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What is Bitcoin?

Bitcoin is a digital crypto-currency with no single point of failure due to its decentralized peer-to-peer architecture. The source code is publicly available and changes to the reference Bitcoin client are made via concensus within the community. Advantages of Bitcoin include irreversible transactions (i.e. no possibility of chargebacks as with credit cards), pseudo-anonymous, limited and fixed inflation, near instant transactions, multi-platform, no double-spend and little to no barriers to entry and more. It was created by an anonymous person known as Satoshi Nakamoto. Find out more at WeUseCoins.com.

Bitcoin Latest News

Major Magazine Publisher to Accept Bitcoin Payments

Posted on 18 December 2014 | 12:43 pm

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Bitcoincharts and SSL

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Mt.Gox Statement

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The Rise of User-Monetized Actions: Bitcoin's Killer Application - Bitcoin Magazine


Bitcoin Magazine

The Rise of User-Monetized Actions: Bitcoin's Killer Application
Bitcoin Magazine
On January 3rd, 2009, less than two years after Jobs unveiled the iPhone, Satoshi Nakamoto sent an email to the renowned “Cryptography Mailing List” titled “Bitcoin v0.1 released.” The email contained a SourceForge link to the first bitcoin reference ...

Posted on 8 February 2016 | 4:47 pm

Steam Could Include Bitcoin As Payment Option [RUMOR] - iDigitalTimes.com


iDigitalTimes.com

Steam Could Include Bitcoin As Payment Option [RUMOR]
iDigitalTimes.com
While it isn't too surprising to see Bitcoin getting more support from companies, it is a little shocking to hear Valve accepting the cryptocurrency. When responding to fan questions in a reddit AMA last year, Valve's Gabe Newell seemed dismissive of ...

Posted on 8 February 2016 | 2:13 pm

World's First Bitcoin Mining IPO Misses Target by AUD $14 Million - Bitcoin Magazine


Bitcoin Magazine

World's First Bitcoin Mining IPO Misses Target by AUD $14 Million
Bitcoin Magazine
The first fundraising in the world for an initial public offering of a Bitcoin mining company has raised 5.9 million Australian dollars, (USD $4.2 million) – falling short of its target of AUD $20 million. Based in Melbourne, the Bitcoin Group ...
Bitcoin Group delays public listing on Australian Stock ExchangeThe Guardian
Bitcoin Group delays float sixth time after falling shortSydney Morning Herald
Bitcoin Group Stock Exchange Debut Delayed AgainCoinDesk
The Merkle (blog) -EconoTimes
all 7 news articles »

Posted on 8 February 2016 | 1:48 pm

New Bitcoin Rival Currency Will Offer More Anonymity, Say Its Creators - Fast Company


Fast Company

New Bitcoin Rival Currency Will Offer More Anonymity, Say Its Creators
Fast Company
The creators of a new bitcoin alternative dubbed Zcash say that currency—currently in pre-release alpha testing—will make that identification effectively impossible. Zcash will rely on algorithms known as zero-knowledge proofs that will allow users ...

Posted on 8 February 2016 | 1:16 pm

Bitcoin Is Halal Under The Laws of Islam - newsBTC


newsBTC

Bitcoin Is Halal Under The Laws of Islam
newsBTC
Bitcoin can do a world of good all over the globe, and the technology powering the network offers a ton of potential. But not everyone is looking for a solution in the financial sector or any other industry where blockchain technology might play a ...
Global Economic Outlook: Gold Rally, Bitcoin DownCryptoCoinsNews
Bitcoin a thing of the past? Nope!Inquirer.net
Embracing Bitcoin In A Time of Global Currency CollapseBitcoinist.net
The Merkle (blog)
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Posted on 8 February 2016 | 10:52 am

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Bitcoin Price Teetering On The Edge - CryptoCoinsNews


CryptoCoinsNews

Bitcoin Price Teetering On The Edge
CryptoCoinsNews
Had the bitcoin chart manifested classic Elliott Wave relationships with more regularity and consistency, this would have been a strong confirmation that price will decline in a 3rd wave to the downside. Although it does increase our confidence, we ...

and more »

Posted on 8 February 2016 | 9:20 am

E-Coin Integrates BitGo for Instant Settlement of Bitcoin Transactions - CryptoCoinsNews


CryptoCoinsNews

E-Coin Integrates BitGo for Instant Settlement of Bitcoin Transactions
CryptoCoinsNews
E-Coin card users can now send bitcoin and instantly load their cards rather than having to wait for three confirmations, thanks to BitGo Instant, which provides immediate settlement of bitcoin transactions. E-Coin, a wallet which provides both ...
E-Coin Integrates BitGo Instant & Welcomes Its 100000th UserThe Merkle (blog)

all 3 news articles »

Posted on 8 February 2016 | 8:04 am

Bitcoin Price Watch; $390 in Focus - newsBTC


newsBTC

Bitcoin Price Watch; $390 in Focus
newsBTC
Yet again, we've had a pretty eventful weekend in the bitcoin space. A host of fundamental developments towards the end of last week ended a period of relative quiet (at least from a volatility perspective) and translated to some piqued interest across ...

Posted on 8 February 2016 | 7:00 am

Inside Earthport's Bid to Push Banks Past Blockchain R&D

CoinDesk looks at how Earthport is adding blockchain technology to existing product lines through its Distributed Ledger Payments Hub.

Posted on 8 February 2016 | 11:21 am

Bitcoin Group Stock Exchange Debut Delayed Again

Bitcoin Group Ltd has once again been forced to delay its public listing on the Australian Securities Exchange, despite its recent IPO.

Posted on 8 February 2016 | 10:11 am

Five UK Mutual Funds Partner on Blockchain Trading Project

Five major UK fund houses have reportedly partnered on a project to explore blockchain technology's cost saving potential in trading systems.

Posted on 8 February 2016 | 7:40 am

Bitcoin: A 21st Century Currency Explained By a Wall Street Veteran

Wall Street veteran Jason Leibowitz answers questions about how bitcoin was created, how it works and why it matters.

Posted on 7 February 2016 | 12:30 pm

How Blockchain Tech is About to Transform Sharemarket Trading

How the Australian Securities Exchange's investment in blockchain startup Digital Asset Holdings could influence the company's offerings.

Posted on 7 February 2016 | 9:00 am

The Bitcoin Block Size Debate Isn't Just About Technology

The views of the Bitcoin Core developers are not the only ones that should count when deciding its future, says developer Elliott Olds.

Posted on 7 February 2016 | 6:38 am

Bitcoin, Online Payments and the Scourge of PayPal

In this opinion piece, former ReadWriteWeb editor Richard MacManus talks about how bitcoin could ease difficulties in running an online business.

Posted on 6 February 2016 | 10:00 am

Bitcoin Earns Reputation for Poor Payments Standards Participation

Bailey Reutzel examines how the bitcoin community's reluctant to engage over standards could harm the digital currency in the long term.

