I'm Done Helping PayPal

Since I believe that the advent of bitcoin has now made PayPal irrelevant, this will be my last interview for a PayPal study. In April 2011, I was interviewed by Dann Anthony Maurno of Blueshift Research for a strategy piece that he was compiling on PayPal. Below is my excerpt from that study, "PayPal a Mobile Payment Leader But Competition is Fierce". I discussed bitcoin as a mobile digital currency as well as the recent BitcoinJ, a java bitcoin client from Google.

Background:

Blueshift Research's Sept. 22, 2010, report on PayPal found the company still dominating the alternative payment market with 84 million active users. (PayPal now claims 94 million active accounts and 9 million merchants in more than 190 countries.) Mobile payments are in their infancy, but consumer interest and potential PayPal competitors are fueling mobile payment pilot projects. PayPal is in a position to capitalize on the adoption and growth of the smartphone/mobile payment segment and has identified mobile payments and non-U.S. markets as its future growth areas.

Current Research:

In this next study, Blueshift assessed whether PayPal can navigate the numerous competitors emerging in the mobile payment market to remain a leader in the alternative payment industry. Blueshift employed its pattern mining approach to establish and interview sources in seven independent silos:

1) Application developers (3)
2) PayPal competitors (3)
3) NFC manufacturers (3)
4) Industry experts (6)
5) Merchants (3)
6) Consumers (2)
7) Secondary sources focused on the mobile payments industry (4)

PayPal a Mobile Payment Leader But Competition is Fierce

View more documents from Jon Matonis

For further reading:
"Google Android Market the Only Source of Bitcoin Mobile Apps", Todd Ogasawara, SocialTimes, May 19, 2011
"Google releases open source Bitcoin client", Rodney Gedda, TechWorld, March 21, 2011

Global Bitcoin Stock Exchange on AgoristRadio

This AgoristRadio.com episode special guest is Nefario. Buckle your seat-belt Dorothy, cause Kansas is about to go bye-bye. This episode is not for the faint of heart.

Discussion includes the Global Bitcoin Stock Exchange, Ricardian contracts, PGP key signing of contracts, encryption transports, encrypted messages over OTR, issues of criminal organizations attacking this system and the need to take it deep in the darknets, onion routing and geocache, massively distributed p2p hawala systems, and anonymous exchange networks.

Listen to the April 28th, 2011 interview here.

Nefario is also interviewed by Bitcoin Weekly here.

Lords in the Church of the New Cash

By Simon Davis
DGC Magazine
January 2011

This is an important piece from the founder of Pecunix and co-creator of Voucher-Safe although it does not address how to prevent or hinder the potential confiscation of the issuer's warehouse assets.
The Future of Private Money by Simon Davis


Reprinted with permission.

Also listen to "Justin of Voucher-Safe" on AgoristRadio.

GATA Files Liberty Dollar 'amicus curiae' Brief

By Chris Powell
Gold Anti-Trust Action Committee
Wednesday, June 1, 2011

http://gata.org/node/9974

GATA's legal brief filed in U.S. District Court for the Western District of North Carolina in support of acquittal or a new trial for Liberty Dollar founder Bernard von NotHaus is cited in today's editorial in the New York Sun, "Von NotHaus' Question" -- the question being whether anyone but the government has the right to issue money.

The Sun says: "So where does Congress find the power to prohibit private coinage? GATA's brief argues that the right is protected by the 10th Amendment, which reserves to the people rights not delegated to the government by the Constitution or prohibited by it to the states."

The Sun's editorial can be found here:

http://www.nysun.com/editorials/von-nothaus-appeal/87371/

GATA's brief can be found here:

http://www.gata.org/files/GATAAmicusBriefLibertyDollar-06-01-2011.pdf

The press release issued by the U.S. attorney for the Western District of North Carolina upon von NotHaus' conviction can be found here:

http://www.gata.org/files/USAttorneyPressRelease.pdf

The U.S. Justice Foundation, which also is assisting von NotHaus' appeal, has established a special fund to support the appeal. Please consider visiting the fund's Internet site to make a donation:

https://grassroots.cc/2598_Liberty_Dollar_Appeal

Bitcoin: Timing is Everything

By Jon Matonis

Why did a digital currency like bitcoin take so long to appear on the scene if the basic cryptographic elements were already in place?

