Monday, January 28, 2013

Bitcoin Casinos Release 2012 Earnings

By Jon Matonis
Tuesday, January 22, 2013

It is earnings season on Wall Street and it is reporting season for some of the leading bitcoin casino operators. Three significant Bitcoin-related gambling sites have reported their earnings and statistics for calendar year 2012. Some of the data is fairly revealing giving us a fascinating glimpse into the worldwide growth of bitcoin and gambling.

First up is the venerable SatoshiDice, which is the leading bitcoin gambling site in terms of amount wagered. Responsible for more than 50% of daily network volume on the Bitcoin blockchain, SatoshiDice reported first year earnings from wagering at an impressive ฿33,310. During the year, players bet a total of ฿1,787,470 in 2,349,882 individual bets at an average monthly growth rate of 78%. Earnings were calculated from eight months of data covering May to December, 2012.

With servers based in Ireland and promoted by Erik Voorhees, SatoshiDice is considered a blockchain-based betting game and it is self-described as the "most popular Bitcoin game in the world." Similar to random number generation, the site uses a method to produce a number between 0 and 65,535 which is then wagered on by making a bitcoin transaction to one of the static addresses representing different payouts. The odds are calculated to give the house an edge of 1.90% with full transparency because all dice rolls and earnings statistics are verifiable using the blockchain.

Operating expenses were minimal in 2012 and the company also paid monthly bitcoin dividends to 'public' shareholders which represent 10% of the total 100,000,000 outstanding shares. To invest in the operator and bet on the house, SatoshiDice shares are traded on the MPEx bitcoin stock exchange under ticker symbol S.DICE (see August 19th, 2012 Prospectus). At the current exchange rate of $17.00 per BTC, SatoshiDice is a company valued at $8.9 million.

Voorhees emphasizes that until the site's legal status is clear, all balances and accounting will be maintained in play-money bitcoin, because "it’s better to keep it completely separate from real life." For all of the venture capitalists out there, here is how SatoshiDice started. Where is the next big one?

Provably-fair bitZino, covered previously in this column, offers blackjack, video poker, roulette, and craps in a bitcoin-only environment. When roulette was launched it quickly rose to become the top bitZino game, leveling off now to become equal with blackjack in terms of hands played. In an email to Forbes, BitZino reported first year earnings from wagering of ฿10,137. During the year, players bet a total of ฿664,192 in 3.2 million individual bets. Earnings were calculated from seven months of data covering June to December, 2012.

Since inception, unique user count went from 3,086 in June to 8,737 in December, which represents a period growth rate of 183% or average monthly growth rate of 30.5%. Earnings during that same time went from ฿326 in June to ฿3,240 in December, which represents a period growth rate of 894% or average monthly growth rate of 149%. Owner Larry Taad expects a 500% increase in these user count and earnings numbers for 2013.

Interesting trends noticed by bitZino include near daily cash-outs from players on the site which simply would not be possible with other payment methods and an astounding payment processing fee of just 0.0031%.

Seals With Clubs is an innovative and friendly bitcoin poker site launched in August 2011 by a small team of former online poker players. Choosing to remain anonymous, they happily accept players worldwide and all cash-ins and cash-outs are denominated in bitcoin so no bank accounts are required and even your email address is optional. Poker Mavens by Briggs Softworks provides the gaming software for the site. Seals affiliate manager and site pro is the enthusiastic Bryan Micon, who said "with the upcoming release of our Android app we hope to explode the BTC poker space in 2013."

Seals confirmed that the company has paid out ฿110,587 over 7,972 transactions in the 16 months since their opening. They have over 10,600 player accounts with 5,697 of those logging in since October 1st, 2012. Typically, their busiest game time is 7-11pm EST and 972 types of Sit'N Go tournaments are also available. Players can open custom ring games and December brought in 1,000 unique players to at least one raked hand.

With game servers based in Iceland, Seals With Clubs is dealing about 10,000 hands of poker per day and raking only about 4,000 of them. If it is a tournament hand, no flop dealt, or below ฿0.04, then there is no rake. The current rake is 2.5% with a cap of ฿0.10 per hand which is slightly less than half of what other poker sites would charge.

