BitcoinStore is launching today and I think that it is the first sign of a change in the payments industry. PayPal was founded in 2000 and experience massive amounts of growth in the next 10 years, but the last three years have been tough on PayPal. Many developers, merchants, and customers have become fed up with PayPal and are now switching to alternatives, like Google Checkout, Stripe, or the one true alternative in my eyes: Bitcoin
Bitcoin has been experiencing massive growth. The price is high, morale is high, and we’ve never had more sites accepting Bitcoin… The big question now is convincing consumers to use it for their online transactions.
BitcoinStore does this. They are doing 0% markup on all their products. They are losing money on their site, all to show consumers (and potentially business owners) that Bitcoin really does save both the consumer and the merchant a lot of money. It is extremely efficient for business because there are no middlemen or chargebacks.
What BitcoinStore also does is intimidate the big boys with a little bit of healthy competition. If you want Amazon or Newegg to accept Bitcoin, the only way to get them to listen is by buying their products, for cheaper, on BitcoinStore. They would rather accept Bitcoin than lose any percentage of their user base.
We still need to provide the tools for consumers to use Bitcoin on their own. BitPay is helping business owners to accept Bitcoin, Coinbase is getting there in teaching consumers, and BitcoinStore is now providing the incentive to convince consumers and business owners to learn. Unless I’m missing a large part of the equation, Bitcoin has nowhere to go but up from here on.
Bitcoin is an interesting beast… I personally think that it is a great innovation that will lead to a revolution in the banking industry. Now, that being said, it is an innovation. It is a tool. Whether the price goes up or down, it does not matter. All that matters is that the amount of money going in, and coming out, is constant and growing. If the amount of money flowing in and out grows, the usefulness of Bitcoin grows as well.
Think of it this way, imagine the Earth was filled with only 100 people and the only way to communicate was by placing rocks down forming letters. Now imagine two people managed to learn how to speak. Out of 100 people, now two people can communicate quickly, effectively, and with little effort. Obviously the 98 other people would try and hire these people to send messages. The amount of messages would be limited, both by time, and by the richer driving out the poor.
Bitcoin is bloody efficient, safe, and damn right amazing. I’ve sent money to Singapore, in 5 minutes. I didn’t have to drive anywhere, look up some arcane bank routing numbers, deal with international banks for days on end. “What’s your address? Ctrl-c ctrl-v, bam. Done.” Now, that being said, there are only two people on this Bitcoin planet. I can’t go give my local butcher Bitcoin yet. However, if that butcher wanted to buy an HDMI cable for cheaper than anywhere he could find/”communicate his way to”, I could buy it off BitcoinStore.com for him, and accept fiat in return. Even if I charge a small %, he still is better off because of the cheaper prices. Bitcoin adds value by removing a middleman, and that’s the point you need to look for… In anything really. Does this company add value? Stock goes up. Does this product add value? Shelves get emptied. Does Bitcoin make life easier and save people money? Yes.
For example, look at Coinabul, it might not be a large company, but it can be very competitive on gold and silver prices. They sell gold and silver in the form of bars and coins. The pricing is possible because of Bitcoin. No chargebacks or middlemen means a lower price for consumers.
I don’t ever buy any bitcoins, mainly because I can’t be arsed to, secondarily because I can receive wages in BTC when I need more. I use Bitcoin much like a banking account, I store a lot of my BTC wealth in a savings account that I don’t touch, then store 10-25BTC in a wallet that I use to buy things. I don’t think Bitcoin is an investment. I think it’s volatile, and I find it downright humorous when people claim Bitcoin is dead because it dropped $10. As long as there is money moving in and out, the tool still works, and it is still alive.
We’re having a massive sale this week! We’re officially a year old, thank you to our customers and the Bitcoin community as a whole!
