Bitcoin 2014 Amsterdam – Day Two Notes

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Future of Bitcoin in China – Bobby Lee

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  • BTC China
  • Continuously operating for 3 years – longest of all exchanges
  • In November China passed US volume
  • Theories about Adoption
    • Nation of Savers
      • High national savings rate:w
      • underdeveloped financial sector
      • a rapidly growing economy
      • undervalued currency – diminishing purchasing power:w
      • significant opportunity to store value
      • Chinese RMB monetary supply has had 3x increase in 7 years
    • Nation of Engineers
      • emphasis on math and science
      • politicians have background in engineering
    • Eager to participate in something new
      • for the novelty or to participate in a trend
      • Get Rich Quick
  • Step 1: Dec 5 2013 – Regulation of Bitcoin in China
    • PBOC Issues written guidance
    • Bitcoin not a legal currency
    • legitimate virtual good/commodity
    • basic right to sell bitcoins
    • individuals are free to buy, sell, trade, exchange
    • bitcoin companies need to follow laws and regulation – exchanges are legitimate businesses
    • a consequence: banks and financial institutions are not allowed to touch bitcoin
    • e.g. stores are not allowed to take euros or dollars
    • Why do you think the gov wanted to regulate bitcoin?
      • Truth is, no one knows
    • Yi Gang, Vice minister of the central bank, PBOC
    • The announcement wasn’t quite effective at curtailing the rise of bitcoin
  • Step 2: Dec 16th
    • Top Payment Processor companies called to a secret meeting with PBOC regulators
    • verbal warning about dangers of bitcoin
    • reprimanded for working with Bitcoin companies
    • required to break off with all bitcoin exchanges
    • no written orders
    • By Dec 18th, all major bitcoin exchanges in china were dumped by payment processors, thus shutting off depositors
    • the prices crashed and recovered
    • bitcoin exchanges switch to using direct bank account transfers
  • Step 2a: March 2014
    • Rumors about another imminent crackdown by PBOC
    • First reported by Caixin, known to have strong connection to governments
    • bitcoin prices fall
    • PBOC issues denial, prices resume
    • Rumor: all banks for bitcoin exchanges will be shutdown by April 15
    • Subsequently known as the “415″ event
    • Leading up, exchanges accounts were closed, but enforcement was selective
    • BTC China wasn’t being closed – they warily thought they were the chosen ones
    • BTC China was not affected at all, CMB and Bank of China still used
  • Step 3: April 24th
    • PBOC calls another secret meeting with top banks and 3rd party payment companies:w
    • iMore warnings
    • CMB and bank of china were specifically called out and reprimanded for working with exchanges
    • Required to public notice and break off with all bitcoin transactions
    • So CMD and Bank of China did that.
    • Still no written orders
    • By early May all major banks published notices on their main website
    • Banks will not allow for transactions made to bitcoin exchanges affecting both corp and personal accounts
    • You’d think that the banks did it themselves, but the messages were all exactly the same
    • Slowly but surely every exchange was affected including BTC China
    • Corporate bank accounts were closed
    • Personal accounts also
  • Situation Today:
    • BTC China is operating normally
    • Some have closed
    • Other had accounts closed
    • Now using Vouchers quick and easy for deposits use offline P2p method for moving money
    • No 3rd party payments
    • No Corp / Personal bank accounts allowed
    • Are vouchers allowed?
    • Cash transaction is last resort, because bitcoin exchange is legal
    • If BTC was classified as something illegal, then the whole system would die off. But because its a legitimate virtual commodity, so at the last resort people can use cash
  • How things work in china
    • How Laws are Written
      • Laws are written purposely filled with ambiguities to leave room for adjustments in the future
    • Interpretation and Verbal Guidance
      • Verbal language may go beyond what is written
    • Enforcement, or Lack of Enforcement
      • Sometimes lack of enforcement is by chance
      • Sometimes its on purpose
      • “One Eye Open, One Eye Shut” – Sometimes I’ll let you get away with it, but if I want to get you I’ll come after you later
    • The Venn diagram of these three things is disperse
      • for good reason
    • Bitcoin is so new, they really don’t know how to regulate it
    • China has always wanted to keep Bitcoin separate from its financial sector. This way if there is a contagion it won’t drag down the financial markets.
