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piątek, 1 sierpnia 2014

Erik Voorhees response to NYDFS Bitcoin Proposal


Today, as human society progresses onward, Coinmap broke 5,000 global business
listings, South African payment processor Payfast enabled their 30,000
merchants to accept Bitcoin, and the NY Dept. of Financial Services made
financial privacy a crime, supported (at least superficially) by some leaders in the
Bitcoin industry.

Let’s review…
The proposed digital currency regulation from Benjamin Lawsky, the Superintendent
of 20 million/6 billion people’s financial decisions, has been on the horizon for months.
New York is known for dictating how people live, and so as more people are incorporating
Bitcoin into their lives, New York bureaucrats would inevitably attempt to place it
under surveillance and control (with the best intentions, naturally).
According to the new mandates, you will soon be unable to lawfully purchase a Bitcoin
from any company that A) has any customers in New York and B) doesn’t keep an
aggregated surveillance list of all customers, including name, address, photo ID,
and “other identifying information,” regardless of the amounts transacted. And if the
company you’d like to buy from does satisfy New York’s rules, you will then be required
to add yourself to this surveillance list, having to then trust not only the company, and not
only the government, but also every other 3rd party that may obtain such information, not
to abuse it.
Consider now that an Italian, wishing to buy $100 of Bitcoin from BitStamp in Slovenia,
will now be forced to provide all his personal details, which will go on file with the United
States government (and any 3rd parties able to obtain that file) because BitStamp has
some customers in New York. The American government, not satisfied with continually
carving away the freedoms of its own people, now heads abroad in search of freedoms
elsewhere to slay.
Ironically, one of the most highlighted pretences for NY’s new regulations is
“consumer protection.”
And indeed, these new mandates attempt to assure you of your state-sponsored safety,
by requiring background checks on the company’s founders (another American myth:
the presumption of innocence), requiring expensive bonds and insurance (goodbye college
start-up), and forcing companies’ IT security to satisfy government standards (which
should make us all feel safe). So you are assured of your safety, but then of course it is
wrested back away upon compulsion to expose your personal details.
How can it be in the interest of a consumer to force them to reveal their identity,
submitting personally identifying documents directly to private companies, and then
indirectly to various government agencies, and then periodically to hackers and 3rdparties
who otherwise inevitably obtain it? How does that protect the consumer?
Let’s be truthful, this exposes the consumer. It renders him a serf upon a farm
of information production – used for purposes both benevolent and vile, without
any say in the matter.
The information you expose, to anyone, does not remain solely with the recipient of that
exposure. If the government forces the exposure of your personal information, will it also
do you the courtesy of guaranteeing the safety of the same? It cannot.
Let’s examine the credit card industry, which is highly regulated by the same wise and
benevolent agencies now groping Bitcoin. Have we already forgotten Target Corp’s breach
leading to millions of peoples’ personal information being compromised? And is that an
isolated incident? Or the billions of dollars in losses every year due to identity theft? This
is real harm, both personal and economic, being done perpetually to the American public,
because they have to divulge all their personal information to engage with each
other economically.
Finally, at long last, Bitcoin provides a way to make at-distance economic
exchange without surrendering personal info, and Benjamin Lawsky rides in on
his white horse (taxpayer funded) to make that privacy illegal, and once again wrest
society back into the dark ages of financial technology. His justification is that he may
be able to freeze some criminal funds, so endangering 350 million Americans is justified,
because he is protecting Americans.
The premise that such regulations foster consumer protection is absurd.  Do consumers
not deserve the right to remain private if they have not been accused of a crime? And do
they not deserve privacy on both sides of the transaction – buying the Bitcoin, and spending it?
Do they deserve to be forced to reveal who they are, where they live, what they look like,
how to get in contact with them, and in what manner they choose to make financial
decisions? Is this the mark of a society that values the liberty of its citizens?
That it may make it easier for the State to fight crime if every citizen reveals who
they are and what they’re doing does not justify such intrusion. This is the impetus by
which evil groups come to dominate and subvert, regardless of whether they were evil to
begin with. An honest America must now change its slogan from “Land of the Free” to
“Papers, citizen.”
This is not consumer protection. This is explicit surveillance of private citizens who
are not accused – nor even under suspicion – of committing a crime. Or, perhaps,
suspicion is now assumed in all cases? A foundational legal principle of American society
– the presumption of innocence – is, through such mandates, humiliated and desecrated,
all by people who believe they are “advocates of the law.” Are we now presumed to be
criminals, and thus must permit ourselves to be watched in whichever way the State
deems appropriate, so that our activities may be blessed before we proceed?
Is this not exactly the financial censorship for which Bitcoin was intended as the antidote?