Could there be a world where blackmail is legal? Doubtful. However, a world where blackmail becomes a norm and nearly impossible to prosecute could become a reality. Take the recent news about Mitt Romney being exhorted by alleged Bitcoin-savvy burglars. These burglars supposedly broke into PriceWaterhouseCoopers and liberated copies of Mitt Romney’s tax returns. They are giving the Romney camp until September 28th to pay up one million dollars equivalent in Bitcoin or face publication of the tax returns. What is even more interesting is the inclusion of another option; one million dollars equivalent in Bitcoin to a different address would result in immediate publication of the tax returns. Although there is only a little over $30 at the addresses right now it will be interesting to see if any big payments occur.
However, a question remains, even if the blackmailer received his million dollar hush-money, what would stop him from publicizing his ill-gotten goods anyways? This is the quandary created by Bitcoin. It allows totally anonymous entities to receive payments. With conventional blackmail, someone has to pick-up the briefcase filled with cash. Since the blackmailer can’t be tracked to his Bitcoin address, it both makes it harder for law enforcement to locate the criminal, and easier for the blackmailer to never reveal his identity. So there is nothing to stop him from revealing the information after he receives payment. In conventional blackmailing, there might be a crooked lawyer involved who could reveal the blackmailer’s identity if the information did come to light, but Bitcoin removes the identity aspect from the equation.
There might be a solution though. Consider online sites that require users to place trust in other users, namely: eBay. The way eBay handles malicious users that retract on their promises is through user reviews. Reputations take time and effort to maintain. It is hard to fake reputation. Reputation is valuable and ample leverage for blackmail. So, although I doubt victims would “rate” their blackmailers, keeping a log of actions committed by blackmailers would allow them to build a reputation.
So, blackmailers could hold their reputation on the line in exchange for Bitcoin payoffs. Blackmailers would create a handle and verify the handle in public communiqué using GPG. From there, blackmailers would be able to create a string of blackmailing and prove to their victims that they are both serious and trustworthy (at least in regards of not revealing the secretive info).
In the future, could we be living in a world of fear, constantly checking a Tor site for blackmail? Probably not! But it’s definitely a possibility… In any case, I’d clear out those skeletons still left in your closet.
**I don’t condone blackmailing
Bitcoin and the Borderless Labor Market
By Steven Kane
For many knowledge workers (any worker who can do their work purely online), the ability to work flexible work hours on the Internet in any location is already a reality. However, two key types of technologies will converge that will take workers far beyond the current landscape of online employment: telepresence technologies and cryptocurrencies (namely Bitcoin). Imagine being able to work for anyone in the world, anywhere, at any time, almost as if they were in the same room. Now imagine that the person you work for over the Internet pays you in a purely digital international cryptocurrency that is basically as good as cash. As a worker who may have been tied down to a local job market, you would probably find your employment options opening up to a dizzying array of possibilities.
One major problem with working online is the problem of lack of presence. This problem can be summed up as the inability to form strong working relationships with others due to a lack of their audio and visual presence in your room. Whether the reasons are superficial or not, people do not tend to form strong relationships with other people who they cannot see or hear in a clear manner. Email and chat completely lack the necessary exposure to a person’s nuanced speech and body language. Additionally, audio still lacks body language, as well as does grainy video. In order to build lasting trust and strong business and work relationships, people need clear video and audio of their Internet based employees, employers and business partners. This video and audio needs to be clear enough to convey a sense of presence to all parties in a meeting. Fortunately, the technology to enable excellent telepresence is currently being developed. One such technology that appears to be promising is wall mounted screens and webcams that have high definition video and audio. The screens can of course split into sections to display multiple individuals for a meeting. Imagine having such a wall mounted screen in your home office that is hooked up to a fiber optic line to handle the large amounts of data necessary for a high definition audio/video feed. With this screen in place and a common application to instantly connect to others over the Internet, the problem of lack of presence should be largely solved. Even if such technology will not be able to completely convey a sense of presence, people’s attitudes and perceptions will probably change to bridge the gap between true presence and telepresence.
