Recent Patent Filings and Public Perspective

To preface this brief post, I’ll first say sorry for the little sabbatical I took – new season, new internship, it’s taken me a while to get into the swing of things. Secondly, I’ll throw you a pair of Coindesk articles detailing patents filed within the past few weeks by major companies with regards to Bitcoin. Both articles at least briefly discuss these patents as threats to the Bitcoin ecosystem – this is not the angle I wish to look at these patents from. I’m not a fan at all of patents restricting creativity and innovation in favor of maintaining the balance of power in business, and that’s exactly what these companies are trying to do, in my opinion. Are they a threat? The answer to that question is much less clear.

The very filing of these patents, though, is indicative of a major change in the view of Bitcoin in the realms of payments and ecommerce. Bitcoin has gone from being compared to the Quetzal, as mentioned in my recent paper, to being a force worthy of legal action. Legal action, by the way, specifically designed to secure the place of these finance companies in the business world as Bitcoin begins to invade their space. It’s not hard to see how Bitcoin could be a major threat to payments companies like MasterCard and Western Union, or even an ecommerce company like eBay. Yet it was largely ignored, at least publicly, by these very companies. Whether it’s the recent surge in the price of BTC back above the $600 mark or the press surrounding Bitcoin in light of events such as the Silk Road bitcoin auction, it would appear as if it’s becoming more and more difficult to ignore Bitcoin.

MasterCard wishes to add Bitcoin under the umbrella of its “global shopping cart”, a concept seeking to provide “flexibility in how a customer would fund a shopping cart purchase”, in the words of a MasterCard rep. Western Union seeks to have exclusive rights to an exchange allowing users to trade digital currency for fiat currency (which intrigues me, since that concept already exists rather prevalently). If granted, these patents not only protect these companies from complete disruption by Bitcoin, but suddenly make these companies major players in the realm of cryptocurrency – quite the 180, no?

Any supporter of cryptocurrency, or really anybody that’s even vaguely educated on the topic, must be saying “I told you so” to some extent as news like this continues to emerge. There’s certainly still a long battle for the crypto-community before anybody can really say Bitcoin is a mainstream concept, but as major finance companies begin to file faux-intellectual property claims out of what can only be described as fear, I think we can say we’re gaining ground. California legalized cryptocurrencies before it legalized other currently semi-legal substances. Should be absolutely fascinating to see how Bitcoin fares legally over the next few months.

A Study in Contrasts – Circle, QuickCoin, Armory

Hey all – life’s been crazy with finals and a graduation or two to attend. Glad to finally be back writing about Bitcoin. There’s been some exciting developments lately, but after attending the MIT Bitcoin Expo a few weeks back and learning of the release of a pair of ease of use-focused Bitcoin products (Boston-based Circle‘s product and QuickCoin), I want to speak on a philosophical level in this post.

Both Circle and a Bitcoin startup known as Armory had featured speakers at the MIT Bitcoin Expo. The products of these companies couldn’t be more different. While Armory is by no means difficult to use for most tech-literate people, it seemed to me that Armory placed little or no emphasis on being user-friendly. For example, a paper backup is the only way to back up and retrieve your wallet if you happen to forget a password. One also needs to install and synchronize the full Bitcoin-qt client and run a full node to use Armory online. Armory also has an option for an offline wallet for “cold storage” – possibly the most secure way to hold bitcoins. This requires an offline computer, though, which is simply not something every Bitcoin user is going to have on hand. (Read more about using Armory’s wallet here.)

Armory is still in a beta build, yet there have been no reported hacks or losses of bitcoins due to the software itself. If one loses their paper backup and something happens to the computer (online or offline) on which the wallet is hosted, though, bitcoins can be lost. Using Armory is inconvenient – no two ways about it. Installing and synchronizing Bitcoin-qt takes hours, and even after it’s installed, it can take a few minutes to load. An offline computer just seems completely unnecessary to own for any other purpose besides something like Armory. And paper is annoying. Yet security of a digital currency in a world full of hackers is an issue that may be paramount.

A common thread among the MIT expo speakers, though, was how Bitcoin would be eventually adopted by the masses. Circle co-founder Sean Neville was among the speakers, and raised some excellent points on the topic of Bitcoin adoption. To paraphrase, he more or less said that your everyday person isn’t going to use Bitcoin when an understanding of cryptography, the Block Chain, private/public keys, and other similarly complex ideas is needed. The way I understand it, Neville thinks that Bitcoin needs an app that “translates it into English”, so to speak. Enthusiasts have no trouble using and wrapping their heads around Bitcoin, but that’s simply not enough for the mainstream to adopt cryptocurrency technology.

