Zerocoin reduces proof size by 98%, plans to release as altcoin

A few months ago an extension to Bitcoin called Zerocoin was proposed. 

As you know, Bitcoin is the first digital cash system to see widespread adoption. While it offers the potential for new types of financial interaction, it has significant limitations regarding privacy. Specifically, because the Bitcoin transaction log is completely public, users’ privacy is protected only through the use of pseudonyms.  Zerocoin would change that. 

Yesterday, Matthew Green from Zerocoin project posted this tweet:

Matthew D Green on Twitter


“We designed a new version of Zerocoin that reduces proof sizes by 98% and allows for direct anonymous payments that hide payment amount.”

“We’re going to release it as an alt-coin. It will take a few months to get it to that point. Bitcoin can do what it wants.”

“We need a few months to clean up the code. We plan to release the client and an alt-chain.”

“Hide payment amount from anyone but the Payer/Payee is the goal. It’s not anyone else’s business.”

In August,  I wrote Cyrpo-Keys are Free Speech and in that article touched on Zerocoin when I wrote:

Bitcoin may seek favor with government regulators and opt for more transparency, but then some other crypto-currency could implement the Zerocoin protocol. We might see LiteCoin or FeatherCoin go full-throttle in the direction of total anonymity, and if that happens the debate (about privacy) will be over. It seems inevitable that at some point one these emerging forks in the Bitcoin road will become an anarchist’s wet dream

For those who are uninitiated, Zerocoin is not intended as a replacement for Bitcoin. It’s actually a separate anonymous currency that’s designed to live side-by-side with Bitcoin on the same block chain. Zerocoins are fully exchangeable on a one-to-one basis with bitcoins, which means you could use them with existing merchants.

Look Out #1, Here Comes ZERO

In the beginning…  the idea was to add the Zerocoin protocol to the blockchain making it possible to redeem Bitcoins anonymously.  Just as paper currency once gained its value from being redeemable for gold, Zerocoins wold gain their value from being redeemable for Bitcoins. It now seems this model may be changing and Zerocoin may soon coin itself.

The problem was that the proofs needed for Zerocoin took a lot of processing power. In addition to the computation cost being high is also seemed Zerocoin required too much storage space to be practical. With the announcement this week that there has been a 98% reduction in proof size, that means Zerocoin is now lightweight enough to be implemented into Bitcoin (or any other cryptocurrency). 

The big news is that Zerocoin is now talking about moving forward as it’s own alt-coin, perhaps as early as a few months from now. This is a radical chagne from the “road ahead” published on the Zerocoin website, it still reads, “Get someone [to] integrate it into bitcoin/litecoin/*coin.”  

Yesterday, Matthew Green said, “Bitcoin can do what it wants.”  

This makes perfect sense because this isn’t a simple change in the Bitcoin protocol. It’s a huge, all-encompassing change, which definitely deserves its own crypto-currency. Having said that, some serous thought need to be given to this new direction. 

The Heat Is On The Street

In the past those individual who were behind eGold and Liberty Reserve were both “done in” by government money laundering laws. In the case of the Liberty Dollar the crime was imitating the USD and in the Post-9/11 World this is also called a form of “domestic terrorism” (whatever that means). The point is Matthew Green needs to lawyer up.

Ross Ulbricht, even if the charges of hiring killers and laundering funds that were held in escrow were dropped, he also allegedly ran a site that facilitated anonymous communication between dealers and users, and he is absolutely in deep water from that, because he knew that that is what was going to happen on the site he created. All he did was create the site, and as a result of everyone using it, he will be charged for helping enable those crimes. The owners of Liberty Reserve were in spain at the time they were arrested too so the US definitely has long arms. Liberty Reserve was also used for many legitimate uses, as what happens with all money, but Zerocoin is very specifically tailored to strip identity from it’s transactions and Bitcoin can and will be able to ensure a high level of privacy, but it doesn’t have the total anonymity that criminals desire, so that means that Zerocoin’s main useful feature is going to be to facilitate illegal activity.

Now Bitcoin also enables crime, but the creator is nowhere to be found, the bell can’t be unrung, the Bitcoin genie is out of the bottle and there’s no-one to blame, and so all that is left is to arrest those that do use it for crime. Satoshi is long gone, unharassable, unarrestable. Matthew Green however, knowing fully well his alt-coin would be used to instigate all manner of illegal activity is actively creating an untracable currency, not a feature of Bitcoin, but his own currency, which means he will be the creator, issuer of coins and the facillitator when this thing goes live.

If this were just math, simply a protocol integrated into Bitcoin (or MegaCoin) then it would be the tens of thousands of miners that would essentially be the issuers, facilitators and creators of this anonymised coin. However, if Zerocoin becomes it own alt-coin then the creator is likely to experience some real serous government heat.

CoinValidation vs Zerocoin

Meanwhile, CoinValidation efforts are gaining steam. Basically, the idea is to build a centralized service that ‘redlists’ (blacklists) every Bitcoin addresses not authorized by this system. In effect, keeping good coins out of the hands of bad people or tagging other coins for having ties to criminals, hackers, and drug dealers. Proponent of such a system will help “keep the bitcoin economy from being a hotbed of crime.”