    • It’s a good thing for managing risk
    • Typical Regulation
      • 1. What is written
      • 2. Subsequent Verbal Guidance
      • 3. What will actually be enforced?
    • Some of it is cultural, some of it is just the Chinese way
  • Bitcoin today
    • People are spooked; they’re sitting out
    • Chinese Bitcoin consumers (buyers traders) have been shaken by recent regulation
    • We know that bitcoin can’t be stopped or eliminated, but it can be suppressed (by the government)
    • FB / Twitter / Google – practically no one bothers using them in China
    • If the gov is not going to support it then it is going to be hard for BTC to be successful in China
  • Bitcoin is now discouraged – by the state media state
    • State controlled media has reversed position – now purposely covering bitcoin from a negative perspective or disallowed to cover
    • It may take a few moths (years) for the dust to settle for consumers to regain confidence in the bitcoin in china concept
  • There has to be a future for bitcoin in china – his belief
    • may take time
    • store of value will remain important driver
    • speculative trading will be limited – like gold. lots of gold speculators, but generally not in china
    • Payments will be re-examined
  • Questions:
    • Hong Kong is effectively the same
      • Regulators tell banks / payment processors don’t touch bitcoin

Panel: Economic Theory of Bitcoin

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  • Panel Members:
  • Peter: In 2010 I was curious about Bitcoin. I’ve had to do crypto research full time because everything else is boring [laughter]
  • Robin: She’s interested in bottom-up, self organizing systems. Bitcoin, crowd funding, etc.
  • Robert: Critic of central banking, make his career trading on interest rates. Don’t believe that the distributed crypto-currency model needs to be combined with Austrian ideas about scarcity. We need better controls for an elastic monetary supply.
  • Konrad: Interested in how we can relate the fundamentals of economic theory with crypto currencies.
  • Jon: The mainstream economic profession has largely ignored bitcoin and how it relates to greater economic theory. This surprises me, because you would expect that especially the Austrian school of economics would be interested in how Bitcoin works. This panel can almost be thought of a new school of thought. I’d like to cover:
    • Mises’ Regression Theorem.
    • Bitcoin’s transition to pricing.
    • Multiple value standards.
    • Are their room for altcoins.
    • Fractional issuance in bitcoin.
    • Mining economics beyond the bitcoin reward. The effects of built in deflation and how that relates to liberty
    • Peter, why don’t you
  • Jon: I want to start w/ Peter because he helped me understand it
  • Peter: Robert Murphy helped me understand the Mises Theorem. I’ll start with information by Carl Menger because he did the work and Meses build on top of it. Economics had the question: How did money arise? Carl Munger in is book on the origin of money.
    • He studied the rise of liquidity
    • He described about how liquidity can come into the market, when goods have a sufficient level of liquidity e.g. easy to sell at economic prices,
    • When people realize this, they start acquiring the liquid good just because its liquid.
    • There’s no other way for a medium of exchange to arise other than the attribute of liquidity
    • Before people will hold something as a medium of exchange they need to be able to sell it for a market price
    • Economists after him had many ways of interpreting it.
    • Imagine there is no money, only goods you trade on the market
    • It’s hard to build enough interest in . We already have a medium of exchange, so it’s not like we have to rediscover the idea – we’re aware of it.
    • So some of the problems we hypothesized don’t exist anymore
    • Some economists don’t understand liquidity, so they don’t understand currency
    • So when I understood liquidity I studied how it applied to Bitcoin
    • After a while I was able to find that this is what happened to bitcoin.