Some don’t seem to think so.
Bitcoin “visionaries,” Cameron and Tyler Winklevoss, responded to the announcement
with the following,
“We are pleased that Superintendent Lawsky and the Department of Financial Services have embraced Bitcoin and digital assets and created a regulatory framework that protects consumers. We look forward to New York State becoming the hub of this exciting new technology.”
Cameron and Tyler, this is shameful.
Lawsky has “embraced Bitcoin?” Really? Dozens of diktats which mandate State
surveillance and censorship is the very antithesis of Bitcoin. This is not an embrace,
it is the chaining of a generation’s most important invention to the failed
financial infrastructure for which Bitcoin was an explicit refutation.
But let’s not hastily cast the Winklevii among Bitcoin’s true enemies. After all, Occam’s
Razor might suggest that the brothers simply don’t want regulatory scrutiny brought down
upon them (as they’re trying to get their fund approved), and thus feel compelled to not
only comply with these absurd mandates, but to advocate on behalf of them. But then what
does that say about our great nation? That industry leaders cower before the Superintendent
and lend their reputational support, so as not to draw ire? Does this sound American to you?
What does the American ideal (and the Bitcoin ideal), stand for if not stalwart resistance
to this very encroachment of the state into private industry?
But it’s worse. To all Bitcoin industry entrepreneurs and advocates – this new regulation
makes private ewallets illegal. Read this sentence again!
If you spend your time, money, and creative energies building a platform in which users
may securely deposit and store their digital assets, you must now require them to
send you personally identifying information. You must take their name. You must
take their address. You must get a photo ID of this person verified against government
checklists. You must watch their transactions and decide whether they are suspicious.
You must package all this information into a database to which State
agencies are permitted unlimited oversight and privilege. 
But even before initiating your Orwellian spy list, you must submit yourself to a
process of applying for a State-sponsored license. You must bribe the government with
money or they will shut you down (called a bond or licensing fee). You must invite
State-approved IT security forces to review your system. If they wish to insert a snippet
of code into your software, you shall comply or be tried for money laundering and
conspiracy to commit all manner of crimes (think I’m making this up?).
Please, how can anyone involved in Bitcoin morally support this?
You are being forced to spy on your users, and report private information to Government
agents, with neither accusation nor even suspicion of a crime. How can you
advocate the innovation that Bitcoin brings and simultaneously support such a decree?
Do you have no line in the sand? At what point do you stand up like someone who knows
right from wrong and assert your opposition to one of the most corrupt organizations
on the planet? Not today, you say?
Are you listening Jeremy Allaire? Are you listening Armstrong and Ersham?
Are you listening Winklevii and Andreessen? You are leaders of the industry – well,
where are you leading it? Don’t want to bring negative attention upon yourselves?
Fine, I understand that. But why are you going out of your way to publicly endorse
this anachronistic legislation? Doing so means your explicit approval of all Bitcoin users
being under perpetual surveillance. By what moral perversion do you justify such advocacy?
Further, it will now be mandated that any bright engineer obtain a State License before
releasing his new digital currency, and may only then innovate in a State approved manner.
No digital ledger system may be published for the world to view without State approval,
according to the NYDFS. “Controlling, administering, or issuing a Virtual Currency” is
now a government-approved, and thus government-censored, enterprise. Industry leaders,
do you really support this?
This would mean Satoshi Nakamoto himself would have committed a crime if his genius
released Bitcoin today (unless he explicitly barred New Yorkers from using it). To do it
“lawfully,” he would have been required to register, obtain approval, and make his identity
known to all. You approve of a background check on Satoshi Nakamoto? You
approve of him being forced to put up a bond before he’s permitted to release the
genesis block?
Bitcoin would not have been released legally if this legislation existed in 2008. Why
do you support it being released in 2014? This is the “fostering of innovation” now levied
by NYDFS, and you are supporting it. Cryptocurrency innovation (aka business) must
first be approved and anointed by the State of New York. Is that your idea of monetary
progress for a world so desperately in need of it?
How can you support this?
Alas, what conclusion can be drawn from Lawsky’s proclamation other than the following:
Bitcoin shall be tossed into the same unethical regulatory mess that currently governs the
legacy banking system. It shall comply with the same mandates, be governed in the same
way, by the same people. It shall be censored with the same prejudices, and serve as an
Orwellian tool of law enforcement in the same corrupt and deleterious manner.
Its protection of privacy, illegal. Its advocacy of neutrality, ignored. Its efficiencies,
minimized. Its decentralized, market-based governance forced to revert to centralized,
State-based coercion. Why? Because the men with guns say so and the men with the
businesses don’t really want to make a fuss about it.
“Examinations of licensees will be conducted whenever the superintendent deems necessary.”- NY Dept. of Financial Services