With the problem of lack of presence solved, yet another problem remains. The problem, of course, is payment. In order for a person to be able to work for any set of individuals in the world, they must either pay high fees to exchange their employer’s fiat currency to their own country’s fiat currency, or they must get paid in a currency that is recognized internationally. Fortunately, the cryptocurrency Bitcoin is an internationally recognized currency that anyone can receive within 1 hour and that can be exchanged for a large number of fiat currencies worldwide for relatively low fees (or be spent directly with certain merchants). Therefore, all Internet based employers need to do is acquire Bitcoins to pay their Internet based employees. Since Bitcoin is pretty much impossible to forge or double spend and has irreversible transactions, it is as good as cash. Also, Bitcoin is anonymous if a person takes care to tumble the coins, rendering it impossible for someone to link them to the coins. The political consequences of the anonymity of Bitcoin could be explosive.
With telepresence technology and Bitcoin a worker could literally choose who they wanted to work for by the hour in their own home. Or they could form strong relationships with a chummy set of employers or business partners from many different countries and work with them exclusively on long term projects. The combinations of business partners, employers and employees would not only be limitless, but they could change at an incredibly rapid pace. A ‘speed dating’ application for business partners, employees and employers would no doubt be available. Someone could instantly connect with someone on their telepresence screen and decide in 1 second whether or not to do business with them. Use your own imagination to think of all the ways telepresence and Bitcoin could be used or what other applications or technologies could be factored in. In any event, fancy telepresence technology is not necessary for doing online work for Bitcoin now. A search for Bitcoin job boards will turn up plenty of interesting links.
Everyone loves an infographic!
I wrote a guest blog on this site: http://bredred.com/republicans-and-bitcoin/
Here’s the text:
Fiat currencies have some inefficiencies. These inefficiencies are costing our nation and her people billions of dollars each year. These inefficiencies are being used by greedy politicians to overtax Americans. These inefficiencies also make the dollar harder to manage and in the long term limit job growth. There is a one word solution to this problem, the next big step in monetary evolution: Bitcoin.
Now, before you get distracted by what you’ve heard about Bitcoin, let me tell you that this article is about what you haven’t heard about. This article will discuss the technological advances Bitcoin has accomplished in easy-to-understand english. So, get a cup of coffee, and let’s start with the basics:
Bitcoin is a new form of online money. Unlike other attempts to create online money, Bitcoin is run by no person or organization. Bitcoin is truly headless, this means it does not act as a middle man and is free to all people to use with minimal fees. This is good for a monetary system because it is totally autonomous. It doesn’t require any effort by any organization to run or maintain. The users of the system, and their computer’s processing power, allow the system to work. This is quite easily the most democratic monetary system that has ever existed.
Now let’s talk economics. One lesson in Econ 101 discusses inflation. Inflation is best shown by looking at everyday consumer goods. These consumer goods are basically anything you can purchase at Walmart. The price of these goods have slowly risen over the years while the value of the dollar has fallen. That means that if you were to hold onto a single dollar, year after year it would lose purchasing power. So if you went to Walmart with $200 twenty years from now, it may only allow you to purchase half of the things you could purchase today.
This affects every American because it allows the government to implement an “Inflation Tax”. The government prints more money and by doing so the money you own becomes less valuable. This silent tax allows politicians to take purchasing power away from the wealthy and the economy as a whole.
In contrast, Bitcoin limits the government’s ability to tax through inflation. Since more bitcoins cannot be created on demand or through legislation this allows for a secure investment safe from depreciating government currency.
Another inefficiency Bitcoin solves is counterfeiting. Fighting counterfeiters is a full time job and even the Secret Service, who investigates counterfeits, can’t catch all the counterfeiters. Nearly 600 billion U.S. dollars are counterfeit. The counterfeiting wars are a constant arms race that costs the U.S. taxpayers more with each passing year.
In contrast, Bitcoins are mathematically impossible to counterfeit. Switching from the dollar, or even simply using Bitcoin as a way to transfer large sums of money, cuts back on fraud, and therefore cuts down on spending. Bitcoin helps reduce government spending and provide more secure transactions. Bitcoin has solved the issue of counterfeiting. No longer can North Korea leech off our economy by counterfeiting U.S. dollars.