Conservatively assuming that only 5% of the raked hands get to the maximum rake, then Seals With Clubs would be earning at least ฿20 per day on 4,000 raked hands dealt (or ฿600 per month on average). The operator does not make details available down to that level so we have no way of knowing with certainty. However, they do give a generous share of their rake back to high volume players and to others indirectly via freerolls and other promotions.

With privacy, efficiency, growth, payment irreversibility, and cost savings as demonstrated by the above, it's only a matter of time before the mainstream casino operators of Gibraltar and Malta realize the benefits of a gaming economy that leverages the ideal digital casino chip.

Monday, January 21, 2013

Silent Circle Adds Android For Encrypted Voice And Video Calls

By Jon Matonis
Wednesday, January 16, 2013

Silent Circle announced today that they have released Silent Phone for Android users which is now available for download in Google Play. As the Apple iOS version has already been available, this new release is good news for the many business users that require a cross platform communications solution. However the encrypted text capability is still pending on the Android version.

Headquartered in Washington D.C., Silent Circle is a global, private encrypted communications service that provides cutting-edge encrypted text, e-mail, mobile phone and video teleconferencing services through a secure, proprietary network and software apps. The company was co-founded by Mike Janke, a former Navy SEAL, and Phil Zimmermann, the creator of Pretty Good Privacy (PGP) and other Internet encryption for voice and data.

Silent Circle CEO Mike Janke said, "We are pleased to offer Android users, who comprise approximately 75 percent of the total smartphone market, a robust service offering. Encryption of this strength and performance has never been this easy for top executives and other espionage targets to use in support of their job requirements, mobility and missions. Our customers have the crucial advantage of placing highly secure calls anywhere they can find a signal."

A Silent Circle account requires a $20.00 per month subscription which includes a unique Silent Phone number for "inside the Circle" calls between two Silent Phone subscribers over the company's network. This makes it a very viral service offering because users tend to recruit each other. Silent Phone is the first and only smartphone service that enables secure video over 3G, 4G, EDGE or Wi-Fi networks.

Silent Phone deploys the ZRTP peer-to-peer encryption protocol which is recognized as the leading standard for secure end-to-end communication in a Voice over Internet Protocol (VoIP) telephone call.

Initially, this service will have broad applicability for large enterprises that maintain a dispersed work force in the field. With increasing corporate espionage and other surveillance threats, the ability to communicate in a secure and private fashion can not be taken for granted anymore. Unfortunately, intercepted communications can mean a significant loss of revenue for corporations that have unknowingly revealed trade secrets or business information that an agile competitor can exploit. Silent Circle addresses those threats without requiring any new hardware or changes in the customer's preferred devices.

Standing out in the industry, Silent Circle also prides itself in offering private, encrypted communication services for enterprises and individuals with absolutely no back doors. According to the company, this means that there is no password recovery option and there is no ability for Silent Circle to reveal anything other than encrypted voice and encrypted data in complying with a court-ordered subpoena.

[Disclosure: Author is consultant for a Silent Circle reseller based in Japan.]

Monday, January 14, 2013

PayPal Assault On File-Sharing Sites Makes Business Case For Bitcoin

By Jon Matonis
Wednesday, January 9, 2013

BitTorrent and Bitcoin were made for each other. An article on TorrentFreak reports that PayPal is requiring private BitTorrent tracking sites to provide them free access for purposes of monitoring user content for possible copyright infringement.

On the very same day, another TorrentFreak article claimed that researchers at Boston's Northeastern University show domain seizure of file-sharing sites to be ineffective and that blocking the money streams to these sites would be a more 'fruitful' solution. And, it is already happening in a major way. The money stream targeting even extends to ISPs that happen to be BitTorrent friendly.

Just as with the payment-oriented attacks against the online pharmacy industry, censorship-resistant bitcoin appears to solve the problem by providing a decidedly nonpolitical currency. Used properly, bitcoin can have the privacy attributes of paper cash and bitcoin doesn’t make morality judgements about what you choose to do with your money. It is purely a value transfer protocol and it functions generally in accordance with the same distributed peer-to-peer principles as BitTorrent.

Of course, many commenters to the articles have already made the connection to a bitcoin solution but with varying degrees of endorsement. Private BitTorrent trackers traditionally rely on donations for the operation of their service and PayPal is so widely used that donations would drop if forced to rely on lesser-known payment methods.