Consider whether this quote is more befitting of legislation in The United States of America, or Soviet Russia? Is it befitting of Bitcoin? Are we all inspired to build a system in which “examinations will be conducted whenever the superintendent deems necessary?” Is that what we’re bringing to the world? More of that?
I don’t expect those who make their living through coercion to understand or appreciate
this distinction. But I do hope that respectable people, good citizens, men of character,
honest Bitcoin innovators and businessmen, take it to heart in both their words and actions.
If you don’t want to speak out against this nonsense for fear of retribution, fine,
that is understandable. But if you speak out in advocacy of the very injustices from which
Bitcoin is trying to lead society, I’d advise you to check whether you’re veering dangerously
close to incompatibility with a free and open financial system, and consider whether you
will end up on the right side of history.
Let’s hope the builders of this most important technology don’t continue to embarrass
themselves by forgetting what they’re building. Fortunately, a technology like Bitcoin
will lead humanity in its own direction, despite the most eloquent proclamations from kings
of any country, or the cowed grovelling of their entranced subjects.
To those of you out there speaking and struggling for freedom, thank you.
In liberty,
-Erik Voorhees

czwartek, 24 lipca 2014

Could NSA Spying Operations Impact Bitcoin Safety?



Bitcoin is safe, except when it is not. It can become not safe when the devices that hold them are compromised. Just as bitcoins stored on an exchange are only as secure as that exchange, bitcoins stored on your computer or cell phone are only as secure as those devices.

iOS vulnerability

Recent news has highlighted just how insecure many of our devices are. While many rejoiced at the news that Apple would once again allow Bitcoin wallets on the app store, developments have brought into question thesecurity of the devices.
Apple users are quick to point out that the vast majority of mobile based malware targets Android and not iOS, andthat is true. However, a security firm has identified hidden processes and backdoors installed by Apple itself in order to give the company, and by association any law enforcement it co-operates with, near complete access to iPhones and iPads running iOS 7 or later.
The hidden “services” were uncovered by a member of the iOS jailbreaking community, Jonathan Zdziarski (aka NerveGas). The programs have names like “lockdownd” and can be accessed via USB, Wi-Fi and possibly even cellular signals.
- Jonathan Zdziarski
For its part, Apple has responded to the accusations, admitting to the programs' exsistance but saying that they are only used for services users opt into and that the company doesn't have access to  encryption keys. Zdziarski responded saying that Apple doesn't need encryption keys because the programs in question can circumvent any encryption. He also maintains that there is nothing in the code that indicates the programs need user permission to run and take personal information.
Late last year, when the NSA spying program DROPOUT JEEP was first revealed by German media Der Spiegel, it was shown that the NSA was targeting iPhones and installing malware on them in order to gain near complete access to the devices. At the time, the documents implied that physical contact with the device was necessary. If the back doors installed by Apple are as bad as Zdziarski maintains, physical contact with a device no longer seems necessary.