Lastly, Bitcoin is already providing hundreds of startups the ability to accept payment online. For example, the company I work with, Coinabul (http://coinabul.com), launched in October of 2011. We allow our customers to securely and privately purchase gold online using Bitcoin. Bitcoin allows us to avoid fraudulent chargebacks that would normally raise prices by up to 10%. We’re able to lower fraud and pass the savings onto our customers. We’re just one company in a sea of startups. The geyser of economic activity blooming from Bitcoin truly shows how useful Bitcoin is for the online economy.
Bitcoin has created an amazing monetary system that can definitely be used as a model for the a redesign of national currency. The benefits that a Bitcoin-esque monetary system provides would save the country a lot of money long-term.
Due to the number of security breaches in the Bitcoin community recently, for the safety of our customers we are performing our semi-annual deep offline security audit a bit early. You’ll see downtime on the main site for as much as 24 hours from this post, until we are sufficiently pleased that there are no latent flaws that could be an issue. Thanks for your patience!
This week I decided to interview Khalahan Henkh: The Lead Developer of the Namecoin project. Namecoin is Bitcoin’s little brother. It’s a decentralized peer to peer currency and name database system. It basically allows you to register .bit domain names, Khalahan also describes some more features in our interview.
Namecoin has unfortunately been out of the news lately. Hopefully this interview will spark some more interest in the project. The internet as it exists today is threatened by the real world with its harmful legislation attempting to destroy freedom on the internet, during times like these, we need tools that enable uncensored discussion and freedom.
Jon: Thank you Khal for taking time out of your day to talk to me! I would also like to thank you for your work on the Namecoin project. So, first question, what is your background? What other projects have you worked on?
Khalahan: I’m a programmer who have mainly coded in C and vb in the past (softwares for the game T4C), PHP for more than ten years and most recently in Python. I’ve also worked on several open source projects as an occasional contributor sending some patches on softwares I like and use (like AlternC [a web hosting software for Debian], Bitcoin [the initial patch for signmessage and verifymessage for example] and Subtitle Editor)
I also manage the Namecoin website: http://namecoin.info
Jon: What led you to Namecoin?
Khalahan: I first discovered Bitcoin and immediately liked the project: a digital currency without central control and thought “wow, really impressive”. I read a lot about how it works to be sure it was a serious project and then I involved myself a bit in development. I like decentralized/p2p technologies and all that permits a community participation. This is the future of internet, and our governments will surely be shaken by that.
Then, Vinced launched Namecoin, and I followed him, because DNS is still something where you don’t have a full control. And we can see today, more and more domains are seized… and things are getting worse day by day. Plus, Namecoin is more than a safe DNS system, it also allows any type of data to be stored in the blockchain. It can be used to build all sort of trusted things on it, like an alias system for Bitcoin, Namecoin, Anycoin or a more global identity storage, a messenging system, a encrypted system to exchange data between addresses, etc. There is no limit.
Jon: What’s the current status of the Namecoin project?
Khalahan: The software is usable to store any type of data. The DNS system is already usable and used. Server admins can build their own DNS or proxy and share it with other people. The alias system has been implemented in Namecoin as a proof of work and can be implemented by others. You can now send money to an alias instead of an address. It still needs some documentation to explain how it works and how to add it in other softwares. There is still a lot to do and any help is appreciated (C++, python, documentation, translation, donations, anything!)
Jon: Do you think Namecoin will ever gain the amount of users Bitcoin has?
Khalahan: Namecoin has some technological barriers that Bitcoin does not have (it needs some modifications on computers configuration), but, once this is automatic, the barriers will disappear. I guess a DNS system will not interest as much people as a currency, but an alias system can be widely used and who know which other usages will be added. So, reaching current Bitcoin popularity seems feasible.
Jon: Are there any big features coming out soon?
Khalahan: Yes! A python software to expand namecoin features and to permit more flexibility is in development (it is in its first stage for now). Namecoin will capitalize on its unique abilities (storing data and ensuring control only by his owner) and this new software will provide services based on Namecoin (dns, proxy, alias and domain creation, etc). This will allow us to build new usages faster and to be used more easily by people.