    • For about 10 months there was no generally available price to bitcoin
    • The price emerged, then the first exchange appeared.
    • It matches what Carl Menger called “organized markets” – it provides liquidity
    • It’s relatively easy to create a crude exchange
  • Konrad: I had some similar ideas and I came across Peter’s ideas. The emphasis on action, the economics are about what people do
    • By applying this principle, I found that we could look at metallic currencies as a technological layer and people discover that they can use it in a particular way
    • We see this with mining, mints, banking, etc.
    • With paper/fiat money we have the institutions that make that work
    • And now there is something different again, which is a crypto currency which has a whole technological layer and people come along and find that they can make use of it.
    • And we can use economic theory to look at that
    • How are people using it? What are they doing? What is it?
  • Jon: Does bitcoin satisfy the regression theorem?
  • Konrad: I interpret the regression Theorem as a theoretical step in economic reasoning. It got around a step in circular about explaining the value of money. In the beginning there had to be some value of a unit, that would not be used as a medium of exchange. If you read the original expositions it had a very specific role. Mises, in particular. Bitcoin became part of a structure of action, but its not yet a medium of exchange. There are very distinct stages of this process out of which the medium of X use emerges.
  • Robert: I’m not convinced that the regression Theorem has anything useful to say about bitcoin. The idea that something has to have a value before it can be used as a medium of exchange is not a requirement of logic, so in that sense its not a theorem but something that has been obviously falsified by bitcoin
  • Jon: When are we going to see pricing priced in terms of bitcoin vs. local currency. Robin, what are the steps that will be necessary before we see bitcoin unit of account
  • Robin: It depends on how you define unit of account and for whom. It has to do with acceptability. How many people already have this in their vocabulary? In networks you get very strong nodes and it spreads, but you also have counter forces who are protecting their status quo. E.g. the dollar. These forces are pushing against the forces of bitcoin
    • If you look at history and ask, when does it become accepted. It’s generally 30-40 years, which is the span of a generation
    • So I’d say, if bitcoin is the one to survive, then a generation
    • We don’t know whats underneath the surface, their might be, maybe not another crypto currency, maybe another medium of exchange that would be an alternative to bitcoin
  • Jon: I read that it may never be possible to overcome the effect of existing leaders in pricing. Maybe the network effect is too strong
  • Peter: This an uncharted area. Usually switching the unit of account, is called dollarization or euroization, when there is failing people switch to a more stable unit of account. Today people would rather switch to the USD than bitcoin
  • Jon: moving to multiple value standards – people say how can their be room for 300 crypto currencies? We don’t have that may ways to measure length and volume, why would we have many ways to measure value?
  • Robert: Eventually there is only room for a handful, maybe 10 competing crypto currencies, each filling a niche that satisfies some area of demand. Maybe some of a richer scripting for smart contracts. The very nature of hash-based proof of work is arrived at by people literally burning money is something that cant be spread over a wide variety of cryptocurrencies. Most of the altcoins will fail, people wont mine them, no exchange value. But there’s room for quite a few. You see them already in the market cap of these things. It’s a power law.
  • Robin: But what about local communities
  • Robert: the smaller the community becomes, the harder it is for it to be protected by hash based proof of work.
  • Jon: Konrad, Is it fair to say litecoin silver to bitcoin’s gold?
  • Konrad: I think there is a very strong role in the network effect in the use of the value. In metals they were very different in weight and density in a way to support circulation.
  • Jon: I’d like to move to the topic of fractional reserve banking. I did an interview with Peter on if it’s possible to see a fractional reserve banking emerge in a bitcoin economy. Peter could you summarize it
  • Peter: One of the prereqs for fractional reserve banking is that people treat the bank-issued instruments as being a medium of exchange on their own. With bank notes / bank deposits, people will treat those instruments as medium of exchange themselves. Its easy to do wire transfers with bank deposits. Banks provide accounting information etc. You can’t wire transfer gold. People can use those things MOX
    • Bitcoin has low transaction costs compared to gold but also traditional financial instruments.
