces engineers to focus on satisfying the advertisers by data mining, rather than satisfying the users by building a better product.

Micropayments can change this, and WhatsApp clearly demonstrates that the change is already happening on mobile with existing financial infrastructure.

Apple typically charges developers 30% of app profits, and it’s likely that’s what Apple charges WhatsApp on every 99 cent purchase of the application. Of this 30%, a significant portion (around 20%) goes towards credit-card processing fees.

While WhatsApp was able to successfully utilize this direct-to-consumer micropayment business model without bitcoin, there is still too much friction in this equation, and for every WhatsApp there are thousands of app developers that can’t successfully monetize due to the significant fees that still exist.

Enter bitcoin

Bitcoin removes the friction associated with online payments. Transactions on the Bitcoin network are instant, irreversible, and almost free of charge, making micropayment business models much more economical for merchants.

Major media companies, like the Chicago Sun-Times, are already experimenting with bitcoin-enabled micropayments for this reason, and the early results have been promising.

Bitcoin also allows consumers to make payments more efficiently, and companies like Coinbase offer two-click checkout and OAuth (an open standard for authorization) features, which make the online payment experience seamless.

Bitcoin applications are prevalent in the Google Play store, and the industry is continually trying to help Apple understand the power of bitcoin.

Regardless, though, it will probably soon become apparent to consumers and merchants that bitcoin is the most efficient way to transfer money online for micropayments.

This will ultimately make the Internet a more enjoyable place by helping to significantly reduce advertisements from consumer technology companies.

Follow Nick Tomaino on Twitter.

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Seeing Through the Smoke:

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Seeing Through the Smoke: A Look At the Good News for Bitcoinby VITALIK BUTERIN on FEBRUARY 20, 20140

There can be no doubt that the Bitcoin ecosystem has been hit hard this past month. Canadian financial regulators, long held as the paragons of a light and wait-and-see approach to the Bitcoin economy, began to move towards a more active stance, and a particularly ominous passpge from the FINTRAC report even suggests that the agency can potentially “choke bitcoins oxygen (sic)” by denying Canadians access to the foreign exchange market. BMO, the last Bitcoin-friendly bank in Canada, shut down the account of Cointrader, a Vancouver-based Bitcoin exchange, soon after that, although fortunately Cointrader’s claim that this is part of a general shift to an anti-Bitcoin stance does not seem to be corroborated by reports from other Bitcoin businesses. On the other hand, somewhat less fortunately, the Russian government simply banned Bitcoin entirely.

Around the same time, Silk Road 2 was hacked, likely by its own owners, and $2.5 million worth of BTC was stolen and the marketplace shut down. An old but poorly understood property of the Bitcoin protocol, transaction malleability, led to several major Bitcoin exchanges shutting down for several days, as well as a major denial-of-service attack that caused the greatest disruption to the Bitcoin network since the blockchain fork last year in March. Finally, worst of all, MtGox, once by far the largest exchange in the Bitcoin economy, has disabled all withdrawals, and prices on the exchange have tumbled more than 85% amid fears that the exchange is insolvent. Among all this, it can be hard to see any bright future for Bitcoin whatsoever.

However, among the setbacks, we have seen a surprisingly large amount of positive news for the Bitcoin economy, much of which has been tragically unnoticed over the past few weeks. Among the important items are:

1. The January 31 CNY deadline came and went, and Bitcoin in China is stronger than ever. When the Chinese government made its first regulatory push against Bitcoin, moving to forbid banks from directly offering Bitcoin services, the government gave the banks a deadline of Jan 31 to stop working with Bitcoin. Many people interpreted this deadline as a date for when a further push against Bitcoin would be forthcoming, perhaps further banning Bitcoin trade or Bitcoin exchange. However, the deadline passed and… nothing happened. No crackdown whatsoever. Instead, when the deadline hit, BTCChina actually resumed accepting cash deposits, and soon after that China once again took first place as the country with the largest number of BitcoinQt downloads.
2. The porn industry is seizing upon Bitcoin like wildfire. Porn.com became the first major porn site to accept Bitcoin in December, and in mid-January the site announced that Bitcoin was responsible for 25% of its earnings. A week after that, porn.com was joined by Naughty America, and now very recently in February the list grew to include I Know That Girl (all links safe-for-work), a site owned by the same company that runs Pornhub. It seems like it’s actually porn, not gambling, that’s becoming the first industry to embrace Bitcoin in the mainstream.
3. Bitcoin exchange reopens in Thailand. When the Thai central bank announced that essentially any Bitcoin activity was illegal last July, many people were already skeptical, pointing out that the Thai central bank had no authority to ban Bitcoin by itself. Now, however, the main Thai Bitcoin exchange reopened its operations upon receiving another letter from the bank stating that Bitcoin exchange does not fall under foreign currency exchange regulations. The status of Bitcoin exchange is still contentious, as the Thai central bank now argues that Bitcoin exchange might be illegal because, if combined with foreign Bitcoin exchanges, it makes it too easy to bypass foreign exchange restrictions and convert Thai baht into other national currencies, but nevertheless substantial progress has been made.
4. Balanced Payments is moving to support Bitcoin. Balanced Payments, a popular credit card payment processor, has announced a partnership with Coinbase which will allow online marketplaces using their platform to easily also receive Bitcoin payments. Currently, the integration is in a private alpha mode, with Bitcoin payments only available for CrowdTilt and Gittip, but it will soon expand to other businesses as well.
5. California just clarified that Bitcoin is legal. Recently, Bitcoin users noticed a section of California law saying that “no corporation, flexible purpose corporation, association, or individual shall not issue or put in circulation, as money, anything but the lawful money of the United States”, and became concerned that this might apply to Bitcoin. So what did the Bitcoin community do? Well, they pointed the issue out to the state legislature, and soon enough a bill came alongto clarify that Bitcoin was, in fact, perfectly legally okay. And, guess what: one week later the bill was unanimously passed.
6. The Winklevoss SEC filing is moving forward smoothly. The Winklevoss twins, famous for their role in Facebook, announced last July that they would start a Bitcoin investment fund, which institutional investors could use to invest in Bitcoin as part of their portfolios. Up until this point, the process has actually been moving forward quite nicely; yesterday the Winklevoss twins made their major filing with the Securities and Exchange commission. The approval process is still expected to take several months, and perhaps longer, but this is only to be expected; normally, starting a new exchange-traded fund takes years.

Eventually, MtGox will either declare bankruptcy or reopen deposits, and the particular shadow that currently hangs over our community can begin to withdraw. When that happens, the sky will clear, and we’ll see that the number of Bitcoin transactions is still rising, the search volume on Google Trends is no longer dropping and has been stable for about a month, the number of Coinbase wallets is approaching 1 million and companies taking advantage of tools such as multisignature transactions to help alleviate the problems with consumer protection and security that Bitcoin still has are just around the corner. Welcome to an exciting 2014.

Tip BTC: 1FxkfJQLJTXpW6QmxGT6oF43ZH959ns8Cq

Tip LTC: LaBhvWiAP7msku6w8QSQ5G7omVWMF3uxJC
By Vitalik Buterin

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Some of Bitcoin enthusiast Mike Caldwell's coins are pictured at his office in this photo illustration in Sandy, Utah, January 31, 2014.

CREDIT: REUTERS/JIM URQUHART

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(Reuters) - Robocoin said on Tuesday that later this month it will install the first automated teller machines in the United States that let users buy and sell bitcoin, the latest step into the mainstream for the digital currency.

The kiosks, to be installed in Seattle, and Austin, Texas, are similar to ATMs but have scanners to read government-issued identification such as a driver's license or a passport to confirm users' identities.

The ATMs will allow people to swap bitcoin for cash, or deposit cash to buy more bitcoin by transferring funds to or from a virtual wallet on their smartphones.

Bitcoin was launched in 2008 and is traded within a global network of computers. It is not backed by a single company or government and has no assets behind it, but its release is tightly controlled, mimicking a central banking system's control over the minting of money.