Jon: What do you think is in Namecoin’s future?
Khalahan: A lot of services will be developed once some barriers are breached. My aim as a Namecoin developer is to allow people to easily build things based on Namecoin.
Jon: Is Khalahan Henkh your real name?
Khalahan: No, it’s a nickname. My real name is available on the whois of dot-bit.org for people interested.
Jon: Thank you for your time Khalahan!
## UPDATE ###
A redditor had some more questions for Khalahan, more below:
Jon: Do you think the lack of arbitration (unregulated name squatting) is a fair compromise for decentralization? It may stunt the growth of Namecoin as corporations would avoid adopting it if they couldn’t protect their trademarks.
Khalahan:Namecoin used as a DNS, for example, is not a darknet, so people building standard websites on it are not hidden in the blockchain. So, you can’t do whatever you want with no risk at all, but, at least, you really control the domain name, the top of the chain.
Khalahan: Lack of arbitration is the only way to assure a real decentralization. So, even if it’s not perfectly suited to all usages, this will greatly benefit to usages that don’t care about arbitration, and still benefit to other usages. Intellectual property/trademarks/patents had taken too much power, so, if Namecoin could balance all that, it’s a good thing.
Jon: What uses do you think Namecoin has an initial advantage on? I can imagine ad hoc name resolution may help.
Khalahan: Of course, domains that can’t be seized are interesting for a lot of people, but there also other areas where Namecoin can be useful: trust, identity, login, secured communication, etc. Things are not still defined on how all this will work, but Namecoin can be combined with existing softwares like GPG, user registration on internet (like the deprecated xup files) which would allow you to update your email address on all compatible websites your are registered on by just updating your email address in Namecoin.
Also, bitcoin and other chains could use alias instead of public coin addresses (see http://dot-bit.org/Namespace:Identity and https://en.bitcoin.it/wiki/BIP_0015#Namecoin_ID)
Jon: Thoughts on botnets using Namecoin as a bootstrap?
Khalahan: This is an interesting use case that will be exploited in the namecoin python frontend i’m working on (ok, a derivative one).
For botnets, they could bootstrap namecoin with well know nodes, download the chain or only specific blocks to grab some ip and then ? Is there a real benefit for the zombie computer to use this instead of connecting to an IRC channel or else ? Updatable ip ? It may be less complex to get ip from hacked computers all over the world or to build a p2p botnet.
As each thing that provide power to its user, i can be used in a bad or good way (as knifes, secured communication softwares, etc).
Jon: What work is being done to investigate ways of storing and compressing the namecoin blockchain? Bitcoin’s developers are looking into exotic tree structures and so forth, how might these be applied to Namecoin and what technical challenges are there?
Khalahan: Namecoin community of developers is not big enough to spend time on this while we can (and should) all work on this in Bitcoin, because Namecoin share exactly the same problems as Bitcoin. Then, Namecoin will benefit from Bitcoin improvements.
The specific technical challenge for Namecoin is to allow it’s usage as a light node where you only want last 36’000 blocks, or even only the registered names still valid (not all tx from last 36k blocks) with still proof of work benefit. But this is not a required thing today.
Early in June, Pieter Wulle, one of the core developers working on Bitcoin visited the Bitcoin meetup in Switzerland. After the meetup I caught up with both Pieter and Stefan Thomas, the creator of WeUseCoins and BitcoinJS. Below they share - while mildly inebriated - their wisdom, thoughts, and fears about Bitcoin.
Jon: Let’s start with the easy questions! Pieter, where are you from? What’s your background?
Pieter: I am Pieter Wuille, I’m from Belgium, I studied computer science. How did I start into computers? When I was like 5 years old. I must have been talking to my dad at the time and I said something like “daddy numbers are pretty cool, you can do things like adding them together. You can’t do that with letters.”. Then he wrote a small program that concatenated two characters strings and printed them out. I guess a few years later I started writing my own programs around age ten or eleven, in GW-BASIC. Then QBasic and Visual basic followed. At around age 16 I started writing in C. Later at the university I also learned learned Java and a few other languages. Eventually I also did a PhD there, though I was glad when that was over.