    • Take Mt Gox – when DHS seized their accounts, there was a price change. People valued the dollars on mtgox at a different price. These are some of the risks you’re exposed to today when you’re using btc-denominated medium of exchange.
    • the instruments of bitcoin will be different than instruments of today because they’ll not be changing the size of the money supply
  • Jon: One criticism of the gold standard is that you can eventually not show where the gold is, you can do manipulations in the gold market. Does bitcoin have an advantage. Does a bitcoin reserve standard have an advantage?
  • Peter: as soon as you create a reserve standard, you create a risk that there won’t be enough reserves. You could trade gold directly but that’s kind of a hassle. W/ bitcoin you don’t need a bank, you can transfer directly, so there’s less demand for that.
  • Robin: it demands on the need for money and for the supply. Will entrepreneurs need loans from a traditional bank to start a business? Maybe we’ll use crowd-funding or p2p lending instead of borrowing from a bank.
  • Jon: would there be a bitcoin lending economy that emerges?
  • Robin: we’re already seeing that.
  • Robert: I don’t think its possible to construct fractional reserve banking. It’s based on an illusion in the modern area anyway. You can do that in the analog world because you have this institutional machine to maintain the illusion – insurance. To give the illusion that you’re giving a loan to the bank is the same as cash. The relationship between the lender and the borrower isn’t one of ownership over a pool of loads. It has a floating net-asset value. You can’t use it as a medium of exchange, at a minimum as a credit instrument. I don’t think its possible to express fractional reserve banking in bitcoin and that’s a good thing.
  • Robert: It’s not about just one asset, many assets play a fractional reserve like role. rehypothecation – they get lent and relent throughout the system. A bond might have a factor of 10x. There’s a multiple phase . It crease a systemic instability because there is a discontinuity. When you lend something you think it’s protected by law, but money managers don’t ever know. With crypto there’s no what you can create these rehypothecation arrangements without them being crystal clear. If there’s a lending market in bitcoin i think its likely to be denominated in fiat money. Unless the borrower is using it a vehicle to speculate on the exchange rate on bitcoin.
  • Jon: let’s move on to the topic of bitcoin deflation. We keep our books in bitcoin at the foundation. We have 8 spaces to the right of the decimal point. In Zimbabwe they have decimals at the left of the point. 8 is currently hard-coded, but we could easily move to 12 or 16 right of the decimal point. I wanted to start by going to robin: do yo think that deflation compared to bitcoin, vs. pegging it to the growth rate of the economy. Is inflation good or bad for an economy.
  • Robert: the arguments about don’t really apply e.g. sticky prices, balance sheets effects, debtors being punished. None of those apply in bitcoin because BTC isn’t yet a unit of account. Contracts and prices are expressed in fiat converted to bitcoin
    • a different reason we should be concerned about the appreciate of the exchange rate because if there’s under investment in the goods and services. wouldn’t it be better with instead of people hoarding bitcoin, if people were spending it on the economy.
    • instead we’re getting investment from the normal economy. Silicon valley becomes the equivalent to the peoples bank of china. Venture is like an outside economy investing .
    • There are algorithmic distributed ways of working within cryptocurrency protocol to change th money supply in proportion its exchange value. It doesn’t require a central bank, it could be done in a distributed way. It would have the property of stabilizing the price of the crypto currency
  • Peter: I want to emphasize the role of bitcoin as a unit of account. the traditional arguments do not at this moment apply to bitcoin. There’s not need to change the quantity of money. On a theoretical level I don’t think the 21M coins number.
  • Konrad: I avoid using the words inflation and deflation because they have a lot of confusing meaning attached to them.