Posted on 6 February 2016 | 8:15 am

Putin Advisor: Accepting Bitcoin Payments in Russia is a Crime

An advisor to Russian president Vladimir Putin has reportedly spoken out against bitcoin.

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UN Commission Calls On Caribbean to Become Digital Currency Hub

A UN commission report suggests digital currencies could be beneficial for the Caribbean region.

Posted on 5 February 2016 | 8:30 am

Private Retreat to Unite Bitcoin Execs for Scaling Debate

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Posted on 5 February 2016 | 3:11 am

Simplex Raises $7 Million for Credit Card Bitcoin Buying Service

An Israeli bitcoin startup focused on enabling bitcoin purchases with credit cards has recently closed a $7m Series A funding round.

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Chilean Bitcoin Exchange SurBTC Raises $300k

SurBTC has raised a further $300,000 in seed funding to develop a bitcoin exchange for the Chilean market.

Posted on 4 February 2016 | 2:35 pm

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Blockstream Investors See Commercial Use Cases for Bitcoin Blockchain

Following Blockstream's $55m funding yesterday, CoinDesk speaks to investors who participated in the round.

Posted on 4 February 2016 | 12:27 pm

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Court documents obtained by CoinDesk offer new details about an ongoing legal battle involving digital currency exchange Cryptsy CEO Paul Vernon.

Posted on 4 February 2016 | 10:40 am

New App Seeks to Use Blockchain as Immutable Answering Machine

LedgerAssets, developer of an app that timestamps users photos on bitcoin's blockchain, is to launch a similar application for phone calls.

Posted on 4 February 2016 | 8:46 am

Beyond Regulation: Why Bitcoin's Pressing Problem is Civil Law

Berger Singerman LLP counsel Andrew Hinkes discusses bitcoin's lack of precedent in common law and the problems it may create for users.

Posted on 3 February 2016 | 8:27 pm

UNICEF Eyes Blockchain As Possible Solution to Child Poverty Issues

CoinDesk speaks with Christopher Fabian, who co-leads the technology innovation efforts for the United Nations Children's Fund (UNICEF).

Posted on 3 February 2016 | 12:16 pm

The Rise of User-Monetized Actions: Bitcoin's Killer Application

This article is an op-ed by Andrew DeSantis and the views expressed are those of the author.

On January 9th, 2007 the world as we know know it was forever changed. Apple Computer CEO Steve Jobs, took the stage at the Moscone Center in San Francisco and introduced the world to the iPhone.

Nine years later, many have trouble remembering what life was like before the rise of mobile. The average smartphone today is more than one million times smaller, one million times more affordable and one thousand times more powerful than a $60 million supercomputer was 40 years ago. As a result of successive radical innovation, we have truly changed the world, but more importantly the world has forever changed us.

In 1998, when asked what keeps him up at night, Bill Gates had a surprising answer. As the CEO of Microsoft, one might have expected him to say Apple, Oracle, or even Netscape. Instead he stated: “I worry about someone in a garage inventing something that I haven’t thought of.” Unbeknownst to Gates, at that very moment Larry Page and Sergey Brin were hard at work in a garage in Menlo Park. The fruit of their labor would go on to become Google.

Gates, like many of us, has accepted that change, particularly technological change, is one of the few constants in life and even the smartest among us can be caught be caught by surprise.

On January 3rd, 2009, less than two years after Jobs unveiled the iPhone, Satoshi Nakamoto sent an email to the renowned “Cryptography Mailing List” titled “Bitcoin v0.1 released.” The email contained a SourceForge link to the first bitcoin reference client and the following statement:

“Announcing the first release of Bitcoin, a new electronic cash system that uses a peer-to-peer network to prevent double spending. It’s completely decentralized with no server of central authority”

Nakamoto then went on to give a brief summary of Bitcoin’s implementation and explicitly add a disclaimer stating that the included software was still alpha and experimental.

When Jobs introduced the iPhone he had the attention of the entire tech world. Everyone knew the device would be a game changer, but no one could have predicted that five years later the iPhone would catalyze the creation of a ride hailing application called Uber. Today Uber has an estimated worth of $62.5 billion, higher than that of car markets GM, Ford and Honda, and could very well go on to become the world’s first trillion-dollar company.

Nakamoto’s announcement on the other hand went relatively unnoticed by the public, but a handful of dreamers immediately realized the ramifications of Satoshi’s vision. The first to respond to Nakamoto’s email was cypherpunk legend Hal Finney. Three days later on January 12, Nakamoto executed the first Bitcoin transaction, in block 170, sending 50 bitcoins to Finney.

In May of 2010 roughly a year and a half after Bitcoin’s genesis block was mined by Nakamoto, two members of the BitcoinTalk community forum executed the first real-world purchase. 10,000 BTC for a $25 pizza. Five and a half years have since passed and with a near six-billion dollar market capitalization it is safe to say that Bitcoin come a long way, but there is still a ways to go.

Bitcoin Today

Since 2013 the Bitcoin industry has somewhat operated in stealth mode. Companies like 21 Inc, BitGo and Blockstream have been hard at work in collaboration with the Bitcoin Core developers to ready Bitcoin for the next and brightest stage of its life thus far. In the words of software legend Joel Spolsky, “Good software takes 10 years. Get used to it.”

21 Inc’s CEO, Dr. Balaji S. Srinivasan stated the following in a lecture at Stanford University prior to founding 21:

“A good founder is capable of anticipating which turns lead to treasure and which lead to certain death. A bad founder is just running to the entrance of (say) the ‘movies/music/filesharing/P2P’ maze or the ‘photo sharing’ maze without any sense for the history of the industry, the players in the maze, the casualties of the past, and the technologies that are likely to move walls and changes assumptions.”

So what about Bitcoin is likely to “move walls” and “change assumption?” While user-monetizable data is of significant importance to Bitcoin’s future, the concept of “user-monetizable actions” is of far greater importance.

The DARPA Network Challenge

At 10 a.m. EST on December 5th, 2009 (this date was picked to commemorate the 40th anniversary of the Internet) the Defense Advanced Research Projects Agency (DARPA), known for creating the ARPANET, a precursor to the Internet and contributing to the onion protocol used by the Tor network, launched 10 red balloons in undisclosed locations across the continental United States. A month earlier DARPA proposed an open challenge to teams across the nation. The first team to locate all 10 balloons and report their findings to DARPA would receive a $40,000 reward. What happened next exceeded the researchers wildest expectations.

Less than nine hours after DARPA launched the balloons a team from MIT won the competition. How did they do it? By embracing the concept of user-monetizable actions.

In 2005, Jon Kleinberg of the Department of Computer Science at Cornell University and Prabhakar Raghaven of Yahoo! Research published a paper titled “Query Incentive Networks.” In it they write:

“The concurrent growth of online communities exhibiting large-scale social structure, and of large decentralized peer-to-peer file-sharing systems, has stimulated new interest in understanding networks of interacting agents as economic systems. Here we formulate a model for query incentive networks, motivated by such systems: users seeking information or services can pose queries, together with incentives for answering them, that are propagated along paths in a network. This type of information-seeking process can be formulated as a game among the nodes in the network, and this game has a natural Nash equilibrium. In such systems, it is a fundamental question to understand how much incentive is needed in order for a node to achieve a reasonable probability of obtaining an answer to a query from the network.”