Robocoin, based in Las Vegas, installed its first bitcoin ATM in Vancouver last fall and will also start operating one in Calgary, Alberta, later this month. Robocoin also is planning to install ATMs in Asia and Europe.

A bitcoin is currently worth about $636, but its value has fluctuated widely as the currency's visibility has increased. Last September, a bitcoin was worth around $150. By late December the value was near the $1,000 mark.

Users can buy products and services online on sites including Overstock.com or in a handful of stores.

The currency's reputation took a hit last week when two of its best known exchanges suspended withdrawals. One of them, Slovenia-based Bitstamp, said Friday it planned to allow redemptions to resume.

(Reporting by Phil Wahba in New York; Editing by Eric Walsh)

The Rise of Cryptocurrency

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The Rise of the Cryptocurrency Gift EconomyBrett Scott (@Suitpossum) | Published on February 18, 2014 at 11:38 GMT | Analysis, Investors, NewsinShare5Share65

In 2013, the digital anthropologist Lui Smyth conducted a survey of the most common uses of bitcoin.

He found bitcoin was used to buy web services, software, hardware, gambling services, and (in the heyday of the Silk Road) narcotics. Topping the list though, when measured in terms of the number of transactions, was tipping and donations.

The public block chain provides much anecdotal evidence for this. All one needs to do is search the tipping addresses of people or groups who openly advertise that they take bitcoin tips.

Here, for example, are tipping accounts for Adam B Levine and Stephanie Murphy of the popular Let’s Talk Bitcoin show. Libertarian activist Adam Kokesh has received a significant number of donations via his Youtube channel. And here isWikileaks, the open-source software producer VideoLAN, and the anarchist magazine Strike!.

I have even received one bitcoin tip and a few dogecoin tips for my own blog (indeed, the dogecoin community appears to have a particularly generous heart when it comes to supporting underdogs like the Jamaican Bobsleigh team). This donation culture has also taken off in forums like reddit, where tools likeBitcoinTip allow redditors to send each other tokens of appreciation for thoughtful comments.

This use of cryptocurrency for small acts of generosity may seem unusual to those who associate bitcoin with self-interested profit-seeking speculation, but it points to the emergence of a promising cryptocurrency gift economy.

What is a gift economy?

The best way to illustrate a gift economy transaction is to think about a street busker who sets up on the sidewalk and proceeds to give something to society.

“The air-conditioned Silicon Valley conferences seem a million miles away from the gritty reality of the rest of the world.”

The busker does not expect anything back from any particularperson who walks past, but the fact that they leave a hat out for tips shows that they hope that in general some people will be inspired to give back to them.

In 2001 I experienced this first hand when I busked on the New York subway. It differs from normal economic exchange, where a service is offered only to a particular person who completes the transaction with a particular payment.

It also differs from a pure gift, where we hand something over to a particular person without expecting anything back. In busking, a service is freely given to many but voluntarily paid for by only some.

At its heart then, such exchange relies on a different notion of the economic individual, not one who acts in their narrow self-interest, but one who is motivated to act even when they do not have to. It has much in common with the Buddhist notion ofKarma – I give something and have faith that it will come back.

Why cryptocurrencies suit online gift economies

So why might cryptocurrencies be ideal for online donations and tipping?

Firstly, they are easy to use. Bloggers engage in the Internet version of busking when they request donations for pieces they write. If I enjoy a blog post though, I do not want to have to enter into a complicated process to donate to the writer. I need the digital equivalent of flipping someone a coin as I walk past them, and cryptocurrency is ideal for that.

There is also something very personal about choosing to give money to an online busker when you are not contractually obliged to do so, and this type of transaction does not lend itself to formal third-party payment providers. Bloggers frequently do set up Paypal donate buttons on their sites, but the third-party adds a layer of formality to something that is intrinsically informal.

Cryptocurrencies, on the other hand, have a naturally informal feel to them, a bit like loose change in your pocket. Their anonymous nature adds to this. When you send a Paypal donation, your identity becomes known to the person receiving it. As the transaction becomes formally recorded, the act can become more contrived, like when a wealthy person donates to a public building to get their name plastered on it.