  • Robert: should you have a more elastic supply or not comes down to the fact that if you have a fixed supply the only way that a change in demand can be made is a change in price. so expectation of future demand gets expressed in the present price. so this causes fluctuations in the price which prevents it from becoming a unit of account.
  • Questions:
    • Q: Bank to the future – one of the challenges with p2p is that you’re competing w/ banks. They’re allowed to create money but crowdfunding is people lending bank created money. Cryptocurrency is a case of people creating money. Could we end up in a world where people create money rather than banks create money?
      • Peter: yes – there’s a movement underway – limited purpose banking / 100% reserve banking. It’s not just in crypto that we criticize fractional reserve. It’s possible that there could be broad based consensus with the ability of banks replacing money. What could replace that? Well maybe the bank should have the role of issuing currency. There’s an alternative argument from the crypto space in that we don’t need the banking system to fulfill those roles at all.
      • Robin: I think we’ll be seeing that on local levels. The Indians have the maize coins. They don’t want to local dollar. We’re going to be seeing more experiments around that
    • Q: Is buying bitcoins and holding them benefiting the network?
      • Peter: Indirectly people buy and the price goes up and there is interest in the space, but it doesn’t provide as much investment as the alternative world where there was a different money supply rule. My view is that we would see more underlying economic activity in the space.

Panel Developer Q&A

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  • Members:
  • Q: What is the future of OP_RETURN
    • Gavin: OP_RETURN is there. You can append 40 bytes. Maybe we’ll increase it.
    • It’s hard to secure a block chain where you can’t add extra data. It’s not that you always want the data to be available but prove that it was published. You can use PTSH2 to prove it.
  • Stefan: A name is a non-divisible asset like a movie ticket. You can’t hold a fraction of it. Ripple is a way of tracking assets, so the asset holder can specify the divisibility.
  • Q: Hypothetical hard-fork coming. Is the idea with side chains / tree chains to relieve this. Will this prevent a hard-fork?
    • Gavin: Maybe. I think we’ll need a hard-fork at some point. It seems simplest to me to increase the block-size.
    • Peter: I’m interested in increasing the block size with tree-chains. [laughter]. We’re seeing much more efficient use of the blockchain: bitcointip vs. changetip on reddit. Bitcointip was a transaction for every tip. changetip is off blockchain and much more efficient.
  • Q: You spoke about a floating transaction fee. Would this be slowly increasing?
    • Gavin: I would like to make changing the block size a soft-fork rather than a hard fork. So the miners can control how large or small to make their blocks.
    • Peter: There was an interesting proposal last summer where you would have proof of stake for increasing the block-size. That should be something the community as a whole allows to happen.
    • Stefan: Jed hates constants so in Ripple everything is adaptive. Validators look at the last consensus round. So the settings are dynamic. We’re collecting some data around adaptive block sizes.
    • Peter: where it matters isn’t the usual use case where people aren’t being malicious but rather how people are abusing it. Like when people put Usenet into the dogecoin blockchain. How does this play out in a real world situation? We risk changing something that we don’t really understand can be exploited and we don’t have an easy way to change it back.
    • Hakim: scaling up might buy us some time short term
  • Q: What scares you the most?
    • Tamas: there are traps people could fall into if their naively using bitcoin
    • Peter: the nature of ASIC hardware – this centralizes where ASIC can be produced. There are political existential threads to bitcoin. We need incentives so that people in business and government are not willing to attack it. If everyone who puts money into bitcoin loses their money then its easier to attack it
    • Gavin: what makes me optimistic about bitcoin is that we’ve had huge bugs but we have fixed it and we’ve moved on. Unless there is a ECDA signatures flat. Also I fear that it could power the worlds largest ponzi scheme.
  • Q: What do you think about services like BitUndo?
    • Gavin: I don’t like BitUndo. It’s a for-pay finny attack.
    • Peter: BitUndo is nearly useless compared to other double spend vulnerabilities. E.g. submitting a low fee vs. high fee double spend. I’d rather that it’s clear to people with a big undo button. People already leave cash on a table in a restaurant and leave.