Circle and QuickCoin, both of which launched early builds of their wallets recently, are focused on adoption and ease of use. Not to say these wallets are not secure – there’s no evidence yet that they are not secure products for the purchase and storage of bitcoins – but when compared to a wallet like Armory’s, one simply can’t make an argument that QuickCoin’s or Circle’s wallet is more secure. Yet both Circle and QuickCoin are drawing rave reviews for their ease of use (and lack of transaction fees, in Circle’s case).

These apps and other similar apps beg the question: What’s more important, security or adoption? A lack of security in a wallet will eventually give way to hackers stealing bitcoins. However, what’s the point of securing your bitcoins if neither none your peers nor your preferred merchants use bitcoins? If I had to choose, I’d side with adoption. The Internet had its issues with security as it grew, but these proved to simply be growing pains as the Internet gradually dominated the world.

Ultimately, security and adoption are likely to go hand in hand. Increased security will help adoption as users begin to view Bitcoin as safer, and a greater network of users will spur the need for greater security. Bitcoin certainly does not have a “killer app” yet that combines security and ease of use, but I believe one or more of these will emerge in the near future (perhaps even in the form of one of the aforementioned wallets). There isn’t only one credit card company in existence, and I don’t believe there will be only one Bitcoin company in the future. However, the companies that are able to harness the best of the seemingly opposite concepts of security and ease of use will be the winners when the dust clears.

You can check out the apps discussed in this article via the links below:




Innovation within the Innovation – OneName

Bitcoin itself is a revolutionary technology. However, it will be how empowered individuals and startups innovate with it that truly defines how Bitcoin changes the world. This is the first of a series of blog posts – “Innovation within the Innovation” – examining people and companies using Bitcoin in ways that truly change the game.

I’ll keep this brief. We know Bitcoin itself is highly innovative, but most even vaguely versed in the technology know the currency concept is just the beginning. A startup I was introduced to recently is a perfect example of the possibility for innovation with the blockchain beyond currency. OneName is one of the first effective uses of the anonymity made possible by Bitcoin. As opposed to simply having your transactions stored in the blockchain, your entire financial identity is stored in the blockchain, and you are known simply by “one name” for your Bitcoin transactions. The possibilities here are intriguing, even if it’s as simple as you and I not having to fill out lines upon lines of billing information every time we make an online purchase. I think it potentially adds a unique layer of security to our online “identity,” so to speak. This decentralized identity concept allows us to not have as much personal information floating around the internet because of the excessive online shopping we indulge ourselves with. An identity thief will be at a loss if all the info they see is your “one name,” after all.

Curious if it’s easy to use? Check out my OneName page. It’s me, and it’s the QR code you can use to send me bitcoins. (Please do send me bitcoins, by the way.) My “identity” is stored in the blockchain, and all you see is the limited amount of info on the page. But you can still send me money for any given purpose, and given that it’s linked to my Bitcoin wallet, I get bitcoins securely without having to tell you much besides my name. I could take almost all of that information off the page, and the transactions would be damn near anonymous, but still secure. Absolutely fascinating, no?

The Irony of Xapo, The Necessity of Xapo

An FDIC for Bitcoin, some are calling it. Bitcoin security service Xapo recently raised a $20 million round lead by Benchmark Capital and Fortress Investment Group, LLC. The premise of Xapo is to provide both a Bitcoin wallet and what they describe as a “vault” for your bitcoins. Yes, it is a physical vault, where servers that are offline and never have been online store the bitcoins, and the users’ private keys, used to access their bitcoins are guarded by layers of security, including armed guards, in multiple locations around the world. The wallet acts similarly to a checking account for one to use to readily make transactions, while the vault acts as a secure savings account. With the excessive fear regarding hackers stealing all your magic internet money, Xapo is a refreshing layer of security. The %.12 annual fee for the vault service is certainly more than you’d expect from your standard savings account, but as the first movers, they can really charge whatever fee they want right now, and the security paranoia surrounding Bitcoin currently could probably drive the price up even higher, if Xapo chooses to do so.

However, I find it odd that the security method chosen here that is making people breathe so easily all of a sudden is offline, physical security. Bitcoin is designed to take advantage of the open source, decentralized nature of the Internet. I’m certainly not making any arguments for or against Xapo with this line of thought. I just find it ironic that instead of furthering efforts to make the Bitcoin network, Bitcoin exchanges, and Bitcoin wallets more secure, a process that would likely lead to stronger Internet security in general, we are choosing to take a step back into our comfort zone. We’re basically burying our bitcoins underground and guarding it – a practice as old as time itself. Maybe that’s just a testament to “if it ain’t broke, don’t fix it,” but it just seems weird to me that a concept so old is having $20 million thrown at it. Then again, almost anyone that develops a phone app can get $20 million these days, it seems, so should I really be surprised?