Stefan: Gotta love Pieter’s modesty! He learned some java, got a PhD - you know, nothing special!
Pieter: I heard about Bitcoin in an IRC channel about Haskell. Apparently my graphics card was good enough to do mining at the time. After a few months, I was trying to get Bitcoin to import private keys and export private keys and play around with it. I wrote a patch for that. I encountered some problems so I emailed Gavin Andresen about it. I offered some improvements, and Gavin asked me if I was interested in joining the Dev Team.
Stefan: How was the process of joining the Dev Team?
Pieter: I got an email from Gavin asking hey, are you interested. And uh, he gave me write access to the repository.
Stefan: Did you ever considered changing the client to send all the Bitcoins to you?
Pieter: No… well. Yes.
Stefan: That’s why I can never join the dev team, because that’s the first thing I’d do. (I’m kidding!)
Jon: Do you plan on continuing to be involved in Bitcoin?
Pieter: For now, sure. Will depend of course on how much time I find in the future. For now it’s not a problem. But it might change.
Pieter: I’ve been involved since the middle of December, 2010.
Stefan: You’re such a noob, I first used Bitcoin in June of 2010! Then again, guys like Mike [Hearn, creator of Bitcoin’s Java implementation] already used it back in ‘09. So I guess we’re both noobs.
Pieter: I think your work is not known well enough! BitcoinJS is just not well known.
Stefan: I’m actually okay with it not being well known. It’s still pretty young, so it’s good to have some time where I can fix bugs, rewrite stuff and generally let it mature while it isn’t used too widely.
Stefan: The original client is used to handle quite a lot of money. How is it to work on something that sensitive?
Pieter: At times when I realize that a patch does the exact opposite of what it’s supposed to do, I feel responsible and try and fix it right away. On the other hand, we are a team of several people, no one is going to point to one person and say, you broke this, take the blame. Eventually, Gavin has the largest say in what gets merged.
Stefan: Just like other projects stand on the shoulders of giants, we stand on the shoulders of Gavin.
Pieter: I don’t think Gavin wants to be Mr. Bitcoin, he was just chosen.
Stefan: I think there is a good interplay between Gavin and the other developers. Everyone keeps trying to push responsibilities onto him, but he does a great job at including them in the decision making process anyway.
Jon: You are both deeply involved in Bitcoin’s development. What do you think are the most pressing issues that need to be solved?
Pieter: Most pressing issues…
Stefan: Nothing. It’s done.
[They both laugh]
Pieter: I think it depends on what timescale you’re looking at. If the goal you’re trying to reach is that your grandma can use bitcoin from her smart phone, I think that requires not much development of the client, but infrastructure being built around the Bitcoin protocol. Where you have payment processors and all the things peoples are able to do with money right now, which they should be able to do with Bitcoin much easier. We really need services that are useful for paying, instead of gambling, exchanging and betting against currencies.
Stefan: A lot of people know of Multibit, which doesn’t download the blockchain upfront. Will that concept ever be applied to the Bitcoin client?
Pieter: One of our main plans is to have our client start up in headers-only mode and then gradually download the blockchain in the background and then at some point turn that mode off and become fully synchronized. This will be ready in a few months maybe. Matt has already implemented this halfway. This is a most substantial change.
Jon: Are there any huge threats to Bitcoin that people should be concerned about?
Stefan: Other than Pieter?
Pieter: Oh yeah, no. I shouldn’t be talking about this one. No don’t write that down… I think, probably scaling issues… Not scaling in the sense of getting too big, but if things get unwieldy big before more legitimate users appear… If there were a very sudden growth of a particular side.
Stefan: I have something I’m scared about: A couple of months ago people were able to exploit some weakness with public keys on Github. We’ve seen hacks on Linode, we’ve seen a hack on Github, what if there was a hack on SourceForge*?