    • Stefan: whatever exploits are possible should be open as possible. Putting your head in the sand isn’t a good strategy
    • Peter: I’ll pay good money for an android wallet that has double-spend built in. But if you have POS, I’d install security cameras – people generally are more honest in person.
    • Audience: if the risk is greater than 1% or 2% then they’re better off using existing technologies
  • Q: Why not leave the block-size at the same size and increase the freq of confirmations?
    • Gavin: that’s been proposed. We have to talk about it. Standing in line, getting confirmations in 5 sec in line is the only one that matters.
    • Stefan: most of the validators are run by ripple labs. If you have a global network, you need to wait for two round trips.
    • Peter: micropayment channels are very interesting because you can have a hub and spoke model. because we can hand transactions to each other with a little bit of value with them. We’ve seen altcoins push this limit down and it breaks. Sometimes these altcoins have broken without even malicious attacks.
    • Gavin: POS is interesting because even traditionally when you look under the hood the transaction doesn’t actually happen right there.
  • Q: Can we add loops to the operators of the scripting language
    • Peter: the scripting language could use more operators like concatenating schemes. We’re probably going to propose improvements to the scripting language later this year.
    • Gavin: the problem of loops is that there is a denial of service attack where you send an infinite loop. It’s an interesting question to look at a transaction and a fee and determine how profitable it will be
    • Peter:

Panel: Secure Coins: Building Trust in the Digital Economy

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  • Panel Members:
  • Q: What undermines people’s trust in bitcoin most
    • Jason: There’s a negative bias towards digital currencies and I think a lot of it has to do with branding.
    • Frederic: I second that – bad news sells more. As a community we need to be more vigilant to point out bad players
      • Icevault is secure cold storage in a vault in switzerland
    • Mike: are the keys actually stored in ice? Or in a glacier?
    • Luke: I think there is a lack of education about the value that crypto can give consumers. I think there will be clearer value propositions for consumers about the efficiencies for them.
    • Mike: I think it’s easy for us to overestimate the robustness of bitcoin. People get hacked or we just say we’ll have multisig solutions but its very hard to win when you’re always playing defense. One thing that undermines trust is that hackers just try every wallet, every website until they win. This notion that if you store your money in bitcoin you’ll be relentlessly attacked by skilled people or you’ll lose all your money is undermining trust in bitcoin. We can make more secure technology, but I worry that a pure defensive strategy will always be insufficient. People keep reading about how people get their money stolen and that undermines trust.
    • Luke: if you’re not building toward trust then you’re at a disadvantage right away. Technological advances need to be much better explained.
    • Mike: it’s easy to say just meet him but what if you pay him and he walks away – what are you going to do attack the guy? People also don’t talk about the idea of merchant protection as often. E.g. car smart property
    • Ryan: Reputation is another solution to this problem.
    • Luke: if you do your due diligence then many things wouldn’t have happened, but you need th wild west because people only pay attention when bad things happen. How do you make sure reputation is there? Well you need a system and procedures.
    • Mike: when Satoshi launched bitcoin he was working on a p2p marketplace and you would be able to rate buyers and sellers and the weight would be according to how much mining they had done. He realized there were more important priorities.
    • Frederic: we need to provide users of bitcoin today tools that make them feel comfortable with what they were using before
    • Jason: For me, it was important to have the ability to use an exchange in a way that I trusted the exchange.
    • Ryan: is there a technical solution to reputation? I lost faith in Mt Gox eventually because I had news stories, but what about when you interact with someone new?
    • Mike: Distributed reputation, you can do it, but it’s difficulty. BIP 70 has the ability to sign a request, it wasn’t necessarily for reputation but it can be used for that. E.g. we saw a chrome extension that replaced the address in coinbase with their address. Now that you know who I’m paying, you can use it for reputation.