Indeed PayPal is a private corporation and using their payment service is voluntary. But the problem is that, through fear of liability or outright pressure from authorities, PayPal enforces a blanket global policy across legal jurisdictions as a substitute for due process. File-sharing sites comprise both file-hosting and BitTorrent tracking sites each of which may have different legal status in different jurisdictions depending on interpretation and enforcement of various copyright laws.

PayPal is actually setting the stage for its payment successor. "Bitcoin as a viable currency keeps growing in appeal with every incident like this. These companies are undermining their own viability," said a veteran redditor.

According to TorrentFreak, PayPal has started freezing the accounts of private BitTorrent trackers until they provide PayPal unfettered access to the site in question. File-hosting services MediaFire, DepositFiles, and Putlocker have had their PayPal accounts disabled too. Additionally, file-hoster PutLocker had their PayPal funds frozen for six months because they objected to the backend monitoring of their customer's files.

This action wouldn't seem so difficult if PayPal were barely used, but for those unable to prepare for alternatives it can have a significant impact on revenue. "This has a paralyzing effect on the file-hosting industry where 90% of the users of some sites pay using PayPal," declared an owner of a major file-hosting service.

Established private tracker TorrentBytes announced that they may have to shut down unless they can find a way to process payments:
Problem is not lack of donations, but entirely on handling them. As of current every service provider the site has to pay for only accepts PayPal, Credit/Debit cards or direct bank wiring. Only one provider allows bitcoin. Unless we can figure out some realistic and possible way to do site finances completely PayPal free, it seems like the story of TorrentBytes will end very soon after January 2013.
Bitcoin can be accepted fine without any third-party involvement. Spending them remains the bigger hurdle. While services like BitPay and Coinbase exist that will accept bitcoin payments on your behalf and convert out to national currencies, operators like TorrentBytes may not have a bank account or a credit card to use for their own procurement. If businesses don't want to exchange bitcoin for cash physically or load bitcoin onto a surrogate offshore debit card for purchases, bank accounts are still required with most online bitcoin exchanges. Life can be tough in the early days of a stateless currency.

If PayPal free is the goal, several VPS providers already accept bitcoin for payment of hosting services. In turn, file-hosting sites and private torrent sites that have successfully adopted the bitcoin payment method from their users include Lumfile,, and TorrentLeech.

Maybe the researchers have a point about targeting the money stream. It has been speculated that blocking the money stream to governments would solve the regulation of the economy and unbridled spending problems too.

Sunday, January 13, 2013

Presenting Bitcoin At InfoSec And Hacker Conferences

By Jon Matonis
Bitcoin Foundation
Friday, January 12, 2013

I remember going to some of the first RSA conferences at The Fairmont where I enjoyed celebrity entertainment while feasting on lavish gourmet food spreads that included six-foot wide bowls of jumbo shrimp and massive ice sculptures.

The security conference circuit is an interesting lifestyle, but I also believe that it's vitally important for bitcoin's expansion to engage these professionals. Some conference attendees are simply there on their own but many are there because their employers have sent them to learn something new. As far as speakers go, you have the keynote regulars, the product hawkers, and the sector specialists. I tend to shy away from the product hawkers because they have most likely paid for a sponsorship in exchange for the speaking slot. Sector specialists are generally worthwhile and they can be senior employees of their companies or independent consultants with some government employees thrown in for good measure.

I always relish the opportunity to introduce bitcoin to a new vertical industry audience as bitcoin cuts through so many traditional boundaries. Usually, they have heard about bitcoin in a vague way but they aren't yet clear on why it's so significant. My goal is first to make bitcoin relevant to their industry then to outline the likely key impacts that bitcoin will have on their industry. I am not a cheerleader and I dislike the cultish phrase "fan of Bitcoin" or "fellow Bitcoiner." I wouldn't necessarily say that others are a "fan of the US dollar" except maybe Ben Bernanke.