Building off the ideas presented in Kleinburg and Raghavan’s research, the team from MIT came up with the following strategy:

“We’re giving $2000 per balloon to the first person to send us the correct coordinates, but that's not all -- we're also giving $1000 to the person who invited them. Then we’re giving $500 whoever invited the inviter, and $250 to whoever invited them, and so on.

"It might play out like this. Alice joins the team, and we give her an invite link like http://balloon.media.mit.edu/alice. Alice then e-mails her link to Bob, who uses it to join the team as well. We make a http://balloon.media.mit.edu/bob link for Bob, who posts it to Facebook. His friend Carol sees it, signs up, then twitters about http://balloon.media.mit.edu/carol. Dave uses Carol’s link to join … then spots one of the DARPA balloons! Dave is the first person to report the balloon’s location to us, and the MIT Red Balloon Challenge Team is the first to find all 10. Once that happens, we send Dave $2000 for finding the balloon. Carol gets $1000 for inviting Dave, Bob gets $500 for inviting Carol, and Alice gets $250 for inviting Bob. The remaining $250 is donated to charity.”

In essence the MIT team designed a recursive algorithm executed by willing participants by redistributing the prize money to the participants in such a way that a power incentive structure came to life.

While the MIT team’s accomplishment is significant, particularly from the perspective of academia, it wasn’t the only major insight derived from the DARPA Network Challenge. Hacker George Hotz, known as geohot, in 2007 was the first person to carrier-unlock an iPhone. Hotz later went on to jailbreak Sony’s PlayStation 3. Hotz recently made headlines when he and a writer from Bloomberg Businessweek took a drive around the San Francisco Bay area in a self-driving car he built alone in just a month. An hour prior to the start of the DARPA Network Challenge, Hotz tweeted to his then roughly 50,000 followers asking for their assistance in locating the balloons. Through his network Hotz located four ballons, he was then able to trade information with other teams ultimately bringing his balloon count to eight.

The approach taken by the MIT team displays the raw power that a properly designed algorithm can have outside as well as inside the confines of Silicon. Hotz’s approach, on the other hand, allows us to contrast the academic perspective with that of a single hacker wielding influence over a network of individuals.

If one combines the two approaches, by using Bitcoin to send microtransactions to their own network of followers, what you end up with is a variant of Kleinberg and Raghavan’s Query Incentive Network model that allows one to execute MapReduce-like operations over a large network of willing participants.

End-User Monetization

We can change our perspective, yet again, and view things through the eyes of an end user performing tasks on behalf of another individual. While this sounds like a new concept it really isn’t. Celebrities have monetized their actions on Twitter and Facebook for years. The musician Jared Leto and socialite Kim Kardashian have reportedly received payments as high as $13,000 per tweet for promoting products that fall in line with their personal brand.

Until now, it hasn’t financially made sense for a user with a few thousand followers to receive payments for endorsements. Additionally, most celebrities tend to rely on agents who cut deals with sponsors on their behalf. Even if the average user put in the effort to build a network of sponsors, it is highly unlikely that a sponsor would want to deal with a user who’s follower count is below 100,000. As with most scenarios that rely on the ability to perform microtransactions, the pre-bitcoin banking system isn’t designed to handle small, fast, and international transactions.

Earlier this week Srinivasan presented his thoughts on the future of user-monetizable actions. After presenting scenarios such as the Twitter covered above and derivatives such as a Bitcoin-based, decentralized version of Fiverr, he left two questions to ponder:

  • What would life be like if even while you were asleep an autonomous agent handled requests that earned Bitcoin on your behalf?
  • What would you do with your own personal army of willing, waiting, able and ready individuals?

Final Thoughts

The Bitcoin Engineering class at Stanford University has gone tremendously well. Likely because a majority of the students enrolled in the course have little to no previous knowledge about Bitcoin, they will be able to leverage the abstractions provided by the 21 Bitcoin Computer’s two1 Python3 library and quickly rhapsodize applications into existence without the burden of knowledge (fatigue) many of us have accumulated over the years.

A computer science student named Axel Ericsson hacked together his own tunneling protocol allowing him to securely communicate with his 21 Bitcoin Computer from a web browser. While a future release of the two1 library will likely support browser-to-machine BitTransfers triggered by 402 requests, today the 21 Bitcoin Computer is being used for machine-to-machine transactions. Most likely, Axel executed one of the world’s first 402 request transactions initiated from a web browser in exchange for user-monetizable data.

The post The Rise of User-Monetized Actions: Bitcoin's Killer Application appeared first on Bitcoin Magazine.

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World's First Bitcoin Mining IPO Misses Target by AUD $14 Million

This post is by Benjamin Roussey

The first fundraising in the world for an initial public offering of a Bitcoin mining company has raised 5.9 million Australian dollars, (USD $4.2 million) – falling short of its target of AUD $20 million.

Based in Melbourne, the Bitcoin Group announced last week that it had raised AUD $5,927,168.40 in a bookbuild of its Australian Stock Exchange (ASX) listing. The company also announced that it was still progressing though the listing process with ASX.

Even though the amount raised was less than a third of the amount it tried for, CEO of Bitcoin Group Sam Lee called it a “solid result.”

During an interview on CNBC on Tuesday, Lee said the amount raised is sufficient for the company to execute its current strategy of acquiring new mining equipment to expand its footprint.

Although it was scheduled to take place on Tuesday, Bitcoin Group has not yet announced its quote on the ASX. It is expected that the company will trade under the ticker BCG.

The price of shares was at AUD $0.20, with AUD $2,000 as the minimum subscription. There is no maximum subscription. According to the Australian Taxation Office, Bitcoin is an asset for capital gains tax purposes.

This is the first time a publicly listed entity has been led by the Bitcoin Group Management since its incorporation in September 2014. Lee, the CEO, has a background in financial services and digital media.

On CNBC, Nicolas Debock, a venture capitalist at Balderton Capital in London, said he would need to think twice before investing in a Bitcoin mining firm, as it has a number of risks. He added that many venture capitalists have invested in Bitcoin in the last three years, but there still has been no money coming out.

Bitcoin Group produces approximately 1.2 percent of the world’s Bitcoin mining output, with six mining sites in Iceland and China. Due to the affordability of electric supply in China, a large percentage of its operations are conducted in China. However, since it is significantly lacking in diversification, the company could be left vulnerable to changes in regulations resulting from the Chinese stance on Bitcoin.

If the company had raised the AUD $20 million it had hoped for, the plan was to use AUD $18 million as an investment in equipment and facilities for Bitcoin mining. The remaining AUD $2 million was to be used for general corporate purposes, including costs for listing.

On CNBC, Debock said that a large number of people still believe in Bitcoin in the long term, whether it is the technology or the asset.