    • Luke: reputation is a qualitative concept. I’m not sure that you want a qualitative driver within the bitcoin community, because we rely on things other than human
    • Mike: right the idea is to exchange without trust. The idea is to reduce human trust as much as possible.
    • Jason: My coinbase was attempted to be hacked and I had two-factor auth. Having that saved me from losing money and I don’t think there enough exchanges that talk about that
    • Mike: there’s a big push for distributed wallets to have that functionality within it. You could have the exchange steal the money. You could have Fred be abducted and then held hostage.
    • Luke: you almost always have an insider during a hack. That’s why traditional exchanges have processes and procedures for access to funds
    • Mike: my guy sense is that no matter what you’re doing, the more money you have piled in one place the harder this problem becomes. But this is unique to bitcoin, take the money for Mark Zuckerberg or Bill Gates, you can’t just walk in and steal all of their wealth. Its in paperwork and in mind of judges and in debt relationships. But with bitcoin you literally could imagine a case where a thief walks away with the entire fortune.
    • Ryan: Copay is a multisignature wallet that we’re developing at bitpay. Instead of being a key-signing service, this is a general m-of-n multisignature wallet. It lets you communicate with people or computers to do m-of-n.
    • Mike: we spout off “banks fail all the time, bla bla” but in practice we don’t actually worry that a bank will be robbed and walk away with all of our money. If someone is taken hostage and they ask for a wire transfer, the bank will just undo the wire. If they want cash then they have to meet in a place controlled by law enforcement. So can we develop digital solutions e.g. a wallet that has a chip that if you could be validated by other chips that could prove that there was a hostage attempt then could you roll back the transaction without changing the underlying protocol?
    • Luke: well we have insurance. We’re now entering an entirely new point where we’re moving away from humans making decisions and codifying them in a structured way. People aren’t going to be considered smart enough to make certain decisions.
    • Mike: its not even about being smart but are you compromised in some way. The problem in bitcoin is the problem is that the computers store the ledger so it would be difficult to resolve the problem where what we know to be true about wealth vs. what is recorded in the ledger.
    • Luke: we’re talking about larger amounts of wealth than ever were historically possible.
    • Mike: if bitcoin is carried on its current path and took over the world, do we end up in a world where it’s dangerous to be rich?

Mike Hearn – Taking Bitcoin development to the next level

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  • Timelag on recent projects
    • BIP 32: ~12 months
    • BIP 70: ~12 months
      • bitpay, coinbase implementing it now
    • BIP 37: Bloom Filtering ~18 months
    • Floating fees: 6 months so far and counting
    • Dispute mediated txns, smart property, etc: 2 years and nobody started
  • Causes:
    • small core team, hardly growing, focused entirely on keeping things afloat
    • decentralized harder than centralized – “Stephan’s law”
    • doing something decentralized is 1000x harder than centralized
    • p2p infrastructure is not startup shaped
    • innovating often requires building a totally new wallet from scratch. This is expensive
  • Hardware is perfect
    • Trezor – it works really, really well.
    • ARMs – they’re slick and work well
  • Web Wallets
    • Common default choice to build a web wallet for a new feature
    • but lots of problems
    • UI is cheaper but now you have an expensive back end
    • being on call is not fun
    • hard to control updates
    • poor privacy
    • no web wallet in a box that people can easily customize – big costs to setting one up
    • servers require a giant database for the full blockchain
  • Two problems:
    • Innovation is too expensive
    • Decentralized solutions tend to be slower and do worse
      • e.g. WhatsApp vs. SMS
  • What can we do:
    • Funding is the main problem
    • Bounties have too many problems
      • no one serious works for bounties
      • and you have to trust the bounty guy
    • Crowdfunding (a.k.a. assurance contracts) is a better approach
    • SIGHASH_ANYONECANPAY – support for this in the bitcoin protocol
      • a bitcoin transaction isn’t generally malliable, unless you choose
      • the traditional economic example is sailors building a lighthouse
        • none of the sailors can afford to build it themselves, but once it’s created every sailor can view it
  • Mike demos the Lighthouse bitcoin crowdfunding app – it looks awesome
  • Vinumeris.com – Strength in numbers – crowdfunding decentralized infrastructure
  • bitcoinj has a template for creating a new app

Alan Reiner (Armory Technologies Inc) – Best Practices in Securing Bitcoin

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  • When you hold your money vs. a bank you’re taking on the responsibility of those entities.