The Bitcoin connection

It may seem like a separate issue, but this puts both online wallets and locally stored Bitcoins at potential risk and at the mercy of both Apple and law enforcement, two entities that haven't exactly been friendly to Bitcoin and Bitcoin users in the past (regardless of Apple's revised policy and recent positive comments by some in the government).
One of the selling points of Bitcoin is that the feds can't touch your money. A major constitutional issue that is often ignored is that the government will often freeze the assets of the accused as “proceeds of the crime” before the accused has a chance to defend his or herself. This leaves defendants unable to pay for the high priced lawyers often necessary to defend oneself against the legal might of the government.
Some have argued that this practice is unconstitutional because it assumes guilt without proof in court and leaves the accused without recourse for defense.
Bitcoins are supposed to be safe from such seizures, which is one reason why Ross Ulbricht, the man accused of being Dread Pirate Roberts, had his bail denied. While the government managed to seize bitcoins held in the Silkroad's escrow, Ulbricht's suspected hidden stash of bitcoins has not been touched. The government claims he is a flight risk because of this, but in another situation the coins could theoretically be used to pay for a lawyer even after the government seized fiat assets.
Least you think this is unnecessary fear-mongering, consider what asset forfeiture, which is what seizing the assets of a crime is often called, brings into the government every year. Police departments keep up to 80 % of the cash sized. Law enforcement doesn't even have to charge a citizen with a crime in order to seize money they suspect was obtained through illegal means. Citizens can file a motion to have the money returned to them, but that is an expensive process and can often cost more than the amount confiscated. Police departments have taken cash, frozen accounts and even seized houses, all without charging the owners with a crime.
There is no reason to feel Bitcoin is safe from the continually growing tentacles of the law, unless we take steps to ensure it is safe.
If the government, through Apple, has control and knowledge of everything on your iOS devices, it is that much easier for them to obtain, lock down and confiscate your bitcoins. Any coins stored in offline “cold storage” wallets would theoretically be safe, unless the government used keyloggers to steal private keys before they were deleted from a phone or computer. It seems likely that they have that capability with iPhones, and access to dozens of other devices like internet routers, who doubts Windows and Mac OSX are not similarly compromised?
With completely frozen assets, it can be nearly impossible to mount a serious defense. Public defenders are notorious for quickly recommending plea deals and generally being unable to properly represent their clients.
If Bitcoin is really meant to be secure from outside parties, these are the sort of developments we need to watch for as a community. The United States government's position on Bitcoin is still unclear and the substantial increased power held by shadowy organizations, like the NSA and CIA, perpetuated and approved by both political parties, should give us all pause when it comes to the issue of trust.
Of course, the government isn't the only entity out there that could potentially pilfer your bitcoins. A much more immediate threat to the security of your coins is the mass of thieves, scammers and greedheads that populate the internet. There is also the instability of banks and the growing possibilities of bail-ins. Those are real concerns, but that doesn't mean we shouldn't pay attention to potential threats from those that claim to protect us, or the companies that allegedly heed their call.

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Dell Accepting Bitcoin On E-Commerce Site


New Tablets From Dell

Dell now accepting the alternative currency on its e-commerce site
Dell, which reported $56.9 billion in revenue for 2013 and employs more than 100,000 people, announced the decision to begin accepting bitcoin via a tweet by company founder, Michael Dell.
Dell Inc., has announced that it is now accepting Bitcoin as payment on its e-commerce site. Dell.com booked an estimated $3.55 billion in 2013 online sales.
Dell started accepting Bitcoin based on customer interest, a company spokesperson says, and worked with payment processor Coinbase to implement a Bitcoin payment gateway in just two weeks.
Dell customers can begin using bitcoin as payment immediately, and the company is offering a discountfor Alienware-brand computer hardware if payments are made in bitcoin. The company is partnering with bitcoin payment processing company Coinbase, which works with tens of thousands of merchants in accepting and using bitcoin.
 According to Adam White, the director of business development and strategy at the company, who worked with Dell on the partnership, Coinbase reached out to Dell several months ago. “We had some good conversations with them,” he said, but it wasn’t until recently that  Dell got back in touch with Mr. White, and said they’d decided to adopt bitcoin, and wanted to get it done quickly so as to capture sales during the back-to-school season.
Coinbase also processes payments for Overstock.com Inc, which in January 2014 became the first large e-retailer to accept bitcoin. In the first 24 hours of accepting the digital currency, shoppers placed 840 orders using it, accounting for $130,000 in revenue, the retailer says. The company has since done more
In accepting the virtual currency, Dell joins a number of large companies and merchants including television provider Dish, payment processor Square and travel booking website Expedia.com.
That growing adoption rate isn’t an accident, Coinbase CEO Brian Armstrong said. The bitcoin payment processor set an internal goal for 2014 to partner with at least 10 retailers with at least $1 billion in revenue, and Dell marks the seventh such company to do so.
Although the vast majority of bitcoin trading comes from users treating it more like a speculative stock or investment, Armstrong said merchant-customer transactions have doubled since the start of 2014.
Although several early bitcoin adopters were more interested in gaining cheap publicity, Armstrong said that more merchants are realizing the cost savings potential of accepting bitcoin, which usually comes with fewer fees than credit cards.
“It’s increasingly becoming about just cost savings, and that’s becoming a more sustainable long-term advantage for bitcoin,” he said.
Coinbase has about 1.5 million customer accounts.
The goal for Dell was to tap into another method of reaching customers, according to David Frink. The decision involved a combination of people within the company, he said, including Mr. Dell himself, who was “very interested in moving this along quickly.”
Still,  the company understands bitcoin is still in an early stage, and has conservative expectations for the program.  “This is a pilot, and we’ll see how it goes,” Mr. Frink said.