This CoinValidation and blacklisting taint, are both completely against what Bitcoin was designed to be and the ideals it was founded upon. The more I read about it the worse it sounds. Some have started to call this CoInvalidation based on this Reddit post. This misguided movement to “taint” Bitcoins with even less privacy features isn’t likely to fade away. Some people argue that even the limited anonymity of Bitcoin is too much, calling this its only flaw. The debate is getting quite heated.

How It Works

Here is quote from

The Bitcoin payment network offers a highly decentralized mechanism for creating and transferring electronic cash around the world. Unfortunately, Bitcoin suffers from a major limitation: since transactions are stored in a public ledger (called the “block chain”) it may be possible to trace the history of any given payment — even years after the fact.

So here is the problem, since the Bitcoin ledger is public, any party can recover this information and data mine to identify users and patterns in the transactions. In other words: Bitcoin transactions are conducted in public. The most common solution to this problem is to use Bitcoin laundries – services that mix together many users’ bitcoins in order to obfuscate the transaction history. Laundries suffer from a number of potential drawbacks, however, as they must be trusted to return coins. Moreover a compromised or malicious laundry offers no anonymity.

Zerocoin achieves this by creating a separate anonymous currency that operates side-by-side with traditional Bitcoin on the block chain. Zerocoins can be thought of literally as coins. They’re issued in a fixed denomination (for example, 1 BTC), and any user can purchase a zerocoin in exchange for the correct quantity of bitcoin. This purchase is done by placing a special new “Zerocoin Mint” transaction into the block chain.

Here is a link to Matthew Green giving a talk about this. As he explains, this system uses standard cryptographic assumptions and does not introduce new trusted parties or otherwise change the security model of Bitcoin. Matthew details Zerocoin’s cryptographic construction, how he envisioned it would be integrated into Bitcoin, and he examines its performance both in terms of computation cost and impact on the Bitcoin protocol.

Dark Wallet

“We believe Bitcoin is fundamentally subversive” said Cody Wilson, “We here to force the conflict.”

In a recent episode of the Keiser Report, Max Keiser interviews Cody Wilson about living in a trifecta of disruptive technologies as a citizen of the future in which bitcoin means a thousand silk roads and fanfare for the common man. If you want to understand the impact the Zerocoin is going to have on the world, watch this interview:


Bitcoin Price Hits $500, a 50x Increase in Just 12 Months

Those bitcoins that made you gasp at $300 just a couple of weeks ago? They were a bargain — the value of 1 BTC has now passed $500.

Prices hit this record and landmark figure at 11.50am GMT on 17 November, and at the time of writing were trading at $503.10 on Mt. Gox.

That means: if you bought a stash of bitcoins at their absolute highest peak price of $266* in April 2013 and then felt nauseous as the price plunged to $65 the same week, you have now almost doubled your investment. Provided you didn’t cut your losses and sell prematurely, that is.


The bitcoin value began rising again almost immediately after that, breaking through the $100 mark again before May and hovering around that region throughout the northern hemisphere summer. It broke through $200 in late October and since then the price charts have been close to vertical, hitting $300 on 6 November and $400 on all exchanges by 15 November.


There are currently 12,003,175 bitcoins in existence. The total market cap is $5,581,140,286 according to the Bitcoin Price Index, with 1,212,833 bitcoins changing hands in the past 24 hours. An average of 50,535 bitcoins are transacted every hour.

bitcoin price hits $500
The bitcoin price has reached $500 on Mt. Gox. Source: Bitcoincharts


Why is this happening?

Bitcoin has survived some bumps in that time, most significantly the shutdown of the Silk Road online black marketplace and a number of chilly statements from government representatives. That it has continued to rise despite these setbacks could well be pushing values even higher, as investors sense a more resilient asset than previously thought.

The FBI seized a total of 171,955 BTC from Silk Road in October 2013, an amount so significant there were rumors it could influence bitcoin’s value. It is still unclear what the Bureau intends to do with its haul, if anything.

Nearly every piece of bad news about individual cases heralded more expectations that bitcoin would pay the price.

An asset with more significant value has also meant higher-profile hacks, scams and thefts. Companies like Australia’s found themselves out of their depth as its now considerable deposits came under attack.

What had been worth a few thousand in 2012 was suddenly worth millions, and people with plenty of experience finding naive security holes wanted it.

Rather than face their customers’ wrath, the proprietors of such businesses simply took fright and ran away. As recently as last week, the (supposedly) Hong Kong-based GBL also disappeared, along with its customers’ funds.

Yet the value never fell. Nearly every piece of bad news about individual cases heralded more expectations that bitcoin would pay the price. That it has continued to rise despite these setbacks could well be feeding back and pushing values even higher, as investors sense bitcoin is a more resilient asset than previously thought.