The post World's First Bitcoin Mining IPO Misses Target by AUD $14 Million appeared first on Bitcoin Magazine.

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On the Detriments of Segregated Witness for Bitcoin

Segregated Witness has been the center of Bitcoin’s long-lasting scaling debate since it was first introduced by Blockstream co-founder and Bitcoin Core developer Dr. Pieter Wuille two months ago.

A nifty method to move signature data from typical transactions into “add-on blocks,” Segregated Witness is set to improve the Bitcoin protocol in several ways . Moreover, the solution can be rolled out as a soft fork, meaning that only miners need to upgrade their software; all other nodes can do so if and when they please.

The innovation is positioned as the first step of a scalability “roadmap ” as set out by Bitcoin Core, and is supported by a large segment of Bitcoin's development community.

But Segregated Witness is not free of controversy. Rather than a Segregated Witness soft fork, the recently launched alternative Bitcoin implementation Bitcoin Classic plans to increase Bitcoin's block size limit to 2 megabytes through a hard fork, meaning all full nodes on the network need to upgrade synchronously.

These are the arguments against a Segregated Witness soft fork – and their counterarguments.

It Requires 'Ugly' Code

A purist argument against Wuille's proposal is that a Segregated Witness soft fork constitutes an “ugly” workaround of code. Most important, it uses parts of the miner-generated coinbase transaction for purposes they were not originally intended for. The added complexity could potentially cause new problems as the protocol keeps evolving.

The counterarguments

While most developers agree a hard fork would be a cleaner solution, this does not necessarily mean a Segregated Witness soft fork is unsafe. The Bitcoin Core development team has rolled out several similar soft forks in the past, and maintains that this one would not carry any more risk.

A hard fork, meanwhile, renders all existing full node software incompatible with newer full node software, which is, arguably, not very graceful either.

It Burdens Developers Too Much

A Segregated Witness soft fork workaround imposes an added burden on developers -- both now and in the future. This is particularly true for Bitcoin library and wallet developers, as they will need to adapt their software to integrate Segregated Witness. This will require more effort than a hard fork block size increase would.

The counterargument

Most current library and wallet developers don't seem to consider the added burden a big problem. Many are even quite excited about the innovation, and they typically consider the added benefits worth the effort. (See Bitcoin Magazine 's development series, as linked below in this article.)

Growth of Added Block Space Will Be Slow

Like Bitcoin Classic’s proposed hard fork, Segregated Witness theoretically offers up to 1 megabyte of added block space, for a total of 2 megabytes. But this optimal added capacity is based on multisig transactions, as these get an accounting “discount.” Yet most transactions are currently not multisig transactions. A more realistic capacity increase could therefore be closer to .6 megabytes of added space, for a total of 1.6 megabytes.

Additionally, this added space might not be fully utilized right away. It can be used only after wallets and other apps have upgraded. In reality, it could take a while before even 1.6 megabytes is reached.

And while the Segregated Witness soft fork is scheduled for April, it remains to be seen if this can be achieved. The solution requires much coding and testing before it can be rolled out, as well as approval by miners.

The counterarguments

A public testnet version of Segregated Witness – SegNet – is already available for experimention. This suggests that development is on schedule.

Many library and wallet developers, moreover, estimate that it would take anywhere between a couple of days to several weeks to integrate Segregated Witness. An April release should, therefore, provide enough time for the bulk of wallet and app software to upgrade.

As soon as Segregated Witness is activated, all wallet and app software can utilize the benefits – such as lower fees – immediately. Whether other users utilize the added space as well does not not really matter for them. (And if the added block space is not used, it might just suggest that the need for extra block space was never that great in the first place.)

It should also be noted that multisig transactions might find increasing use as innovation and development of the Bitcoin protocol progresses, because added layers on top of Bitcoin – such as payment channels and the Lightning Network – typically use such transactions. The effective capacity could, therefore, come closer to 2 megabytes later on.

And while the Bitcoin Classic team maintains that a hard fork can be rolled out before April, this is considered overtly aggressive and outright risky by many within the development community. The need for all full node operators to both review and adopt the upgrade, they think, requires at least six months to a year.

It Skews Incentives

Removal of signatures from the original 1-megabyte blocks can effectively increase Bitcoin’s block size. But Segregated Witness does introduce a new type of maximum block size. Roughly: A block without the witness, plus one quarter of the witness size, must not exceed 1 megabyte. As such, upgraded nodes will see blocks that exceed 1 megabyte, since the actual size of the Segregated Witness is larger than the quarter accounted for.

This means that multisig transactions, which include more signature data, get a greater discount. And since multisig transactions are used to establish layers on top of Bitcoin, Segregated Witness artificially skews incentives toward these added layers.

Long-term consequences of such layers – such as the effect on mining fees – are controversial.

The counterarguments

Discounting signature data is how Segregated Witness allows for added block space without requiring a hard fork. While this is indeed accomplished through an accounting measure, it is a useful one.

Additionally, witness data can be reasonably considered expendable after a certain amount of time, decreasing the need for full nodes to store it in perpetuity. It, therefore, has a lower cost to the network, making it reasonable to charge a lower fee.

Furthermore, the only way Bitcoin can reach millions of users while also remaining decentralized, secure and censorship-resistant is through the use of added layers. Incentivizing development and use of these added layers is not a bad thing.

It Doesn't Hold Well Under Adversarial Conditions

One argument in favor of a block size limit concerns block propagation and latency. In short: Bigger blocks tend to increase orphan rates, as more miners build on old blocks while newer blocks are still making their way through the network. This, in turn, favors larger miners (or pools): They find more blocks themselves, and start building on these right away, meaning they waste fewer resources.

This also means that large miners could have an incentive to actually create artificially large blocks, specifically designed to increase the orphan rate of competitors.

The current Segregated Witness proposal allows blocks up to about 2 megabytes – though a bit less is more likely. But due to the specific accounting measure to be employed, so-called “selfish miners” could create synthetic transactions designed to stuff up to 4 megabytes of data into a single block. As such, big miners could “attack” competitors with valid 4 megabyte blocks.

Segregated Witness, therefore, requires miners and full nodes to deploy hardware with 4-megabyte safety headroom, while getting significantly less real transaction capacity in return. And if the original block size limit is increased through a hard fork at some point in the future, this risk multiplyer will probably remain.

The counterarguments

If 4 megabytes is indeed large enough to successfully pull off an attack – which is unclear – this attack would require the attacking miner to discard all real transactions. The resulting loss of fees serves as a slight disincentive to carrying out such an attack, and it would be obvious to the rest of the network that an attack is going on.

And while the risk multiplier will probably indeed remain even if a hard fork is rolled out later on, it could potentially be decreased through a soft fork as well.

It Degrades Security of Non-upgraded Nodes

A fifth concern is that a Segregated Witness soft fork would degrade the security of all non-upgraded full nodes. These nodes could still accept Segregated Witness transactions, or transactions that depend on a previous Segregated Witness transaction, but be unable to verify whether the signature data is valid. As such, they'd have to rely on validation by miners.