All this being said, I’m glad Xapo has arrived. A service to make new adopters safe using Bitcoin is, well, necessary. Users that don’t have a technical background are more likely to look at Mt. Gox and other negative incidents and feel like their investment isn’t a safe one, instead of taking solace in the air-tightness of the code behind the more commonly used Bitcoin wallets, and the Bitcoin network itself. Until Java is taught in grade school, almost everyone will feel safer burying their bitcoins underground than they will relying on code and advanced mathematical algorithms. I personally have no plans to use Xapo at the moment – in the Blockchain I trust, if you will. However, it’s clear Xapo will make Bitcoin feel safer for the non-technical majority, and frankly, that’s what matters right now.

The Collapse of Mt. Gox will be Good for Bitcoin

We’re a few weeks removed from the event that began the collapse of Mt. Gox, the Japan-based bitcoin exchange. This dramatic death of one of the first bitcoin exchanges was spurred by a report by bitcoin entrepreneur Ryan Selkis, revealing a leaked document detailing excessive bitcoin theft that happened on Mt. Gox’s watch. Unfortunately, this was probably the most press Bitcoin has ever gotten. It was catastrophic for Bitcoin, causing its price to crash, and perhaps worse yet, raising concern about the security of using bitcoins.

As one can read in the report (and elsewhere), Mt. Gox blamed these thefts on what they called a “flaw” in Bitcoin’s software. This “flaw” is a feature of Bitcoin’s software known as transaction malleability, in which the unique address associated with each transaction of bitcoins can in fact be altered. The thefts occurred when a Mt. Gox user would alter an address they used with Mt. Gox for a transaction, and complain to Mt. Gox when their new, altered address had no bitcoins sent through it. Mt. Gox used these addresses as essentially their only form of accounting, so they had no choice but to repeat the transaction at the new address. As a result, the thieves had double the bitcoins at Mt. Gox’s expense.

If you think something smells here, you’re not alone. Members of the Bitcoin community lashed out at Mt. Gox, pointing out that Bitcoin has been aware of transaction malleability, and has chosen not to address it. Transaction malleability has a number of potential constructive properties, which include any sort of operation where multiple users have to collaborate on transactions (crowdfunding, for instance). While that doesn’t change the fact that it was used for nefarious purposes in the Mt. Gox scandal, why did Mt. Gox have no accounting measures beyond the transaction addresses? Certainly a rhetorical question at best, but it begins to detail the lessons the Bitcoin community can learn from Mt. Gox.

While Bitcoin is a sophisticated software, it should not fall squarely on the shoulders of the Bitcoin programmers to ensure the safety of use of Bitcoin. That would be akin to asking the U.S. Federal Reserve to ensure that bank robberies and identity theft never occurred – the banks themselves are generally the organizations that provide security for our dollars. What I’m getting at is that Mt. Gox shouldn’t have blamed Bitcoin itself for their own oversight, and their own failure to secure the funds of their users. While Bitcoin still lacks the regulation that other currencies do, Bitcoin exchanges such as Mt. Gox are the organizations that we look to for the security of our bitcoins. We wouldn’t blame the nature of the U.S. Dollar itself if our bank account got robbed – we’d blame the bank that was supposed to protect our funds.

As Mt. Gox files for bankruptcy, we obviously can’t say the loss of 744,000 bitcoins was a good thing. However, Bitcoin is in its infancy, and we can, at the very least, accept that the responsibility for security when using Bitcoin falls on we the users. The fall of Mt. Gox is a bump in the road for Bitcoin, but it will spur other Bitcoin exchanges to bolster their security measures, and it will compel users to be far more cautious when conducting bitcoin transactions. Mt. Gox was ultimately good for Bitcoin because of what the public stands to learn through its collapse. And, of course, because any press is good press.

Paradigm Shift

Hey all – haven’t been as active posting. Apologies.

However, I’d like to go ahead and declare the direction I plan to take this blog. Technology’s a very broad field to be writing about – ultimately it feels difficult to differentiate a blog when I’m talking about such a broad field. So I’m narrowing the focus of this blog significantly. This will still be a blog that occasionally talks about larger trends in technology, but it will mostly focus on Bitcoin and other cryptocurrencies from this day forward. Bitcoin, or some later iteration of the general concept that Bitcoin introduced, will change the world. Any truly disruptive innovation comes to market with a set of traits not initially desirable to the base of consumers at large. We’re seeing this through the growing pains Bitcoin is experiencing. Mt Gox was an unmitigated disaster that has negatively impacted many, many people. Yet is Bitcoin dead? Absolutely not – it’s trading at around $620 USD today. Skeptics are everywhere, but by now, skeptics should be a positive sign – haven’t we seen this movie a few times already in the past 10-20 years?

But I digress, this is not the blog post where I explain everything there is to know about Bitcoin, and forever convince you that Bitcoin is the way of the future. Why? Because I don’t know enough about it to do so yet. We’ll be learning together as Bitcoin continues to disrupt the world.