The government has been paying as much attention as the hackers and scammers. The US Senate Committee on Homeland Security and Governmental Affairs (HSGAC) will begin hearings on Monday 18 November with representatives from five wary federal agencies and representatives from the bitcoin advocacy community. Another Senate Committee on Banking, Housing and Urban Affairs will also hold a bitcoin hearing on Tuesday 19 November.

Again, the news of these hearings have had no negative impact on bitcoin’s value.

Silk Road shutdown effect on bitcoin
Silk Road’s shutdown on 2 October 2013 caused only a small dip in the bitcoin price.

Around the globe

BTC China Bitcoin Exchange
ate 2013 also saw an axial shift towards Asia, as BTC China became the highest-volume bitcoin exchange with its own record-setting prices. Reports of media attention and rampant mining activity have made some wonder if China is driving the rise. Even in April, when most gave credit for the bitcoin rise to government bank account confiscations, the factories of Shenzhen were busy cranking out mining hardware and selling it to locals.

The two week shutdown of the US Federal Government in October 2013 over a debt ceiling dispute did little to boost faith in government-backed money, especially the one acting as the world’s reserve currency. Every time the word ‘default’ is even mentioned in this context, no matter what the expected outcome, eyes begin to search for alternative assets.

There have been other alternate theories, including the one that bitcoin value is being driven up by the unfortunate millions desperately acquiring the currency to rid themselves of CryptoLocker malware.


The air in April was thick with the gloating of digital currency cynics and attempts even by technology media to analyze the factors behind bitcoin’s ‘fate’ and look for alternatives. But bitcoin has proved to be more than and if it’s a bubble, it is one with a tendency to respawn.

Now, as $1,000 will get you only two bitcoins, the cries of ‘bubble!’ have not gone away.

Garrick Hileman, economics historian at the London School of Economics, said it’s too early to tell whether we’re seeing a bubble in bitcoin. He believes lots of factors are driving the price increase, including pure speculation, increased media coverage and attention from regulators.

“The growing regulatory attention which bitcoin is receiving is likely having a positive effect. This may seem counterintuitive, but to go mainstream, bitcoin needs more regulation, not less.”

Hileman said the US Senate hearings next week will not only bring more publicity to bitcoin, they may also lead to additional regulatory guidance.

“The lack of legal clarity is arguably the single most important issue facing bitcoin right now. For example, banks are scared of bitcoin, and reluctance by banks to work with the growing bitcoin ecosystem is a significant barrier to wider adoption,” he added.

Suggestions of a bubble will probably continue to increase and it’s wise to not get to carried away simply by a rising price. It might be equally prudent to stay ready to pounce on another price drop to $65.

Or we may be laughing at this story a year from now — not because the price has crashed, but because it has soared to even more unimaginable levels. Someone from November 2012 would probably find the idea of $500 quite hilarious too.

* Prices on BTC China were actually over the equivalent of $300 in April 2013, but the exchange trades only in Chinese RMB.

News Anchor Completely Loses It For The Best Possible Reason

Well folks, here is somebody else speaking up about the truth of our great country. Please listen, pause and think about what he is saying.

How do we get money out of politics?

Those of you who followed the Occupy Movement will remember one predominant theme that emerged was this idea that we need to get money out of political process. This meme was one that resonated with a lot of people. It was thought that, if we could stop Wall Street from buying our politicians, they might reform themselves and become better representatives of WE THE PEOPLE.

When you think deeply about it, you begin to realize the problem is more fundamental. While it is true that K street lobbies have undue influence in our political system, that is not the root of the problem. The large pools of Capital that sit above government is the root of the problem. With the rise of Bitcoin, people like myself have begun to ask new questions and formulate new solutions. Perhaps we need government, but do we need government issued money?

Talking about removing the money from the political process is one thing, but to separate government from money altogether is something quite different–indeed, it is revolutionary. The separation of church and State is a rather new idea in human history, and most people agree it was a step forward. With the rise of financial instruments that are both autonomous and anonymous, the question must be asked: Are we now ready for the separation of money from the State?

The separation of church and State was very controversial but it brought greater pluralism for all. America had a big role to play in that evolutionary process. After the Magna Carta was signed, men of the Enlightenment were no longer content to be ruled by Kings. Today the old oligarchs that once sat behind the king’s throne are still asserting themselves by appointing bankers into political positions once held by elected officials. What we see today is neo-feudalism where the kings have been replaced by few powerful families, each with large pools of capital. They control the political process because the control the money.

What I’m describing is called “the New World Order” and those invested in this corrupt system are pushing a Globalist agenda that forces working people the world over to comply and submit to its all-powerful will without regard to their individual rights. Yes, people complain about this open conspiracy, but they are at a loss to know what can be done about it. Perhaps the answer is a simple one: stop using State issued money.

If people the world over were to adopt various forms of crypto-currency, this would seriously reduce the power of the Super-State to control them and in time it would also render the oligarchy powerless to control the state. Then, and only then, would free people have a chance to reclaim their government and restore a Constitutional Republic that is both accountable and representative of their the best interests.

End Of The Silk Road. FBI Nabs the Dread Pirate Roberts

Andy Greenberg, Forbes Staff

After two and a half years running the booming anonymous narcotics bazaar known as the Silk Road, the drug kingpin who called himself the Dread Pirate Roberts has allegedly been unmasked.