Unconfirmed Segregated Witness transactions would, therefore, be insecure, as these are not yet verified by miners at all.

But even confirmed Segregated Witness transactions would be less secure, as miners could purposely mine invalid transactions into blocks with the intention to double-spend non-upgraded nodes. A non-upgraded node would believe these blocks to be valid until the miners switch their hash power back to the valid chain. If a non-upgraded node accepted transactions from the invalid blocks, he might have lost money.

The costs of such a double-spend would resemble the cost of any other 51-percent-attack, but with added leverage. Attacking miners could potentially leverage hash power from “SPV-miners,” who wouldn't know what's going on themselves, since they don't validate transactions either. And the attacker could leverage funds to double-spend, as he could use any Segregated Witness-protected bitcoin that never belonged to him in the first place.

The counterarguments

A Segregated Witness soft fork will be publicly announced far in advance, and transparently voted on by miners. As such, any user running a full node will have plenty of time to take the necessary precautions.

Users running a non-upgraded node should not trust zero-confirmation transactions. But zero-confirmation transactions were always unsafe. Anyone who wants to pull off a double-spend attack with unconfirmed transactions can do so with or without Segregated Witness.

The added risk of confirmed transactions, meanwhile, can be offset by waiting for some additional number of confirmations. (For exact figures of the added risks, see these calculations by Bitcoin developer Oleg Andreev.)

A user who does not want to upgrade to the newest full node status at all, furthermore, could patch his non-upgraded full node with software that flags suspicious transactions – and potentially even reject such transactions completely.

Last, it should be noted that hard forks pose a much greater risk of double-spend transactions. Any non-upgraded node could, in the case of a hard fork, receive completely invalid transactions while potentially never realizing it at all.

It Will Be Deployed without Explicit User Consent

Though arguably small, the security degradation as described above does exist. And what's perhaps more important: This security degradation would be enforced without explicit consent from users. Even if users strongly oppose Segregated Witness, and prefer not to upgrade, a majority of miners could push the change through regardless.

This is at odds with Bitcoin’s promise of personal autonomy; the idea that operators of a full node should always have the possibility to opt-out of any change.

The counterarguments

Soft forks cannot be prevented. Miners controlling a majority of hash power can always decide to enforce new rules, as long as they do not break the existing consensus rules. This is inherent to the Bitcoin protocol, and will be possible after a hard fork just as well.

As such, users running full nodes must always bear some responsibility. Either the responsibility to upgrade to the latest version of the software, or the responsibility to wait for an added number of confirmations, or perhaps even the responsibility to not accept any transactions after a soft fork is detected.

And while it’s technically true that users don’t need to change their software after a (contentious) hard fork, and can choose to “stay behind” on the original network, this will almost certainly not be the option in practice. Besides the risk of double-spend attacks, decreased hash power could ensure that transactions never confirm – or confirm very slowly.

An alternate scenario is that the minority chain by hash power introduces its own hard fork to change the proof-of-work algorithm. Bitcoin would then split up into two separate networks, and all users would have to upgrade their software to support one of the options – or both.

Thanks to Jonathan Toomim and Ciphrex CEO, Bitcoin Core, and Segregated Witness developer Eric Lombrozo for proofreading and added feedback.

For more information on Segregated Witness, see Bitcoin Magazine's series on the subject, or part 1, part 2, part 3, part 4, part 5, part 6, part 7 and part 8 of Bitcoin Magazine's development series.

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NBitcoin's Nicolas Dorier: Segregated Witness Fastest Way to Bump Block Size

The long-lasting block size dispute has catapulted into the center of attention again. One of the most talked about developments is Segregated Witness, of which a public testnet iteration – SegNet – was launched in January. The innovation as recently proposed by Blockstream co-founder and Bitcoin Core developer Dr. Pieter Wuille is a centerpiece of a scalability “roadmap” set out by Bitcoin Core.

To find out where the broader development community stands on Segregated Witness, Bitcoin Magazine reached out to library and wallet developers, those who will need to do the heavy lifting in order to utilize the innovation once rolled out.

In part 8 of this series: NBitcoin developer Nicolas Dorier.

Segregated Witness

Nicolas Dorier is the CTO of Metaco, an open asset (colored coin) company that helps financial institutions emit fiat currency on the blockchain. Dorier is also lead developer of NBitcoin, the main .NET library for Bitcoin development, and he wrote a free ebook on Blockchain Programming: Blockchain Programming in C#.

Dorier already implemented full Segregated Witness support into NBitcoin, and launched a basic block explorer and transaction parser and checker on Segnet. He also briefly contributed to Segregated Witness development itself.

“Segregated Witness is a net win, there is not any downside to adopt it at all,” Dorier said. “It is one of the two pieces of the puzzle – the other being OP_CSV – to make Bitcoin scale to millions of users, by making the Lightning Network highly effective. I am also very excited by the new method to sign transactions, which now includes the value of outputs being spent. This is huge from a security perspective for webwallets and hardware wallets, as it prevents [the] user from adding too much fees by mistake. And last but not least, it increases the capacity of Bitcoin. I expect Segregated Witness adoption to follow an ‘S-curve’; wallets will jump on it very quickly.”

While Segregated Witness has been criticized as being a complicated solution, Dorier’s experience suggests otherwise. According to Dorier:

“From an implementation perspective it was relatively easy. I would say it took a little more than two or three days for NBitcoin support. I had to re-factor internal stuff to make it easier for NBitcoin’s users. Once implemented in NBitcoin, adding Segregated Witness to my block explorer was just a matter of updating the relevant package and redeploying it. Smartbit, another block explorer, has already done this as well, and can attest to the simplicity.”

Soft Fork

Roll-out of Segregated Witness on the Bitcoin network is currently scheduled for April. Once a super-majority of miners agrees on the solution, Segregated Witness will be activated, and it can be used by wallet and app software.

Among other benefits, this means that anyone using the new possibilities will use only about two-thirds to half the space in the available 1 megabyte blocks. These transactions get to pay a lower fee, and more transactions can be processed on the Bitcoin network.

But this strategy is being contended by the recently launched Bitcoin Core fork Bitcoin Classic. Bitcoin Classic most likely plans to deploy a block size increase to 2 megabyte blocks through a hard fork once 75 percent of hash power agrees, and a four-week “grace period” for all full nodes on the network to switch to the new rules.

Bitcoin Classic’s strategy has not gathered much support among library and wallet developers, however.

“Let’s be clear: Segragated Witness is the fatest way to bump the block size,” Dorier explained. “The migration to Segregated Witness does not need to be synchronized between service and wallet providers. In other words, anyone can receive Segregated Witness transactions even if their wallet did not upgrade – though in that case you’d have to trust on miners for validation.”

Hard Fork

Dorier does believe the block size limit will need to be increased through a hard fork a bit further down the road.

“Even with 1 megabyte blocks, Segregated Witness, and the Lightning Network deployed, Bitcoin will only be able to cater some 14 million users,” Dorier said. “Thanks to Segregated Witness, such an increase is not strictly needed for another year. But if there is consensus about raising the block size limit – and it’s clear it won’t hurt the network – it should be done nevertheless.”