*The downloads for the Bitcoin client are currently hosted on SourceForge.
Pieter: Yes, that’s a problem. But there is an advantage hidden inside a disadvantage. The amount of people who upgrade their clients when there is a new update is frighteningly small. It’s nothing critical, nothing to worry about, just the fact that people are not upgrading that quickly, I guess if someone hacked into SourceForge and put fake binaries up, it wouldn’t be signed by Gavin’s key, it’d be noticed very quickly. But yes, there’s certain infrastructure that we need to trust until there are alternatives.
Pieter: People need to remember that Bitcoin is still an experiment.
Stefan: It’s easy to forget that we’re still on version number 0. When will version one come along?
Pieter: As Gavin has stated, “when my grandmother is ready to use it.” I think we’re getting close, the multisignature needs to be there, the blockchain shouldn’t be getting corrupted, these are the kind of bugs we don’t want to have. But we’re slowly getting there. There has been an increase in the number of patches. So development is getting faster.
Jon: Stefan, since you run WeUseCoins, you’ve probably helped tens of thousands of Bitcoin newbies, what type of marketing do you think needs to be done to push Bitcoin into the mainstream? Do you think it’s even ready for average consumer?
Stefan: Well, as Pieter just said, we’re still a ways away from what could be considered a 1.0 version release. At WeUseCoins, we found our audience. There are now significantly more Bitcoin users than there were a year ago. But most of them are geeks, so I’m not looking at mainstream marketing, but at what other niches could use Bitcoin.
Pieter: I think if Bitcoin was to survive, it should focus not on replacing worldwide currencies, but on small niches.
Stefan: Take for example, GirlsGoneBitcoin (NSFW). Which is basically a place where girls can strip for bitcoins. I think niches like that, as awkward as it sounds, are what we need to be looking for. Use cases for smart contracts, privacy, stuff like that. The mainstream is way off. The more established Bitcoin becomes in smaller niches, the better it will do. If you have a critical mass in some core markets, you can use those markets to expand. That’s how you capture the mainstream. From WeUseCoins we learned to avoid going after the mainstream directly.
Jon: What do you two think about Silkroad? Do you think it is the biggest driving force behind Bitcoin?
Pieter: I’d say it’s inevitable. I’d say Bitcoin offers relative privacy, but I don’t think it’s not only useful for them. There are other ways that Bitcoin can benefit other niches.
Stefan: When I say focus on niches, I’m talking about legal niches. Most drug deals are done in dollars, not in Bitcoin, because dollars offer unconditional anonymity. To the extent that people do use Bitcoin for illegal deals - we don’t condone it, we don’t promote it, we don’t want to help it in any way, but it’s going to happen.
Stefan: However, to say a technology shouldn’t be pursued because of some abuse, historically, has never been a good argument. Most technologies have some negative side-effect, but at scale it turns out to be less of an issue than people expected and eventually they stop talking about it. Cars, nuclear technology, etc. If we put a moratorium on anything that might have negative side effects, no substantial technological advances would be possible. We look for the positive stuff, the positive usage and with Bitcoin there are plenty of reasons to say it’s worth doing.
Pieter: Bitcoin enables certain uses that are very unique. I think it offers possibilities that no other currency allows. For example the ability to spend a coin that only occurs when two separate parties agree to spend the coin; with a third party that couldn’t run away with the coin itself.
Stefan: I found it interesting that this point is never picked up in the media. Assassination markets and that kind of stuff always gets a mention but never any mention of smart contracts.
Pieter: Never in all the interviews I gave did they ever write about it. It’s a pity. It’s still so early right now, even we don’t know what it’s going to be used for.
At this point the clock strikes midnight in Central European Standard Time and Stefan turns 25. Pleasantries are briefly exchanged, then Pieter continues:
Pieter: Smart Contracts… In its basic form… Contract is a wrong name. It’s a lower level than that. The idea that you have a coin, which more than a single person needs to give their approval for. One of the easiest things you could do with it, is have a bitcoin client on your desktop system, but to actually send money you’d need to get approval from your cellphone. This would add another level of security really. Since an attacker would need access to both devices.