On Wednesday, the FBI announced that they arrested 29-year-old Ross William Ulbricht, the Silk Road’s accused administrator, in the Glen Park branch of the San Francisco Public Library at 3:15 Pacific time on Tuesday. Ulbricht has been charged with engaging in a money laundering and narcotics trafficking conspiracy as well as computer hacking. The Department of Justice has seized the Silk Road’s website as well as somewhere between $3.5 to 4 million in bitcoins, the cryptographic currency used to buy drugs on the Silk Road.

Earlier this summer, the Silk Road’s administrator calling himself by the Dread Pirate Roberts pseudonym gave his first extended interview to Forbes over the same Tor anonymity network that has hosted the Silk Road and its users since the site’s creation in early 2011.

Forbes estimated at the time that the Silk Road was earning between $30 and $45 million in annual revenue. In fact, the number may have been far larger: The criminal complaint against Ulbricht states that the Silk Road turned over $1.2 billion in revenue since its creation, and generated $80 million commissions for its operator or operators.

“This is supposed to be some invisible black market bazaar. We made it visible,” says an FBI spokesperson, who asked not to be named. “When you interviewed [Ulbricht], he said he would never be arrested. But no one is beyond the reach of the FBI. We will find you.”

The FBI hasn’t yet revealed how it managed to track down Ulbricht in spite of his seemingly careful use of encryption and anonymity tools to protect his identity and those of his customers and vendors who visited Silk Road as often as 60,000 times per day. The FBI spokesperson declined to offer details about the investigation, but told me that “basically he made a simple mistake and we were able to identify him.”

One clue mentioned in the criminal complaint against Ulbricht was a package seized from the mail by U.S. Customs and Border Patrol as it crossed the Canadian border, containing nine seemingly counterfeit identification documents, each of which used a different name but featured Ulbricht’s photograph. The address on the package was on 15th street in San Francisco, where police found Ulbricht and matched his face to the one on the fake IDs.

The complaint also mentions security mistakes, including an IP address for a VPN server used by Ulbricht listed in the code on the Silk Road, mentions of time in the Dread Pirate Roberts’ posts on the site that identified his time zone, and postings on the Bitcoin Talk forum under the handle “altoid,” which was tied to Ulbricht’s Gmail address.

Read More:




The follow statement is from the Bitcoin Foundation:

We received several requests to comment on the shutdown of Silk Road. First and foremost, it is important to note that the sanctity of the Bitcoin protocol remains intact and it was not a weakness of the core protocol that led to the apprehension of Mr. Ulbricht. Although Bitcoin is not anonymous by default, Bitcoin addresses were not a factor in solving the case.

“The FBI was able to capture an alleged criminal without any new investigative methodologies being needed and without having to get into changing the nature of the Bitcoin protocol,” Bitcoin Foundation General Counsel Patrick Murck said. “They caught him the same way they would catch somebody using cash.”

This is good for the Bitcoin economy in general and the reputation in specific because it proves that Bitcoins are in and of themselves a neutral store of value or medium of exchange and that privacy does not necessarily have to be compromised for law enforcement purposes.

Bitcoin’s principal attributes of irreversibility and user-defined privacy continue to provide benefits for bitcoin users globally. The Bitcoin Foundation would like to reaffirm that financial privacy sits on a sliding scale expressed differently by different individuals. However, within the Bitcoin transaction network, the specific level of that privacy is determined, managed, and set by the user.

The New Renaissance: How Bitcoin Millionaires Will Change the World

You’ll notice a theme, it’s one I heard over and over again in my conversations. Unlike any other kind of investment I’m familiar with, the holders who I spoke to had no interest at all in exchanging their bitcoins for local currency at a point in the future when the value was very high.  Because “you can already spend bitcoin” they simply don’t see any point when the conversion has obvious tax implications and higher costs than not.  This was true of every single person I spoke to.” –Adam B. Levine [read more]

Listen to Adam read this article below:

Every person and business that is willing to trade some good or service in exchange for “money” increases the usefulness of every other unit of that currency in peoples’ pockets.  But why would someone want to use Bitcoins over dollars?

More divisible

You can send someone .000000001 of a bitcoin if you wanted to, try that with a dollar.

Very low fees…

…which actually go to finance infrastructure. The default fee for a transaction in bitcoin is .005BTC.  You get a little warning if you try to send something below that. But that was set when the value of a bitcoin was about a dollar, so I imagine you can expect normal fees to retract to .00005btc soon.

Internet cash

Credit cards are not built for the internet and identity theft is common.  I have personally experienced this twice myself in the last few years.

To make fraud more difficult, we give vendors of digital goods way too much personal information they have no real use for, which makes them a more tempting target for online thieves.  Bitcoin, with its unlimited wallets and addresses, gives you quite a bit of anonymity in your transactions without jumping through any hoops.

Zero fees for merchants

When you make a purchase with a credit card, you’re paying about 97% to the merchant and between 1-3% to the payment processor.  The merchant has to build that cost into his prices, so the items you buy are more expensive because of it.