How the Growing Bitcoin Market Will Cause a $3.4 Trillion Disruption



A tsunami of disruption - courtesy of Bitcoin - is headed directly for several sectors of the financial services industry.
Some of these companies may adapt to a world in which the digital currency plays a major role, but most are likely to become Bitcoin marketvictims - companies that will struggle and possibly disappear altogether.
In a research report released at the end of May, Wedbush Securities analyst Gil Luria said "Bitcoin-related technologies will disrupt payments markets and other trust-based markets within the next few years and for decades to follow."
This could have a tremendous impact on the U.S. economy, Luria said, as 20% of the nation's gross domestic product (GDP) "is generated by industries whose main function is as a trusted third party," such as banks, insurance carriers, and real estate-related companies.
In dollar terms, that's an eye-popping $3.4 trillion.
And while it won't happen overnight, the changes will be felt far and wide. Likening Bitcoin to other revolutionary technologies like the Mobile Wave of smartphones and tablets and social media, Luria predicts "the disruption from Bitcoin will take longer than expected but have an even more profound impact than anticipated."
As time goes on, the benefits of Bitcoin - negligible fees, no personal information associated with transactions, decentralization (no central bank can devalue the currency by printing more and more of it), and the potential of the technology to have uses beyond mere payments, such as verifying ownership - will speed adoption and threaten many existing players.
In its detailed "State of Bitcoin" report for the second quarter, Bitcoin news site CoinDesknames 34 companies with a combined market cap of $546 billion as susceptible to disruption by the growing adoption of Bitcoin.
Many of these companies are large and powerful, such as credit card giants Visa Inc. (NYSE:V) and Mastercard Inc. (NYSE: MA), money transfer company The Western Union Co. (NYSE:WU), payment hardware company NCR Corp. (NYSE: NCR), and securities exchange companies CME Group Inc. (Nasdaq: CME) and NASDAQ OMX Group, Inc. (Nasdaq: NDAQ).
Other financial sector categories at risk include payment processors, bank software, and trust/escrow.
Unless these Bitcoin market victims climb aboard the digital currency bandwagon soon, they risk getting run over by it.
Here's why they can't afford to wait much longer...

The World Won't Wait for the Bitcoin Market Victims

While Bitcoin is easy to ignore now, it is still in its earliest stages of adoption.
One other key takeaway from the CoinDesk report is that all of the primary metrics for measuring Bitcoin adoption are growing exponentially.
Bitcoin wallets, for example, increased from 765,039 in June 2013 to 5.33 million in June of this year - a sevenfold increase.
Venture capital investment over the previous 12 months rocketed from $17.1 million last June to $200.7 million this June - a twelvefold increase.
And the number of merchants accepting Bitcoin has doubled since mid-December to about 63,000 in June.
bitcoin market
These numbers are small now, but it's the growth rates that matter. Within a few years, the Bitcoin ecosystem will reach critical mass, and for the Bitcoin stock victims who wait it will be too late.
"We believe the Bitcoin valueproposition will become more apparent as applications currently in development come to market with longer-term concerns being quelled as the ecosystem matures," Luria said.
Surprisingly, many of the potential Bitcoin market victims have yet to view the digital currency as even a small threat. Most haven't even bothered to list Bitcoin as a risk in their U.S. Securities and Exchange Commission (SEC) filings.
They might want to reconsider, as an increasing number of experts are taking a more sober view of the impact Bitcoin is going to have in the years ahead.