In my opinion, bitcoin is not about convincing other bitcoin users of its economic merit. Bitcoin is about laying the foundation for a new society -- a society organized around a decentralized digital currency that rewards productivity and punishes the wealth re-distributors. During 2012, I had the privilege of presenting bitcoin at two extraordinary security conferences:

ITWeb Security Summit 2012, May 15-16th, 2012, Johannesburg, South Africa
DeepSec IDSC 2012, November 27-30th, 2012, Vienna, Austria

There are always excellent audience questions and continued dialogue on bitcoin's possibilities especially for banking and financial privacy. In casual hallway conversations with conference attendees, I never know for sure if I'm talking with a white hat or a black hat. Also, it can be a very hazy line with a lot of crossover. It doesn't really matter though, because the best way to prevent security breaches is to have a solid understanding of the advanced tactics deployed against the targets. Penetration testers are the gray hats.

If I can reach out to a technical audience already versed in security threat models, cryptographic applications, and privacy protocols, I can likely advance the movement into the class of the infrastructure builders. You would be surprised at how many white hat and black hat hackers still believe in the correctness and stability of national fiat currencies managed by central bankers. Even though bitcoin fits into the hacker culture as money with a sound basis in mathematics, they are skeptical of something so new that has grown so rapidly. Even the high-profile hacks at some bitcoin exchanges and false claims of 'Ponzi' have dissuaded intelligent hackers. Just check out some of the uninformed comments at Slashdot.

However, this is precisely the point. We all know that the high-profile bitcoin hacks resulted from poor policy planning, wallet mismanagement, and inadequate backgrounds in network security. If the hack wasn't outright theft by the principal, it was due to network security inexperience and a severe lack of funding to procure it. Where do the leading security professionals for financial institutions frequent? What is their watering hole? Well, it is the many information security and hacker conferences around the world like RSA, InfoSec World, BlackHat, and Defcon. Bringing it to the people -- that's how to prepare for the transition.

I was told confidentially by an IT Security specialist from a major bank that the public would be shocked if they knew the amounts that are stolen daily from online financial institutions via ACH and wire fraud. Typically, breaches and total numbers are not revealed because they don't want to advertise a weakness and they certainly don't want to alarm customers. Some of the more vicious attacks are State sponsored. I believe him. That's what bitcoin is up against as it progresses into the mainstream. The leading security experts are in that world, already protecting against the barbarians at the gate. They are not in the bitcoin world.

I'm looking forward to engaging new audiences and great conference opportunities are on the horizon for 2013. By promoting and embracing an anti-Statist currency that obliterates political corruption and the financial elites, I go to sleep every night knowing that I sit on the right side of history.

In the meantime, I'll be speaking at a non-hacker payments system summit in March:
Online Virtual Currencies: Cash Becoming Truly Digital

Saturday, January 12, 2013

Largest Bitcoin Payment Processor Raises $510,000 Angel Round

By Jon Matonis
Monday, January 7, 2012

BitPay, Inc. announced today that they have completed a seed funding round of $510,000 from several angel investors demonstrating that bitcoin can attract the capital necessary to encroach upon legacy payment methods. Similar to merchant processors for credit and debit cards, BitPay is a Payment Service Provider (PSP) specializing in eCommerce, B2B, and enterprise solutions for virtual currencies.

Investors participating in the seed round include SecondMarket founder Barry Silbert, Spotify investor Shakil Khan, Jimmy Furland, Roger Ver, and other Internet entrepreneurs. Specific terms of the deal were not disclosed but co-founders Anthony Gallippi and Stephen Pair will retain majority ownership. Investors Silbert and Ver also participated in the April 2012 funding round for mining pool operator CoinLab.

CEO Anthony Gallippi says, "BitPay plans to use the funds to move the headquarters from Orlando to Atlanta and to hire additional developer talent for enhancement to the BitPay platform." With proximity to other financial technology companies and several leading universities, Atlanta provides an excellent base for expansion.

Gallippi added that the WordPress decision to begin accepting Bitcoin via BitPay for certain features is "what really accelerated this funding round because investors saw it as the ideal time to move forward." Since the November 2012 WordPress deal, BitPay has seen new merchants increase by nearly 50% to over 2,000.

The total dollar value of all bitcoin transactions processed by BitPay in 2012 was over $3 million, which represents average quarter-to-quarter growth of 50% over the past four quarters for transaction volume.