But Dorier does hope this change will eventually come from the Bitcoin Core development team, rather than Bitcoin Classic, explaining:

“Core has proven to be reliable over the past years. All of their contributions to Bitcoin reached the highest standard of software development. Their commits speak for themselves. So I don’t support any ‘change of governance.’ In my opinion, Bitcoin Classic was pushed for political reasons; to try to get the power out of Bitcoin Core’s hands by some unproven team for unknown purposes. I will personally only support a 2 megabyte hard fork with 90 percent hash power vote, and a grace period of a year. This would make it clear the goal is not to raise a war against Bitcoin’s best contributors.

Even if Bitcoin Core doesn’t commit to a specific date, saying something like, ‘We will propose to do it sometime next year’ would fix a lot of the drama. It would also prevent a disastrous hard fork which could result into a split. What Bitcoin Classic proposes is the most dangerous thing that can happen to Bitcoin right now.”

For more information on Segregated Witness, see Bitcoin Magazine’s three -part series on the subject, or part 1 , part 2 , part 3 , part 4 , part 5 , part 6 and part 7 of this development series.

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The Checks and Balances of Bitcoin Governance

Although scalability (the block size limit) has been the main topic of conversation in the Bitcoin community over the past year, this controversy has also brought up another important subject for the peer-to-peer digital cash system: governance. Bitcoin Core Contributor Peter Todd is no fan of Bitcoin XT, but he does like the fact that Mike Hearn’s alternative implementation of the Bitcoin protocol brought the topic of governance to a wider audience.

So how does Bitcoin governance work? Blockchain Capital Managing Partner Brock Pierce was recently asked this question by Jason Calacanis on This Week in Startups, and he described the checks and balances that exist between different participants in the Bitcoin ecosystem.

A Developer Has to Write the Code

Pierce described Bitcoin governance in layers, noting that a developer must first write code that becomes an option for users of the system:

“The system actually has multiple layers. One, a developer has to write the code and put it forward. It really goes through a peer-review type of process where it gets vetted because it’s a very public process. It’s an open-source project; that’s what it is.”

Some are worried about the perceived centralization currently found in the Bitcoin development process, but in reality, developers have no power over what code Bitcoin users decide to run on their computers. Although Bitcoin Core is currently the reference implementation of the Bitcoin protocol, the five developers with commit access to that particular software client do not have any sort of tyrannical power over the system.

The Consensus of Miners

Once a developer has written some code, it is then up to miners to decide whether they should switch to that new software or stick with the code they’re currently running. Miners even have the ability to not upgrade their software if they do not agree with a change made by the development team behind the current reference implementation of the protocol.

During his interview, Pierce noted much more than 51 percent of miners need to agree on any proposed changes to Bitcoin’s consensus rules:

“The people that are running the infrastructure have to come to an agreement. The miners have to say yes, and then they need to run it, process a certain number of blocks, and you actually need more than 51 percent. You really need – call it 90 percent. You need [social] consensus of those miners.”

The level of social consensus among miners needed to implement a change that would cause a hard fork differs depending on whom you talk to. Bitcoin Foundation Chief Scientist Gavin Andresen would say 75 percent of miners is enough for a hard fork, while the developers behind Bitcoin Core would like to see “near-universal agreement” before implementing such a change. The Chinese Bitcoin community has also decided it will only accept a hard fork to a 2-megabyte block size limit if 90 percent of the network hashrate agrees to it. Having said that, it’s unclear whether they would be willing to switch to Bitcoin Classic in order to make that change.

Users Choose Which Coin Has Value

The last level of Bitcoin governance is the user base. After all, bitcoin miners are only going to mine on a blockchain that actually has value. Pierce explained the role of Bitcoin holders and Bitcoin companies in Bitcoin governance:

“The miners are also influenced by the other parties, which would be the companies: the Bitcoin exchanges, the wallets, [and] the payment process. What happens is you go through this process of a hard fork where you get two versions of the software running, which means now everyone’s coins have been replicated into two wallets. Now, whichever one the payment processors accept as real – they start to have an influence.”

This Week in Startups host Calacanis noted the similarities between the participants in the Bitcoin network and the three branches of government in the United States:

“It’s almost like the government where you have the executive branch, the legislative branch [and the judicial branch].”

The recent launches of Bitcoin XT and Bitcoin Classic have been the first serious tests of this governance model. Bitcoin Core has been able to avoid a hard fork for the time being by implementing Segregated Witness via a soft fork , but there is near-universal consensus on the need for an eventual hard fork to a larger block size limit in Bitcoin.

Kyle Torpey is a freelance journalist who has been following Bitcoin since 2011. His work has been featured on VICE Motherboard, Business Insider, RT’s Keiser Report and many other media outlets. You can follow @kyletorpey on Twitter.

Photo Hans Splinter / Flickr(CC)

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Bitcoinj Maintainer Andreas Schildbach: Segregated Witness worth the Effort

The long-lasting block size dispute has catapulted into the center of attention again. One of the most talked-about developments is Segregated Witness, of which a public testnet iteration – SegNet – waslaunched in January. The innovation as recently proposed by Blockstream co-founder and Bitcoin Core developer Dr. Pieter Wuille is a centerpiece of a scalability “roadmap” set out by Bitcoin Core.

To find out where the broader development community stands on Segregated Witness, Bitcoin Magazine reached out to library and wallet developers, those who will need to do the heavy lifting in order to utilize the innovation once rolled out.

In part 7 of this series: Bitcoin Wallet developer and bitcoinj maintainer Andreas Schildbach.

Segregated Witness Makes Future Extensions Easier

Schildbach is the developer behind Bitcoin Wallet, the first and very popular Bitcoin wallet app for Android. He also maintains the bitcoinj Java library, which was initially created by recent R3CEV-hire Mike Hearn, and provides the basis for Bitcoin Wallet and many other wallet apps.

While Segregated Witness received a lot of attention in light of the block size dispute, many developers are particularly excited about the improvements to the Bitcoin protocol that don’t concern the block size limit directly. Schildbach, too, believes Segregated Witness offers many benefits beyond just the added transaction capacity.

“Segregated Witness complicates wallet development a bit, but I think it is worth the effort, as it will make future extensions to the Bitcoin protocol much easier,” Schildbach said. “Think of stuff like fraud proofs, a new signature algorithm, increased extensibility, not to mention a fix to the malleability problem – things we thought we’d need a hard fork for at some point.”

Segregated Witness also offers an effective block size increase to a range between 1.75 megabytes and 2 megabytes, depending on the types of transactions. Schildbach is skeptical, however, that this will be enough:

“When it comes to the block size topic, I think Segregated Witness is not a solution at all. In the most optimistic estimations, Segregated Witness offers an added 1 megabyte per block. I think that in practice, actual usage will grow slower with Segregated Witness compared to a 2-megabyte hard fork increase, as it requires all wallets and services to upgrade. The space optimization is nice, but just a bit of sugar on top of the other advantages. We will need to see more to achieve real scalability.”