Bitcoin turns that on its head; it is the sender who pays the minimal and optional processing fee, so merchants can accept bitcoins with virtually zero cost.

Faster, cheaper, and borderless

Have you ever sent a wire transfer?  It costs $20 and takes at least 3 days.  If you’re sending money that needs to be changed to local currency you can multiply your cost on the number of banks you go through, and each one of those institutions has a record of what they did for you and who you sent it to next.

To send a Bitcoin to someone in another country is as simple as sending it to a computer sitting next to you.  It can take as little as 3 hours to clear and your cost even at the current “high” default is only $0.50 USD.

Technically anyone can see your transactions, but if both parties use new addresses (as simple as clicking a button and giving it a name for context) there is literally no way to know who in the world is sending what to whom.  You’re hiding in plain sight because every other person to person transaction looks exactly the same as yours.

Anyone can accept payments anywhere

There is no barrier to entry to anyone wanting to build a tool that works with or uses bitcoin. Case in point: I had the idea three days ago to build an embeddable HTML widget.

Here’s the mockup, you see what I was getting at?


I create a new receiving address each time I write an article, label it the article name and where it was posted.  Then I embed the tip jar widget in each post so people who enjoyed my unpaid work can give me some value for my time spent.  Each time someone does that I see it pop up in my wallet with the name of the article and location.  I use this information to figure out where I’m having the most impact (in addition to other metrics).

But as I talked to more people, I realized this is a huge problem that could never be addressed before.  People who provide content on the web more often than not are not paid, and in many cases are going out of pocket in order to keep themselves online.  Accepting donations with PayPal is fine, but who uses PayPal for amounts below $5? There is Flattr, but they take 10% off the top of every transaction and have a centralized point of failure.

Embedding a Bitcoin Tip Jar in your blog, article, YouTube Video description, podcast comments page, etc. allows whatever content you create to accept monetary contributions from all your listeners regardless of what country they reside in.

As a former podcaster who was never able to monetize, I can say that this is a really big deal and it makes all kinds of things possible that you simply couldn’t do before.

Financial derivatives don’t make sense

Broadly speaking, size moves markets. So it’s interesting to note that in this time of monetary chaos following Cyprus, the monetary metals gold and silver have languished.

I believe this is a case of a captured market where the underlying value of the physical, in-hand hard cold metal is being controlled by the enormous size of the derivatives market that is built on top of it.

At more than 100x the size of the real physical trade, it should be no surprise that sometimes the tail wags the dog, and it becomes just another financialized tool rather than a safe haven.

So why is that possible?  If people could buy tangible physical gold they could safely bury in the backyard for virtually the same price as a piece of paper whose value is only as solid as the other guy’s solvency, then why is the “paper” market so huge?

Gold has intrinsic value, and is excellent money by a classical standard. But it also has some downsides:

  • It’s very heavy which makes it expensive to ship
  • You have to guard it yourself or hire someone else to do it
  • It is difficult or risky to transact with it. You have to ship it or go somewhere in real life to exchange in person
  • It’s very valuable, and not very divisible. One small coin is worth $1500 or more. If you split the coin in any way you sacrifice the small premium coins bring over scrap metal

These are great reasons to instead say “This is just too hard.  Let’s put all the gold in a vault and just trade its ownership back and forth.”  This leads to derivatives, which are financial vehicles.  Essentially bets on market behavior, they’re the next logical step as they give exposure to price movement without incurring the costs of ownership.

With that as background, you’ll appreciate how much Bitcoins differ from gold.

Technically it’s not bitcoins that trade hands since they never move. When you send a bitcoin you’re signing ownership of that static fixture to the recipient.

When you have a bitcoin in your wallet, really what you have is a confirmation from the Bitcoin Network saying, “We recognize you and we can all see that you own that bitcoin in this particular corner of the blockchain”.

Since Bitcoin are already the perfect financial product, introducing derivatives based on them captures the reward of Bitcoin, but it introduces the huge issue of counterparty risk which as a protocol Bitcoin avoids judiciously.

Those are some compelling advantages Bitcoin winds up fielding over legacy currencies.  With the price exploding upwards, advocates explain:

“…And now people are waking up to the fact that their money isn’t safe after the mess in Cyprus, so they’re exchanging their paper money for Bitcoins.

“So is it a bubble?”

“No! It’s just a revaluation because as value flows out of dollars and into Bitcoins, it’s people looking at their options and deciding Bitcoin is a better fit for what they need.

“But, it really REALLY looks like a bubble”

“It’s only a bubble if the users find their local currency to be more useful than Bitcoins, and that’s getting less true every day.”

But what are its disadvantages?