"With very little resource, BitPay has already taken the place as market leader in the bitcoin payment processing ecosystem, and along with the other investors, I am very excited to help the founding team scale up and take it to the next level," said London-based Shakil Khan, an early investor in Spotify and SecondMarket.

The value proposition to merchants is clear -- eliminate fraud and chargeback risk, accept transactions from any country in the world, and increase profitability by saving on processing fees and PCI Compliance costs.

"Credit cards were never designed for the Internet," stated Gallippi. Using a credit card over the internet is a situation known as card-not-present.  "It was never intended when credit cards were designed, and when we try to use them this way it carries higher processing fees and substantially higher risk. Payment fraud represents nearly 1% of our GDP [$100 billion] in the United States." Shockingly, the large majority of that is a direct hit to the retailers.

So far, BitPay's notable competition in the space is Denmark-based WalletBit and Colorado-based Paysius. Also, the proof-of-concept AcceptBit solution takes things in a different direction altogether with a trust-free payment processor.

Although BitPay is the worldwide leader now with payment plugins for the most common eCommerce shopping carts and multilingual support in over eight languages, they will have to continue innovating with superior features and expanded settlement currency options.

The overwhelming majority of BitPay merchants settle in U.S. dollars because the company does not yet offer direct settlement into other currencies. Furthermore, as almost all merchants start out converting 100% of their Bitcoin proceeds into U.S. dollars, the company acknowledged that the trend is heading towards 50% or less as merchants increasingly decide to maintain proprietary Bitcoin balances.

While that may be good for the future of bitcoin, it alters the business model for payment processors like BitPay because they are forced to rely more on the Bitcoin-only processing spread which is justified by customer support and user-friendly plugins. Also, they risk being seen as just an unnecessary intermediary.

In a bitcoin-only world for selling and buying without conversion to national fiat currencies, the line between processors and wallets becomes blurred. If the bitcoin payment processing industry is indeed headed towards sophisticated, feature-rich deterministic wallets and built-in risk management functionality, the leading processor should have a great advantage in steering the transition.

Tuesday, January 8, 2013

Katherine Mangu-Ward Talks Stateless Currency on Stossel

Reason Managing Editor Katherine Mangu-Ward discusses stateless currency bitcoin on John Stossel's January 3rd, 2013 program. Overall, I think women are better than men at explaining bitcoin.

Tuesday, January 1, 2013

Egypt Imposes New Cash Controls At Border

By Jon Matonis
Thursday, December 27, 2012

Currency controls are now in place and there is a ban on traveling with more than $10,000 in cash. Egyptian officials are becoming worried as savings account withdrawals increase in the face of a depreciating pound and public rumors of central bank confiscation of deposits.

On Tuesday, Presidential spokesperson Yasser Ali confirmed the government's decision which limits all travelers from "bringing foreign currency into the country or carrying it out to only $10,000." Ali added that "any funds over US$10,000 must be transferred electronically" and the decision also forbids sending cash through the mail.

Previously under the original law, any amounts above $10,000 or their equivalent in foreign currencies simply had to be declared to authorities.

With foreign investors and tourists holding back now, the post-revolutionary Egyptian government of Mohamed Morsi is finding it difficult to maintain control over its finances and budget deficit. As a result, Egyptian officials have delayed the high-level talks that are necessary to secure a $4.8 billion loan from the International Monetary Fund (IMF).

New thinking at the International Monetary Fund now accepts that capital controls are sometimes necessary to prevent destabilizing capital flows. It is not clear from the IMF Survey if this new view would apply to the control of outflows from Egypt which has seen its foreign currency reserves fall from $36 billion in 2010 to $15 billion today dangerously close to the IMF's recommended coverage of three month's of imports. Estimates put hard currency reserves at just about $4 billion.

After visiting one exchange office that had run out of dollars, Cairo resident Mahmoud Kamel said, "I want to exchange money because I'm afraid the Egyptian pound will not have any value soon."

Furthermore, due to the cumulative limit of $100,000 in effect from nearly two years ago, many wealthier Egyptians have maxed out and are unable to send money abroad.

The Central Bank of Egypt said Tuesday that the Egyptian pound was trading at 6.20 per U.S. dollar compared to 6.00 during the first half of the year. Without necessary currency reserves to fund imports, it is likely that the pound will fall in value sharply.