Soft Fork “Liveable”

Roll-out of Segregated Witness on the Bitcoin network is currently scheduled for April. Once a super-majority of miners agrees to the solution, Segregated Witness will be activated, and can be utilized by wallet and app software.

Segregated Witness is currently being integrated in bitcoinj, and Schildbach hopes that both bitcoinj and Bitcoin Wallet will be ready to utilize the benefits once the protocol change is rolled out.

“I drafted a rough schedule for development,” Schildbach said. “Other developers are doing most of the work, so I can focus on code review. I’d say it can be done in a matter of weeks. Once it is done, all wallets built on bitcoinj can simply use the code with minimal effort.”

The intended roll-out method of Segregated Witness through a soft fork is being contested by recent Bitcoin implementation Bitcoin Classic. While a soft fork would require only miners to upgrade, Bitcoin Classic plans to deploy a block size increase to 2-megabyte blocks through a hard fork instead, requiring all full nodes on the network to switch in unison.

Schildbach shared the concerns as presented by Bitcoin Classic, and believes a hard fork to be the preferred solution.

“Blocks are full, and I don’t agree that a hard fork solution would be short notice. We’ve been discussing this issue for years now! I would prefer we roll out a hard fork,” he said.

He added, however, “That said, I can live with a soft fork, too. And I hope one day a hard fork will be used to clean up the soft-forking mess we leave behind.”

For more information on Segregated Witness, see Bitcoin Magazine’s three-part series on the subject, or part 1, part 2, part 3, part 4, part 5 and part 6 of this development series.

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Deutsche Bank: Banks Must Partner with Fintech and Digital Currency Businesses or Risk Disappearing Altogether

The number of banks experimenting with blockchain technology and looking at their own digital currencies is growing by leaps and bounds, so it’s no surprise that Deutsche Bank is well on its way to having its own blockchain technology.

In a recent statement, the bank was quoted as saying: “Banks must partner with fintech and digital currency businesses or risk disappearing altogether.”

Although Deutsche Bank is a member of the R3CEV consortium of 42 banks that is developing a protocol for blockchain technology for the banking sector, the bank has been quietly running its own blockchain experiments.

Recently, Bank of America JPMorgan, UBS and Bank of England have also said that their respective banks are looking at ways to adapt blockchain technology for their own use.

But unlike some banks, such as Japan’s Bank of Tokyo-Mitsubishi, Citibank and BNY Mellon, Deutsche Bank is not looking at developing its own digital currency. It believes customers are looking for more digitalization and convenience, not necessarily a new currency.

In a forthcoming white paper called FinTech 2.0, Deutsche Bank signals to investors and clients that it is looking at partnering with new fintech startups to accelerate the transition to digital banking, including blockchain technology.

Deutsche Bank’s report is a wake-up call for the banking sector, warning that unless banks learn to partner with fintechs and “digital disruptors” they will begin to disappear altogether from the financial services landscape.

Coming on the heels of Deutsche Bank’s reported record loss for 2015 and a drop in Deutsche Bank’s share price, the report notes that it’s time for the bank to adopt a new business model that recognizes the importance of digital disruption in financial services.

In a wide-ranging interview with Bitcoin Magazine , Deutsche Bank Managing Director Rhomaios Ram said that the bank is more than ready to adopt new payment innovations and considers the adoption of blockchain technology inevitable.

“As the white paper notes, the biggest hurdles to adoption of new technologies and partnerships are regulatory and legal requirements in different jurisdictions around the world,” said Ram.

“Fintechs, and huge digital ecosystems in particular, have entered the market with a bang,” he said, noting that the report calls for a “mindset” adjustment to understand the major change in the marketplace and “that digitalization can become the new differentiator for banks.”

The white paper calls on the banking sector to “modernize the entire financial system infrastructure” andpartner with new digital market forces. including cryptocurrency startups, saying, “Banks must change their attitude to fintech companies in order to survive.”

Fintech startups happy to partner with Deutsche Bank

Ram told Bitcoin Magazine he had met with many fintech startups and was pleasantly surprised that they were more than happy to partner with the bank.

“I’ve discussed the possibility of partnerships with tens of different fintech startups, and they all seem very keen to partner with us,” Ram said. “It’s great that they see the benefits that we can bring to a potential partnership, including a client base, security and regulatory certainty.”

The report lists the following projects as examples of “payment innovators”: PayPal, M-Pesa, Bitcoin, Alipay, Stripe, Payoneer, Samsung Pay, Apple Pay, Square and Google Wallet.

In the spirit of cooperation, JPMorgan Chase already has teamed up with Digital Asset Holdings on a trial blockchain initiative that aims to make the trading process more efficient and cost-effective.

What’s in it for the new fintech company? The white paper notes:

“In order to maintain their position, they must find a way to meet their regulatory, investment and risk needs in order to focus on their core competencies. They may find partnering with a global banking provider to be the most strategic approach in this regard, and many of the developments of coming years will likely evolve within such alliances. Several market leaders have realised that bank alliances are the way forwards.”

Deutsche Bank experiments with three blockchain labs

According to Ram, Deutsche Bank currently operates three innovation labs in Berlin, London and one soon to be launched in Silicon Valley.

Calling blockchain technology “genius,” Ram said they haven’t settled on one version yet of the various technologies being developed.

“We’re blockchain ‘agnostics’ – we’re interested in and studying the benefits of all the various blockchain technologies including Bitcoin, Ethereum, Stellar and others – to ensure we’re adopting the best possible version for our use,” he said.

In early December 2015, Deutsche Bank announced it had successfully tested a corporate bond platform that was based on blockchain technology. Blockchain technology “smart contracts” were used to issue and redeem bonds that paid out coupons automatically.

On bitcoin as a currency, Ram isn’t sure what the future holds for the digital currency, saying:

“As far as bitcoin as a future currency, I’m not sure whether universal adoption is a sure thing. The public seem most interested in the digitalization and convenience of new faster payment methods more than a change in the currency itself.”

Photo Epizentrum / Creative Commons

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SatoshiPay Launches Bitcoin Nanopayment Network for Online Content

SatoshiPay, an online payments company headquartered in London, announced the launch of a platform for Web publishers, offering a new way to monetize content through frictionless micropayments.

SatoshiPay’s payment technology gives users the ability to transact amounts as small as one cent or less – which the company refers to as “nanopayments” – by leveraging blockchain technology.

“Nanopayments can be fractions of a cent. They are instantly settled and can be executed at high frequency. Imagine a couple of payments per second by a single user,” said SatoshiPay co-founder and CEO Meinhard Benn. “This enables completely new ways of monetizing Web content and digital goods in general. In an increasingly digital society, nanopayments allow for new business models that existing payment technology cannot facilitate due to its fee structure and trust models.”