"It remains to be seen how big a challenge Bitcoin poses to the system of national fiat currencies that has evolved since the 1970s," said noted economic historian Niall Ferguson, the Laurence A. Tisch Professor of History at Harvard University and a senior fellow at the Hoover Institution, in a recent article for The American Interest. "But it would be unwise to assume, as some do, that it poses no challenge at all."

Another Precious Metals Dealer to Begin Accepting Bitcoin, Dogecoin

Yet another precious metals dealer has announced their intentions to begin accepting bitcoin, the digital currency that is seemingly taking the financial world by storm over the past year.
Provident Metals said in a Wednesday announcement that they will begin accepting not only bitcoin, but other cryptocurrencies like dogecoin and litecoin starting on the 25th of August.
“The value of cryptocurrencies and precious metals are market driven, and they both appeal to forward-thinking investors,” said Mr. Joe Merrick — Provident Metals CEO. “This integration was logical because many of our customers are proponents of alternative currency, and it’s our job to respond to their needs.”
Provident says that their customer base was the major reason behind the decision to accept digital currencies, especially following their sponsorship of NASCAR driver Josh Wise, in addition to sponsorship by the Dogecoin community.
Provident Metals COO Jake Haugen said, “[...] it was time for us to recognize the effect cryptocurrencies are having on the marketplace,” when Dogecoin enthusiasts began requesting that the company accept their digital coins.
“Our goal is to provide our customers with new and progressive payment options that work to their advantage,” Haugen says.
Other companies that accept digital currency include Agora Commodities and Peter Schiff’s Euro Pacific Precious Metals. Schiff has interestingly long denounced bitcoin and other digital currencies, but states their acceptance at Euro Pacific is largely due to customer demand.

U.S. Court Blocks Bitcoin Domain Name Auction



TOKYO—A planned auction of bitcoins.com, a domain name owned by the chief executive of defunct bitcoin exchange Mt. Gox, has been postponed after a U.S. court order temporarily blocked the company that operated the exchange from selling assets.
A district court in Washington state issued the injunction, which will expire in 14 days, against web-hosting company Tibanne in response to a request from Seattle-based CoinLab, which has filed a suit in the U.S. against Mt. Gox.
The international legal dispute that has erupted over the remnants of Mt. Gox reflects the escalating tug of war among interested parties over how the Japanese company's assets—much of which are denominated in a virtual currency—should be divided up.
Until Mt. Gox's collapse earlier this year, Tibanne had been focusing on managing what was once the world's largest bitcoin exchange. Mark Karpelès, the company's CEO, previously told The Wall Street Journal that he hopes to fund Tibanne's operations via domain name auctions until its new venture takes off, while promising he will use at least half of the revenue from the auction to repay Mt. Gox creditors.
Mt. Gox collapsed in February, claiming it had lost 850,000 bitcoins due to hacking attacks. Most of the assets, worth half a billion dollars, belong to creditors and the exchange is in Japanese liquidation proceedings under the supervision of a court-appointed trustee.
In addition to 200,000 bitcoins it later discovered and other assets it is seeking to liquidate, the defunct exchange holds ¥700 million ($6.9 million) in cash, according to a statement by the trustee shown at Mt. Gox's first meeting with creditors held on Wednesday.
Originally scheduled for Thursday, the auction was expected to generate more than $750,000, according to Heritage Auctions, which was handling the sale. While Mt. Gox lawyers weren't immediately available for comment, the auction house confirmed it has taken down the item from the day's list.
"Heritage Auctions has withdrawn Bitcoins.com from tomorrow's auction as a result of a Temporary Restraining Order," Noah Fleisher, the house's spokesman, said in an email. "We look forward to our consignor resolving the matter and to rescheduling the sale."
"I'm pleased that we will see more judicial oversight and transparency in this litigation. I hope the information Tibanne is directed to deliver will help piece together some answers," CoinLab CEO Peter Vessenes said.
Chief U.S. federal judge Marsha Pechman noted in a court document that there is good cause to believe that there would be immediate and irreparable damage to the court's ability to grant effective final relief to CoinLab if Tibanne is allowed to sell off its assets.