  • Armory for “security at all costs”
    • Sometimes “convenience” is one of those costs
    • Tool tailored to advanced / power users
  • Armory is still one of the only ways for non-experts to use “cold storage”
    • Sign transactions from air-gapped computer
  • Many other features
    • Manage multiple wallets at different security levels
    • Deterministic wallets
    • multi signature wallets
  • With bitcoin data is money
    • money is data
    • a 32-bit secret can control billions
    • raises the stakes computer and network security
    • money now stored directly on phone, computer, paper
    • We’re not use to having so much fluid valuable information on our computer
    • e.g. stealing identity is 5 hours on the phone vs. your money actually being totally stolen
  • Store bitcoin yourself
    • Full control over your money and its security
    • Cannot be seized or stolen if stored properly
    • It’s easy to lose if you’re careless
  • Let someone else hold your bitcoin
    • They may be more diligent about security than you
    • May hold BTC properly but use poor user auth
    • Counterparty risk
    • Few bitcoin insurance options
  • Holding your own bitcoin is like caveman discovering fire
    • extremely useful and dangerous
    • keep your fires small until you’re experienced
  • Sometimes biggest thread is users themselves
    • users aren’t used to irrecoverable data
    • not everyone makes backups
    • no one expects their hardware to fail
  • Educate yourself, learn the tools, learn the risks, and experiment with small amounts
  • Public private key crypto
    • two main concerns:
      • Privacy (encrypt and decrypt)
      • Authenticity (sign and verify)
    • Bitcoin protocol does not use encryption, only authentication
  • Public and Private Keys
    • public key is bank account number
    • private key is signing authority
  • Network
    • bitcoins have a public “unlock” condition
    • most coins have a simple unlock condition, whoever has the signing pen can authorize the moving of these bitcoins
  • Cold storage
    • only public keys are required to receive payments and verify transactions
    • private keys are required to move the coins so keep your private keys on the offline computer
  • Security vs. Convenience
    • nearly all systems become more inconvenient as you increase security
      • easiest usually the least secure
      • to do security right, expect to be inconvenienced
    • A lot of users don’t have the patience for this
      • this is why bitcoin may not be ready for prime time
  • Backup your wallets
    • Risks:
      • most common reason users lose coins is due to not having an unencrypted backup
        • you lose all your bitcoins if your hard drive fails / you forget your password / your family cant get your money
      • it’s critical that your backup is unencrypted
        • encrypted backup is useless if you forget the password
      • For most people the digital security is most important
      • for most people physical security is not a concern
  • Backups digital vs. paper
    • how much are you willing got bet that your CD or USB key will still work in 5-10 years from now?
    • if you use digital backups make multiple copies
      • store together at least one should still work
    • paper fades but the data is available for 100 years
  • Backups – electrum and armory – your backup is a single backup forever – important
  • Wallet passwords are irrecoverable – your password is your encryption
  • Multi-sig:
    • multisig is critical for large organizations
    • wallets are managed by employees who can steal
    • multisig in armory can help
  • Common service is the 2-or-3 with service providing two factor
  • Armories deterministic wallets aren’t using the HD spec.
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  • John Craft
  • Predictious

    Nice report. There is a mistake on the Developer Q&A: Hakim wasn’t on the panel, the person on the left was Flavien Charlon from Coinprism (colored coins)