  • Irreversible – Bitcoins are like cash, once the money is sent, it’s gone.  There is no “Undo” button, there is no bank you can call to put a hold on the transfer.  I don’t know if that’s a good or bad thing but it’s definitely something to keep in mind!  Low fees and distributed systems mean nobody is being paid to sit on the other end of help line if something goes bad, so the responsibility is on the individual user (that’s you!).
  • Uninsured – If your bank goes out of business, you probably have deposit insurance which swears it’ll replace up to a certain amount (100,000 in the EU 250,000 in the US).  On the other hand, if you’ve only got your bitcoin wallet stored on a computer that requires a wipe, you very well may be screwed.  This is very avoidable by copying your wallet.dat to a safe backup location but we all probably know someone who will make this mistake at least once, and at these prices it’s an expensive mistake.
  • Unaccepted – The value of those dollars in your wallet are guaranteed to you by the fact that the US sits in a dominant world position, and therefore they’ll be accepted anywhere the US has sway.

With Bitcoin there are no such protections, and in fact given their volatile market price it’s quite dangerous for a well intentioned merchant to accept payment in bitcoin without immediately converting it to whatever their local currency is.

There are businesses that provide these services at a low price, organizations like Bitspend.netwhich describe their service as one which allows customers to, “Send us the URL of any product you want to buy, we’ll send you an invoice in bitcoin, buy it from the vendor in their local currency and have them ship it to you.” takes the other side of the coin, partnering with vendors to let them accept bitcoins and receive some or all of those moneys directly into their bank account in their local currency.   With over 4000 customers brought online in the last 6 months, they just lowered fees last week to 1.1%.

So is it a bubble?

I initially thought so, but good grief is the feature set compelling.  Media attention has been really ramping up as the price increases, I think we’ve passed a tipping point and unless something goes horribly wrong very soon there won’t be any going back.  I think this quote from twitter captures it well:

“There is one basic truth about #bitcoin, and this is it: if it’s worth anything at all, it’s worth quite a bit.”

So if it’s not a bubble, it’s a revaluation, that is, people taking their local currencies and choosing to buy bitcoins with them.  At first it will be greed driving people, Bitcoin is a complicated concept that took me personally two months to really wrap my brain around. 1000% gains that seem like they’ll go on forever are pretty simple incentives to understand.

It won’t take long for those new to Bitcoin to start using them on their merits, and then the bubble theory kind of falls apart.  But before we get to the point where people will want to spend their bitcoins, we have to figure out what a fair price is given the amount of interest.

Businesses relying exclusively on Bitcoin purchases will have a difficult time with people concerned about their purchase today winding up as the “10,000 Bitcoin Pizza” of tomorrow.

Once we hit a plateau and the price steadies for a few months we’ll see the new Bitcoin economy start to bloom.  But what’s the fair value?

The US Monetary supply by a conservative standard is about 10 trillion US dollars.  Let’s say 40% of the value held in dollars would instead be in bitcoins, that puts the price per coin at $190,476.18.

If bitcoin gets any kind of mass adoption there just aren’t enough coins to cover without prices going up exponentially from where they are now.  It’s how the currency is built, and it’s a very interesting open source design if you’d like to read the original white paper by its anonymous creator.

How would you even use a bitcoin if they became that valuable?  Luckily, this has been thought-out and there is a plan. As bitcoins become more valuable, people will use smaller amounts to perform normal transactions. At prices like those above you could buy a house in many parts of the world with a single coin!

Because of their extreme divisibility, rather than increase the maximum number of coins (21 million at most), any user can go to Settings -> Options -> Display in the standard Bitcoin wallet and change between BTC, mBTC (.0001) uBTC (.0000001)

So my wallet with 8.7BTC becomes 8,773 mBTC or 8,773,192 uBTC.  Put another way, if 1BTC is worth $100,000 each mBTC is worth $100, each uBTC worth $.01

This trick can be performed as needed to keep every-day transaction amounts from being preceded by three or more zeros.  It doesn’t affect the currency itself since every person can choose when to make the switch, it’s not permanent, and nothing really changes besides your perspective.

Let’s go back to the number we got when part of the US money supply when converted partially into Bitcoin – $190,476.18/BTC.  That’s a big number.  But is it realistic?  Let’s take a look at a small country like Cyprus, what would the price of Bitcoin be if they fled the euro at least partially for this new currency?

If, desperate to flee the banking sytem, Cyprus’s disillusioned citizens rebelled and put half of their remaining commerce (GDP 28 billion is the pre-crisis figure) into Bitcoin, that would add at least 5 Billion USD to the total market and send the per coin price above $1,000.   For reference, Cyprus is one of the smallest modern economies in the world.  Soon to be bailed out for a third time Greece claims GDP of nearly 300 billion, 10 times the size.

What would happen if Greece abandoned the euro and reissued the drachma backed by bitcoin reserves?  They would be both causing and benefiting from an explosion in value from current levels to over $14,000 per coin assuming supply stayed steady, which is no guarantee.

More importantly, the value of the drachma would rise along with the value of the bitcoins backing it.  The government bitcoin treasury would be publicly posted and easily audited by any interested parties, it could genuinely fix a number of their problems.

When adopted as a national currency, its citizens get to stop thinking about bitcoin prices as compared to anything else because both their pay and their costs float along with the value.  It doesn’t make any difference.   The only time currency conversion comes into play is when you’re dealing with someone whose currency is not backed by Bitcoin, then it needs to be converted on one side or the other.