SatoshiPay Ltd. is headquartered in London and development is done through the Berlin subsidiary SatoshiPay Germany UG, founded by Benn, Henning Peters and Kilian Thalhammer in 2014. In July 2015, the company won second prize at Coinbase Bithack.

“SatoshiPay is a bitcoin nanopayment wall for publishers which allows you to pay for the section of text that really interests you, make metered payments for streaming video, and make paid downloads with a single click,” noted the Coinbase announcement. SatoshiPay recently announced that it closed a €360,000 seed funding round.

“SatoshiPay would like to become a standard for paying for digital goods on the Web,” Benn told Bitcoin Magazine. “It’s widely assumed that micro or nanopayments are one of the applications that could become Bitcoin’s killer-app. We strongly agree and we hope that we built a use case that can prove this.”

Micropayments are difficult to implement with traditional payment systems, because the overhead costs (transaction fees) would be too high. But fast micropayments with the low transaction fees permitted by Bitcoin enable alternative models for paid online content.

We are used to a “free” Internet where nobody has to pay, but, of course, there is no such thing as a free lunch. The price that we pay for free email is spam, and the price that we pay for free content is rampant advertising – often annoying, intrusive, and ugly – or registration to websites that could sell their registered users list to spammers. Needless to say, many users install ad-blockers and don’t register to websites with mandatory sign-up. The company recommends trying the SatoshiPay model as an alternative to ads and registration.

In SatoshiPay there is no registration, and payments are done with one click or tap. The user can also choose to pay for content completely automatically. The balance of the user’s SatoshiPay wallet is displayed in the SatoshiPay’s floating Web widget at the bottom of the publisher’s website (example here). The user’s balance is shared across all websites that integrate with the SatoshiPay widget, and a user interface to manage SatoshiPay wallets is in the works. Publishers can join the SatoshiPay nanopayment network and install a Wordpress plugin, and more options for both publishers and users are expected to be available later on.

“A lot of people are talking about how smart contracts and payment channels can power tomorrow’s applications,” Benn told Bitcoin Magazine. We’ve built something that is already very useful today.”

Florian Glatz, a developer who is also SatoshiPay’s lawyer, wrote an article to explain how SatoshiPay is prototyping innovative uses of smart contracts “to change the Internet economy forever.” The SatoshiPay service is a trustless intermediary that mediates contractual negotiations and performance between buyers and sellers of digital goods, without those parties having to trust the service with their money, by implementing micropayment channels built on 2-of-2 multisig addresses and the nLockTime property.

The SatoshiPay service seems a clever and streamlined way to monetize online content without annoying readers, and the first impression is that it could really change the Internet economy once it achieves a critical mass of users and publishers.

“We automatically generate a Bitcoin wallet for each website visitor – without them even knowing,” Benn told Bitcoin Magazine. “When users that were previously not familiar with Bitcoin realize they have a wallet now, they might be curious to learn more about Bitcoin and its other applications. So besides being an easy-to-use payment tool, our product also helps to spread the word. As someone on Twitter put it: Blockchain is moving into publishing.”

“Go to satoshipay.io and show me your QR code,” is Benn’s message to people that wonder how to get bitcoins. “I will send you some bitcoins right now and you can start using them. There is no on-boarding.”

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Core Developer Jonas Schnelli: Segregated Witness Improves and Optimizes Bitcoin Protocol

The long-lasting block size dispute has catapulted into the center of attention again. One of the most talked-about developments is Segregated Witness, of which a public testnet iteration was launched last week. The innovation as recently proposed by Blockstream co-founder and Bitcoin Core developer Dr. Pieter Wuille is a centerpiece of a scalability “roadmap” set out by Bitcoin Core.

To find out where the broader development community stands on Segregated Witness, Bitcoin Magazine reached out to library and wallet developers; those who will need to do the heavy lifting in order to utilize the innovation once rolled out.

In part 6 of this series: Bitcoin Core and Bitcoin C library developer Jonas Schnelli.

Less Than a Week of Work

Jonas Schnelli is an independent Bitcoin Core developer who also develops the libbtc library that runs on iOS, Android, Mac, PC, Linux and MCUs. Schnelli additionally founded digitalbitbox.com, which is in the process of creating a simple and secure hardware wallet.

Like many other wallet and library developers, Schnelli believes the integration of Segregated Witness would significantly benefit the Bitcoin protocol.

Schnelli:

“I have read the relevant Bitcoin Improvement Proposals in detail, and have started experimenting with Segregated Witness to get a better feeling for how it works and how long it might take to adapt it for my projects. I think from the wallet perspective – SPV, hardware-wallet, wallet-libraries – integration is pretty simple. Probably less then one week of work, including testing and deploying. This is also evident from looking at the basic Bitcoin Core wallet changes; it’s just a couple of lines of code.”

Schnelli agrees that a roll-out of Segregated Witness is the best first step toward broader Bitcoin scalability.

“I completely agree the added effort for wallet and library developers is worth it, considering the risks of hard forking,” Schnelli explained. “People are often favoring simple infrastructure improvements rather then going into optimizing the software itself. But that’s a common mistake we have seen in the IT industries in the past decades. It’s short-term thinking and will very likely cause bigger problems in the future.”

Soft Fork: Chance for a Better Protocol

Roll-out of Segregated Witness on the Bitcoin network is currently scheduled for April of this year. Once a super-majority of miners agrees on the solution, Segregated Witness will be activated, and can be utilized by wallet software.

The most notable difference between Bitcoin Core and its recently launched competitor Bitcoin Classic is that the former plans to roll out Segregated Witness through a soft fork, while the latter wants to deploy a block-size increase through a hard fork, meaning all full nodes on the network need to switch.

Schnelli considers the choice an obvious one: a Segregated Witness soft fork is preferable for now.

“A 2-megabyte hard fork does not improve the protocol itself, not a tiny bit,” Schnelli said. “With Segregated Witness, we have a chance to get a ‘better,’ more optimized protocol, and reach almost the same amount of transactions per block. And, extremely important, Segregated Witness has almost full consensus.”

He continued:

“I personally cannot understand why some developers are still thinking that a 2- megabyte hard fork is preferable. The main risks of a hard fork are not technical, but there are huge risks of disrupting the whole Bitcoin economy. The Bitcoin market is extremely fragile, and it fully trusts in developer consensus. Bitcoin is still very young. If we start fighting and disagree on the very deepest technical layer, we hurt Bitcoin in its core and will lose irreplaceable trust from the markets.”

Schnelli noted, however, that he has no fundamental problems with alternative Bitcoin implementations, including Bitcoin Classic. It’s mostly the proposed block size increase prior to consensus that he condemns.

“I’m still hoping there could be a full agreement between Classic and Core on the consensus layer. Code forks are healthy – chain forks not,” he said. “If we go down the road of a ‘Let’s see who will make the race; Classic or Core’ there will only be one winner in the end: other cryptocurrency protocols like Ethereum and Ripple.”

For more information on Segregated Witness, see Bitcoin Magazine’s three-part series on the subject, or part 1, part 2, part 3, part 4 and part 5 of this development series.

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February 8, 2016 -
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