 

Hiding identity can be associated with a lack of trust, but equally it can stand for the removal of ego from a transaction. When I tip a street busker it is very fleeting, and the busker will seldom know who I am.

In a sense, I stand for a general person in society who appreciates them. Anonymous cryptocurrency donations are similar. They do not aggrandize the tipper, and can be used to express a pure appreciation for the services provided.

Preserving the soul of bitcoin

This emergent gift economy should be actively encouraged by all those interested in the future of cryptocurrency, and here is why.

Bitcoin initially had the feel of a true underdog currency, an unlikely adventure undertaken by outsider enthusiasts. I often work with NGOs and humanitarian groups, and when bitcoin initially came out there was real curiosity about whether the technology had the potential for helping vulnerable people.

As bitcoin’s fame has risen though, and with it the triumphalist stories of bitcoin millionaires, the tone has shifted. Far from being perceived as a currency of empowerment, it risks becoming seen as just another technology for elites to get rich off, especially as the costs of mining skyrocket. The air-conditioned Silicon Valley conferences seem a million miles away from the gritty reality of much of the rest of the world.

Recently Andreas Antonopolous urged bitcoin enthusiasts to tone down the rhetoric of speculation and to focus on bitcoin’s potential role in facilitating charity. And as Andrea Castillo writes, new approaches to welfare that go beyond the traditional left vs right battles are needed.

Participating in, and encouraging a thriving informal gift economy could be a chance for crypto enthusiasts to showcase how an economy based on decentralised voluntary association could also support those who are on the fringes of society.

Dogecoin

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Dogecoin Founder Turns Down $500,000 Investment OfferNermin Hajdarbegovic | Published on February 17, 2014 at 17:15 GMT |Altcoins, DogecoininShare3Share24

Dogecoin Founder Jackson Palmer has turned down a substantial investment offer from a group of Australian venture capitalists. Palmer was apparently offered $500,000, but he toldTechly he turned down the offer. When asked why, he simply said: “because f*** that”.

Although dogecoin started off as an elaborate joke, the actual model is a lot more interesting than the hair-down meme image of this altcoin. There is no artificial cap on how many coins can be mined, as the cap is increased by five million units each year.

“It’s a deflationary/inflationary model I like to jokingly call ‘dogeflation’,” Palmer said. “We’re trying to stabilise ourselves and get it to a point where it can be treated as a viable currency.”

Bitcoin types are elitists, doge is for everyone

Palmer points out that people will not be using dogecoins to buy yachts and cars – but they could use it for microtransactions based off social media. Such transactions could allow internet communities to support media outlets, artists and various content creators.

He also took a swipe at some members of the bitcoin community, describing bitcoin enthusiasts as an “elitist little group” that doesn’t like outsiders, while dogecoin is more of a grassroots thing.

“You can go to a Bitcoin meet up and meet people who are like ‘I have 100 bitcoins, I’m a multimillionaire’,” he said.“Dogecoin is the community’s currency, open to everyone, and that’s how I want to keep it.”

Even dogecoin needs regulation

Although Palmer wants to keep dogecoin open to anyone, even if he has to turn down heaps of cash to keep it independent, he is in favour of some form of regulation. Palmer explains in a rather humorous fashion:

“I’ve been approached by VCs lately who want to cash in on this Dogecoin thing and they’re offering me what in reality is ridiculous amounts of money. And I’m sitting there quietly with them saying ‘I want to throw X amount of dollars at this’ and I’m like, ‘take a step back, it’s a dog on a coin’. Has the world gone mad?”

As if his remarks about bitcoin elitists weren’t enough, Palmer also went out of his way to irk all those who are not in favour of any crypo regulation. He is an avid advocate of regulation and he believes the Australian government needs to regulate and legitimise digital currencies.

“I do ultimately think we need to regulate around this stuff otherwise you will not gain the trust of the average Joe who wants to put $100 into whatever digital currency they’re using,” he said.

Palmer also praised the Canadian government for its decision to regulate cryptocurrencies.

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