Should you buy Bitcoin?  If my analysis is correct, then yes, you probably should.  My disclaimer is I’m not a financial adviser and if anything happens suddenly to Mt.Gox (the largest Bitcoin Exchange with about 76% of all trades and an account backlog of 10,000 or so people who want to trade their local currency for bitcoins) it could cause some trouble.  How much trouble is another matter.

Two weeks ago I wrote about pretty much the “worst possible event” that could happen to bitcoin, happening to bitcoin.  You can read all the details here, but basically for about 8 hours there were two versions of Bitcoins’ “who owns what” system, which disagreed with each other.

I expected a major hit to the price, but little came of it. By morning the mostly volunteer dev team had resolved the major issues in cooperation with the community.  When I interviewed the lead developer, he told me what they had learned and what they planned to change.   Shortly after that article was published they released a public postmortem.  When’s the last time you heard that from a leader after a currency crisis?

Maybe that’s what so different about Bitcoin – The “important” people are in the positions they are because they get the work done, and inspire the community as an ideal to be sought. They have genuinely good ideas that sound like they will, and often actually do work.

Because changes require a large proportion of total users, would-be leaders (whether “official” or not) who put forward solutions that make the problem worse simply do not retain their authority.   The masses come to understand that they are not to be trusted with important decisions, so they aren’t.

This dynamic lets the best individuals rise to the top, emerging over time through the quality and implementation of ideas rather than by election or appointment.  Quite a novel system.

Opportunity knocks, but few listen

All this value flowing into the once tiny market has already had an interesting effect: the creation of the first Bitcoin Millionaires and future billionaires.  When the currency was just getting started in 2009, coins were easy to mine and nearly worthless.  As I mentioned before the value of a currency is determined by its utility and just like every other new money, hardly anyone knew what it was, nobody accepted it.

Many tech enthusiasts have been kicking themselves over the past few months.  As the price soars their mistake has been emphasized.

In those early days hundreds of thousands of coins were mined but because of their low value, they were sometimes disregarded.   It is not an uncommon story to hear about tens of thousands being spent on a single low cost purchase or even forgotten on a reformatted computer.   Had those bitcoins just sat on a thumb drive, their owners would be able to retire at even these “low” valuations.

But that story does not describe everyone.  Others learned about the concept and jumped in without looking back.  Some bought in by investing in high powered computers capable of finding more bitcoins faster.  Many bought those first coins from those first miners on early markets at $.50 USD/coin or below.  In some cases far below.

To get a better idea of what things are like in the suddenly affluent Bitcoin community, I spent about 4 hours in the Bitcoin and BitcoinDev IRC chat rooms.  I spoke with 10 people, (none of whom wanted their names used) who ranged in their holdings from 50 to about 650 units.

This was the scenario given to them: we’re two years down the road, Bitcoin has revalued to about $100,000 USD per coin and stabilized for what looks like the foreseeable future. What do you do?

Adam: So your 77 bitcoins mean you’ve got $7.7 Million USD, how are you going to invest it?  Put it in stocks and bonds, what’s the plan?

SI’m not cashing out

SI plan on using bitcoins to invest in startups

A: Never?

SNever.  The main objective is to use this to pay, just like I use fiat now.

S: I want to be able to invest in someone’s idea

SGiving them BTC so they can build something.  Something cool.

A: How much of your wealth would you want to invest in Bitcoin related startups?

SProbably 25% to 50% at least

Another user told me:

EI am not planning on selling, I’m considering this a 10-20 year investment.

Adam: Assume that we’ve revalued to 100,000 per coin and the market has become stable, would you cash out at any point?

E: I would sell enough to live comfortably, but otherwise no.

A: Would you want to keep your bitcoins in a Bitcoin bank that pays interest? Buy stocks or bonds?

EI’d fund a startup for sure.

You’ll notice a theme, it’s one I heard over and over again in my conversations. Unlike any other kind of investment I’m familiar with, the holders who I spoke to had no interest at all in exchanging their bitcoins for local currency at a point in the future when the value was very high.  Because “you can already spend bitcoin” they simply don’t see any point when the conversion has obvious tax implications and higher costs than not.  This was true of every single person I spoke to.

The tax implications for Bitcoin are controversial. Most jurisdictions treat it like any other commodity that is bought and sold for profit, but from my research it seems virtually impossible to discover how many coins a specific person holds without first having explicit knowledge about where every wallet is stored.

My original goal in speaking with the Development team was to find out how many people are holding more than 1,000BTC, and after getting the IRC equivalent of a blank stare, Dev GMaxwell corrected me:

GMaxwellThat’s deeply unknowable.

GMAn address having a lot of coin in it isn’t especially informative… there are many wallets with more than 1000 BTC without having 1000 BTC in any one address: sane bitcoin software spreads things out over multiple addresses.

Adam: Any Guess?

GM: There are only about 10,988,775 bitcoins [currently in existence], so the number of people with more than 1000 must be less than 10988.

GM: So, I can confidently say that [1,10988] are lower and upper bounds.