Two writers attempt to answer this question. The first is author gwern publishing "Bitcoin is Worse is Better" on Bitcoin Weekly explaining how the most elegant solution to a problem does not always end up becoming the prevailing technology. Gwern writes that a lack of novelty is part of bitcoin's appeal because there is less danger when not introducing new parts of a cryptosystem:

"The interesting thing is that by even the most generous accounting, all the pieces were in place for at least 8 years before Satoshi's publication, which was followed more than half a year later by the first public prototype (Satoshi claims that before he write the whitepaper, he wrote a prototype). If we look at the citations in the whitepaper and others, and then order the relevant technologies by year in descending order:

1. 2001-2005: Nick Szabo, Bit Gold
2. 2001: SHA-256 finalized
3. 1998: Wei Dai, B-money
4. 1997: HashCash
5. 1992-1993: Proof-of-work for spam ("Pricing via Processing, Or, Combating Junk Mail, Advances in Cryptology", Dwork 1993, published in CRYPTO'92)
6. 1991: cryptographic timestamps
7. 1980: public key cryptography. (This is Satoshi's citation date; Diffie-Hellman, the first published system, was in 1976, not 1980.)
8. 1979: Hash tree"

Gwern then logically concludes with the viral aspect of bitcoin being the most likely feature leading to its popularization and success:

"A cryptographer would have difficulty coming up with Bitcoin because it is so ugly and there are so many elegant features he wants in it. Programmers and mathematicians often speak of ‘taste’, and how they lead one to better solutions. A cryptographer’s taste is for cryptosystems optimized for efficiency and theorems; it is not for systems optimized for virulence, for their sociological appeal ("Bitcoin, like the recent commercial phenomenon Groupon, tends to turn people into marketers because they feel they have something to gain, however small it might be in the end; I think that partly accounts for its temporary success."). Centralized systems are natural solutions because they are easy, like the integers are easy; but like the integers are but a vanishingly small subset of the reals, so too are centralized systems a tiny subset of decentralized ones. DigiCash and all the other cryptocurrency startups may have had many nifty features, may have been far more efficient, and all that jazz, but they died anyway. They had no communities, and their centralization meant that they fell with their corporate patrons. They had to win in their compressed timeframe or die out completely. But “that is not dead which can eternal lie”.

It may be that Bitcoin’s greatest virtue is not its deflation, nor its microtransactions, but its viral distributed nature; it can wait for its opportunity. 'If you sit by the bank of the river long enough, you can watch the bodies of your enemies float by.'

The second writer is Nick Szabo, creator of bit gold which is commonly known as a precursor to bitcoin. I corresponded with Nick briefly after he left Digicash but prior to his published ideas on bit gold. In addition to being a cryptographer and an accomplished writer, he has an excellent grasp of the larger economic themes surrounding a nonpolitical digital monetary unit. In a follow-up to gwern, Nick recently wrote "Bitcoin, what took ye so long?" in Unenumerated stating:

"While the security technology is very far from trivial, the "why" was by far the biggest stumbling block -- nearly everybody who heard the general idea thought it was a very bad idea. Myself, Wei Dai, and Hal Finney were the only people I know of who liked the idea (or in Dai's case his related idea) enough to pursue it to any significant extent until Nakamoto (assuming Nakamoto is not really Finney or Dai). Only Finney (RPOW) and Nakamoto were motivated enough to actually implement such a scheme.

The "why" requires coming to an accurate understanding of the nature of two difficult and almost always misunderstood topics, namely trust and the nature of money. The overlap between cryptographic experts and libertarians who might sympathize with such a "gold bug" idea is already rather small, since most cryptographic experts earn their living in academia and share its political biases. Even among this uncommon intersection as stated very few people thought it was a good idea.

There's nothing like Nakamoto's incentive-to-market scheme to change minds about these issues. :-) Thanks to RAMs full of coin with 'scheduled deflation', there are now no shortage of people willing to argue in its favor."

I agree with Nick that the "why" has changed in the last ten to fifteen years; however, my reasons are that the world generally has become more attune to centralized monetary planning and manipulation for the benefit of the banker class and money going digital has led to a decreasing amount of personal privacy and an increasing amount of transaction reversibility, a la PayPal. Money was never intended to track identity and a payment system should not be used to censor and ban certain types of 'offensive' transactions as in the highly political case of Wikileaks temporarily losing almost all methods of online donation.

My mantra has always been that free individuals should 'resist digital money unless anonymous' and the transition to a digital cash or a digital bearer token system should not diminish the amount of basic financial privacy and anonymity that exists today in the physical world of paper cash. Otherwise, it would represent a step backwards, not forward. The digital monetary attributes which achieve that desired goal ultimately may have a value that supersedes a money's 'origin of use' value.

I believe that bitcoin's major improvements over previous attempts include both the viral nature of the distributed deployment and the enhanced security of a RPOW time-stamp service to prevent double spending without a central issuer. Indeed, Nick applauds the bitcoin author for improving security in the peer-to-peer environment:

"Nakamoto improved a significant security shortcoming that my design had, namely by requiring a proof-of-work to be a node in the Byzantine-resilient peer-to-peer system to lessen the threat of an untrustworthy party controlling the majority of nodes and thus corrupting a number of important security features. Yet another feature obvious in hindsight, quite non-obvious in foresight."