BitHalo is a Game Changer for Bitcoin Adoption and Online Payments


bitcoin online payments

Many people have been waiting for Bitcoin’s killer app. This is the one app that would provide a use case where it actually makes sense for the average person to use Bitcoin on a regular basis. It seems that we may have finally have the first such app in the form of BitHalo. This new innovation from David Zimbeck comes packed with a variety of new, exciting features for online commerce as a whole, and it doesn’t seem like the full impact of this new software will be felt until the full version is released. One of the main problems that Bitcoin has had up to this point is that some consumers are scared of irreversible transactions. It seems that BitHalo may have been able to solve that issue without any added costs.

Escrow without a Third Party

The potential for BitHalo to have a massive impact revolves around its ability to perform escrow through the use of smart contracts. Most people who pay for things online today use some form of escrow because they want to have a bit of protection for situations where a merchant tries to rip them off. These escrow services, such as PayPal, Visa, and Mastercard, also come with fees that vary from country to country. For some merchants, the cost of using these systems for escrow isn’t even practical for their business model. In the case of BitHalo, there are no fees for the decentralized escrow service. BitHalo gets around the need for a fee by having the merchant and customer both send bitcoins into a smart escrow contract. The following is an example of how this could work:
  1. Bob is looking for a used Nintendo 64 to buy on Craiglist, but the only one he can find is in another city. He agrees to buy the video game console from the seller, but he insists that BitHalo is used for escrow.
  2. James, the seller of the Nintendo 64, decides that using BitHalo is fine with him. Bob and James each send 0.05 BTC into an escrow smart contract. Bob also needs to send another few dollars worth of BTC into the contract (see steps 6 and 7).
  3. James ships the Nintendo 64 to Bob. It’s important to note here that James would lose his 0.05 BTC if he decided not to ship the Nintendo 64 at this point. This is the key to the escrow system. It’s basically a way for the merchant to put up some collateral before the buyer sends them any money. The seller only gets their original deposit back if both parties agree that the transaction was completed successfully.
  4. Bob receives the video game console and checks to make sure that it works. Everything seems to checkout, so he sends a message to the smart contract claiming that he received the package in the mail. He has an incentive to actually go back to his computer and confirm that he received the game console because he will want to get back that extra few dollars deposit that he had to put down.
  5. James also confirms the deal is done, and he receives both his original 0.05 BTC deposit and the 0.05 BTC from Bob. The extra few dollars worth of BTC is now also sent back to Bob.
Watch the video below if you need a clearer, more thorough explanation of how this whole system works:

A Killer App for Bitcoin

The escrow system described above has many different use cases in the world of e-commerce, and it’s not just about people buying and selling goods over the Internet. There are also plenty of people who make a living from work they find online. I am one such individual, and I learned early that you cannot simply trust a client to pay you after you’ve sent them a completed project. With this escrow system from BitHalo, I could make sure that a client is actually legitimate before I begin working for them. This can also be useful from the client’s point of view. There are some clients who like to pay upfront for work, and forcing the contractor to pony up some cash for a deposit in the smart contract can calm their fears of having the contractor run away with the cash. This is basically a new way for two random people to prove a certain level of trust to each other over the Internet without having to even know their respective names.

Decentralized Exchange

In addition to offering new protections for online shoppers and freelancers, BitHalo can also be used for decentralized exchanges of just about any asset. The actual exchange portion of this software is known as NightTrader, and it almost seems like an afterthought after looking at the implications for other aspects of online trade. In addition to being able to trade between bitcoins, litecoins, dogecoins, blackcoins, and any other cryptocurrency, this software could also be used as a decentralized replacement for LocalBitcoins. If you take the example from above and replace the Nintendo 64 with a bank deposit, physical cash, or realcoins, it’s easy to see how this platform can be used for purchasing or selling bitcoins in a decentralized manner. This may be something that is eventually handled better by a server-based system such as Open Transactions, but it’s still interesting to think about all of the different aspects of online commerce that are helped through BitHalo’s escrow system