Maybe I’m wrong, but it seems like paying any tax on bitcoin transactions ranges from voluntary to unenforceable.

The other theme that quickly emerged was the reverent way in which Crowdfunding and startups are viewed by Bitcoin enthusiasts.  Maybe it’s a reflection of the type of people willing to jump into a new, untested currency conception.  Maybe it’s a population used to being without the resources to achieve their goals alone.  Whatever it is, it runs deep and we didn’t have to wait long to see it

On April 2nd, the day after breaking $100 for the first time – User MPort donated 200 bitcoins ($28,000 at the time) to Free Domain Radio, a donation supported online philosophy podcast.

“I am very happy to say I donated 20k today. dances through the room :) Via bitcoin ofcourse (sic). After I send it I started crying thinking about my foo. One of the first times. A great day it was. Thank you so much Stefan Molyneux and the whole Freedomainradio community for changing my life, learning me (sic) to listen to my feelings and what true love is. Your mission of changing the world by fighting parental abuse saves many young lives and is, although hard, I strongly believe the only way to get rid of violence, unhapiness (sic) and dysfunction, in personal life and in the world. Absolutely great also to see Michael M. DeMarco being part of the team now. May freedomainradio conquer the world!

I guess that’s what I’ve come to see – The people who invested in Bitcoin early really aren’t like conventional investors, they’re early adopters.  As an early adopter you’re used to paying more and working harder to get the same use out of your device.  Any first has extra costs, problems and unexpected consequences, but you do it because it’s something you’re passionate about, you’re on the cutting edge despite the costs.

That’s the demographic poised to become affluent following mass adoption.  I’m sure some of them will buy expensive cars and large estates, but those really weren’t the ambitions of the people I spoke to.

One young father who had 200 bitcoins (20 million in the scenario) sounded a little misty when he told me about his families ambitions to buy a boat and join the Seasteading movement.  Minimizing his footprint to maximize the enjoyment he received from life and his family.  He said he would be investing at least 75% of his new found wealth into helping people fulfill their dreams by funding startups.

Another told me that when he first sold some of his bitcoins (at $96) he had a very different relationship with the money than bitcoins.

“It seemed like funny money, you know?  The stack of hundreds in my hands made me very uncomfortable, I didn’t like it.”

I could go on, and I only spoke to 10 people over four hours.

We live in strange times.  Mostly that strangeness manifests in depressing headlines we read daily about crisis without end, solutions without function.  Bitcoin is an anomaly.

Though it has many detractors, few of them are even familiar with the base logic of the system, much less its inner workings.  With their limited understanding of the complicated topic, they put themselves in front of the world spreading confusion and mistrust.

Bitcoins advocates are wildly passionate and understand the protocol top to bottom, happy to drift off into tens of minutes of jargon about cryptographically signed messages should that be required.  For most though, it’s not about the protocol; that’s just a means to their end. Riding the same wave as, it is not bitcoin itself, but the projects it enables that make it so compelling.

The renaissance of the medieval period is commonly thought of as an artistic and architectural movement, but in fact wealthy patrons supported all manner of scholars, creators and scientists too.  Profit motive was not the goal, but occasionally the result, and great works were achieved which remain unsurpassed to this day.

I think that’s what we’re looking at here: a conflux of wildly improbable things that gives the world better money, while putting a staggering amount of value in the hands of fervent early adopters and crowdfunders.

With a Bitcoins Accepted Here widget, now any page on the web can be its own Kickstarter, with no fees compared to their 8%.  Should you decide to accept bitcoins, you’ll know that one day soon a Bitcoin Millionaire might like your passion project and help make your dream a reality.

It’s just crazy enough to work.

Enjoy the read? Adam B. Levine accepts tips!19hUtqeVxpphdwzfZzCuq4Pg2piqD7fF5f


Adam writes about new technology at Mind to Matter and curates The Daily Bitcoin, You can contact Adam here.

System “D” Subvert Your Government With Bitcoin

Market and peace advocates have been granted a tool of unimaginable power for the subversion of the state. Bitcoin, as the most popular free-market currency in the world, is a profound apparatus for wresting power from the maniacs who seek to control you. This panel discussion will cover the top methods by which you can free yourself and subvert the tyrants.

Erik Voorhees – A writer, entrepreneur, and armchair economist, Erik Voorhees (originally from Colorado) moved from Dubai to join the Free State Project in New Hampshire in 2011 in order to advance the cause of liberty. While there, he discovered Bitcoin and accidentally fell down the rabbit hole. Bitcoin has now become his hobby, his activism, and his career, believing the new currency to be the greatest tool for global liberty since the internet itself. Erik is a well-known member of the Bitcoin community forum (screen name- evoorhees), and is CEO of Coinapult, based in Panama City. Furthermore, Erik is also a partner in a couple top-secret super-subversive Bitcoin-based projects and coordinates the Free State Bitcoin Consortium group among liberty activists in New Hampshire.

Vitalik Buterin is the main writer at Bitcoin Magazine | ( and has been covering Bitcoin for the | past two years.