For further reading:
"No One Sends Bitcoins", Ironwolf, May 24, 2011
"Causes behind the Bitcoin Price Rally", Vitalik Buterin, Bitcoin Weekly, May 14, 2011
"Bit gold", Nick Szabo, December 27, 2008
"Bit gold markets", Nick Szabo, December 27, 2008
"Trusted Third Parties Are Security Holes", Nick Szabo, 2005
"Shelling Out: The Origins of Money", Nick Szabo, 2002

Ben Laurie Blathering on Bitcoin

Yesterday seemed to be the day for visceral reaction to the burgeoning bitcoin ecosystem. Starting off the day was Ben Laurie, creator of lucre, which is an implementaion of David Wagner's Diffie-Hellman variant on Chaumian blinding. He also wrote Apache-SSL, the basis of most SSL-enabled versions of the Apache HTTP Server, and is a co-author of OpenPGP Software Development Kit. Ben Laurie is a founding director of the Apache Software Foundation.

Given that backdrop, Ben blogged about bitcoin:

"A friend alerted to me to a sudden wave of excitement about Bitcoin.

I have to ask: why? What has changed in the last 10 years to make this work when it didn’t in, say, 1999, when many other related systems (including one of my own) were causing similar excitement? Or in the 20 years since the wave before that, in 1990?

As far as I can see, nothing.

Also, for what its worth, if you are going to deploy electronic coins, why on earth make them expensive to create? That’s just burning money – the idea is to make something unforgeable as cheaply as possible. This is why all modern currencies are fiat currencies instead of being made out of gold.

Bitcoins are designed to be expensive to make: they rely on proof-of-work. It is far more sensible to use signatures over random numbers as a basis, as asymmetric encryption gives us the required unforgeability without any need to involve work. This is how Chaum’s original system worked. And the only real improvement since then has been Brands' selective disclosure work."

Ben, I usually like your work and I also go back the 10 or 20 years in digital bearer certificates. But what has changed from the Chaumian (or even Brands) days is that distributed p2p architecture has flourished. It has flourished not only for efficiency but for ultimate survival. It would be irresponsible and naïve to think that a centralised issuing mint (required to prevent double-spend) can avoid shut-down if that were the goal of the authorities. Historically, bitcoin is really a peer-to-peer implementation of Wei Dai's b-money proposal and Nick Szabo's Bit gold proposal.

However, the more important consideration for digital bearer cash is that true, auditable reserves (metals or otherwise) themselves create a single point of failure through confiscation. Bitcoin has no reserves and it has value precisely because it has purchasing power. It is a fully nonpolitical unit of value with transactional non-repudiation and two-way convertibility.

Bitcoin’s author commenced a fairly lengthy (and robust) exchange on the cryptography mailing list thread prior to the January 2009 software release. It covers multiple exchanges on a broad range of topics and it is required reading for cryptographers. Regarding the prevention of double-spending, the network implements a peer-to-peer distributed timestamp server utilizing chained proofs of work which then provides the confirmations to the client. This transactional block-chain has permitted decentralisation without compromising integrity and that in itself is a major change from the prior practice of reissuing digital tokens at a centralised mint.

I’m really surprised that a friend had to ‘alert’ you to bitcoin. Realizing that all money is a mass illusion in some way or another, I would prefer to trust in cryptography than to trust in God and I thought you would as well.

Completing the day was Adam Cohen's nonsensical answer on Quora to "Is the cryptocurrency Bitcoin a good idea?", which was elegantly refuted by Sean Lynch and Brandon Smietana. This was followed by Victor Grishchenko's critical piece on bitcoin, which is slowly being negated on the Bitcoin Forum.

For further reading:
"Underappreciated (ii)", Nick Szabo, November 21, 2006
"RPOW - Reusable Proofs of Work", Hal Finney, August 15, 2004

Zimbabwe's Central Banker Urges Gold-backed Zimbabwe Dollar

From New Zimbabwe
Sunday, May 15, 2011

http://www.newzimbabwe.com/business-5127-RBZ+urges+gold-backed+Zim+dollar/business.aspx

The central bank says the country must consider adopting a gold-backed Zimbabwean dollar, warning that the US greenback's days as the world's reserve currency are numbered.

The government ditched the Zimbabwe dollar in 2009 after it had been rendered worthless by record inflation levels, and adopted multiple foreign currencies with the US dollar, the South African rand, and the Botswana pula being the most widely used.

Finance minister Tendai Biti says the country needs at least six months of import cover and a sustainable track record of economic growth, inflation, stability and above 60-percent capacity utilisation in industry before the Zim dollar can be brought back into circulation.

However, central bank chief Dr Gideon Gono said the country should consider adopting a gold-backed currency.

"There is a need for us to begin thinking seriously and urgently about introducing a gold-backed Zimbabwe currency that will not only be stable but internationally acceptable," Gono said in an interview with state media. "We need to rethink our gold-mining strategy, our gold-liberalisation and marketing strategies as a country. The world needs to and will most certainly move to a gold standard and Zimbabwe must lead the way."

Gono said the inflationary effects of United States' deficit financing of its budget were likely to impact other countries, leading to resistance of the greenback as a base currency.

"The events of the 2008 global financial crisis demand a new approach to self-reliance and a stable mineral-backed currency, and to me gold has proven over the years that it is a stable and most desired precious metal," Gono said. "Zimbabwe is sitting on trillions worth of gold reserves and it is time we start thinking outside the box, for our survival and prosperity."