Another usage is for large sites with automatic payouts. This could have helped against attacks that have occurred on websites on the past. You use two servers, where the second server would verify the transaction. The second server would request human approval for large transfers and would freeze the system until it got approval. This sort of security gets Bitcoin much closer to banks and other institutions that are handling money.
Another application is escrow. You could create a low-trust escrow service which decides if the money goes to the destination or goes back to the sender. This means the escrow can never run away with the money. It decreases the trust needed between parties and escrow services/
Stefan: Escrow is fairly expensive, because you have a small selection of trustworthy providers. With Bitcoin it could be essentially free, because when there is less trust you need to build up, the barrier to becoming a provider is dramatically lower.
Jon: What’s your favorite Bitcoin business?
Pieter: Clearly Alpaca socks.
Stefan: Haha, my heart says Alpaca socks, but the most useful or practical to me is probably premiumize.me. It’s a little service where for a small amount of bitcoin they let you proxy around country restrictions on sites like Pandora. They also give you the ability to download as a premium user from various cyberlockers..
Pieter: Oh, I didn’t know about that one.
Stefan: I’ll show it to you later. I quite like Bitcoin for that use case. One thing about Bitcoin that isn’t mentioned enough is that it’s good for plain old online payments. You press one button and it’s done.
Pieter: It’s good for transferring value across the internet. There is too little infrastructure to say Bitcoin can be used to make payments.
Stefan: I’m thinking about a few bitcoin businesses I want to mention. I went paragliding with Bitcoin awhile ago. I want to highlight that Bitcoin is a community… I don’t know about there being a PayPal community. Bitcoin has a trade page which I browsed and came across a paragliding business a couple of miles from my house. I would have never gone paragliding if I hadn’t found it through BItcoin. So there’s a community aspect to Bitcoin. There are so many liberty minded, geeky minded… how else would you meet all these people! We want to build more of these communities. We don’t want mainstream.
Pieter: I don’t want mainstream yet.
Stefan: There is so much growth potential in certain communities that are already heavily Internet-based, like the online gaming community. Think of esports tournaments, betting with Bitcoin, trade with virtual items and online matches, it might be a niche that could very well adopt bitcoin at some point.
Stefan: I also like the Bitcoin conferences. And they’re Bitcoin businesses technically. Bitmit is also awesome; it’s Bitcoin’s very own eBay. The thing with Bitmit though, is that there are not enough users, not enough offers. There is a massive network effect with auction sites. Paypal got big because they were used with eBay. We just need a niche like that. Auctions are already done reasonably well by eBay and PayPal, but maybe we’ll find our own niche at some point.
Stefan: Another site, Coindl is like iTunes basically, there is already some interesting content on there. I already bought one single and two albums so far. It’s great, I really want more artists to put their work on there!
Jon: Pieter, you work with Gavin quite closely I presume, do you think he’s a CIA spy? (There have been rumours!)
Stefan: I’ve heard he is actually a space lizard!
Pieter: Uhm, no. At the time he was invited to the CIA on the conference on money. They offered him some money for the conference, I like the fact he was so upfront about it posted on the forums.
Stefan: But that’s exactly what he would do if he *was* a spy!
Pieter: If you want me to be honest about this question, no. But I don’t know.
Jon: What are some common misconceptions people have about Bitcoin?
Pieter: Okay, I think, some core misconceptions, that money is created by computer cycles… That’s like saying gold is created by digging machines. I suppose there is a misconception as well that Bitcoin is only being used for illegal purposes. I sometime see people assume that it’s dead. The fact that people see news reports about hack sites and people think Bitcoin has a problem when in reality it is third party services that have the problems. I think it reflects poorly on Bitcoin itself and its growth pains.
Jon: Thank you both for your time and your insights!
That’s all for this week’s interview, if you have a suggestion for next week’s interview, let me know!