Borrowed from a Russian writer, it’s one of crypto’s most widely embraced slogans, though one that’s becoming even more relevant on social media, where battling factions bent on promoting the next great high-tech investment are now turning the very symbols meant to protect users against them.

Whether it’s an account impersonating the world’s largest exchange or its most widely known tech visionaries, no company or individual is too sacred for a simple takedown that’s spreading like wildfire, propelled by lax verification practices at name-brand social media giants.

Still, it’s perhaps “crypto Twitter” that’s bearing the brunt of the criticism.

Armed with a photo ID, scammers are successfully duping Twitter into giving them a “blue check mark” of authenticity so they can impersonate real individuals and entities, all in an effort to bilk users out of money.

Take “seifsbei,” a verified account associated with freelance film producer and director Seif Elsbei, which was hacked and then posed as the official account of the verge cryptocurrency. The hacker didn’t stop there, later posting messages as crypto exchange Bitfinex and ethereum creator Vitalik Buterin.

The verified account “Protafield” displayed similar bad behavior in early April, briefly changing its name and account details to impersonate crypto exchanges to specifically stage fake ether giveaways.

And these incidents display how crypto Twitter’s current mess isn’t likely to be saved merely by the blue check mark, or any other simple verification process.

“People at home see this as a stamp that Twitter sees this as a good account, which can be very subjective,” said Tim Pastoor, founder of the Netherlands-based digital identity startup 2way.io.

By vetting merely the identity behind the account, and not the intent, when issuing blue check marks, Twitter inadvertently makes scams even more dangerous, he continued.

Speaking to the overall cat-and-mouse game many crypto companies are having to play on Twitter, a Bitfinex representative described curbing such efforts as almost a full-time job.

A spokesperson told CoinDesk:

“We dedicate a lot of resources towards combating illegitimate Twitter accounts and educating our users on how to spot them. However, our impact on certain sites is limited.”

Fickle reputations

There are several patterns that complicate the trouble with crypto Twitter.

For one, scammers have quickly learned to use highly technical language to cloak misinformation in trusted terminology, said Nick Lucas, founder of the Los Angeles-based social media analysis startup CoinTrend. This means simple vocabulary lists and language analysis, processes Twitter and other social media sites use, won’t be enough to weed out scams, he said.

Yet, Pastoor pointed out that bots and spam accounts often promote tokens in packs, swarming to give each other good reputations and boost visibility, which could make it easier to spot systematic scams.

However, it remains a tricky endeavour, and so Pastoor recommends that Twitter take a page from traditional psychology to help combat the problem.

Most people trust their close friends more than acquaintances, so a layered approach to trust could offer some tools for filtering the noise. For example, a user may trust a coworker’s friend more than a complete stranger, but less than a family member. Just as Facebook lets people control which people they see posts from – friends only, select groups or the public – Twitter could give users more control over who shows up in their feeds.

“There are definitely going to have to be iterations,” Pastoor said. “I would probably recommend starting with allowing people to filter based on people that they already trust, and to maybe make more use of your second or third-degree networks.”

Twitter declined to comment on any topic related to these events or policy changes in general, but Twitter CEO Jack Dorsey recently admitted that the platform’s verification system is broken.

Changing hands

The issue is made even more confusing by the fact that accounts can change hands among owners, not only through hacks, but also simple handovers, and those new owners may have different motives.

For instance, what started much of the debates around Twitter’s policies was the suspension of the “@bitcoin” Twitter handle.

Before the bitcoin scaling debate came to a head last fall, with a significant contingent of enthusiasts splitting off the core bitcoin network to create bitcoin cash, the @bitcoin Twitter handle tweeted information in support of bitcoin. The account has been operated by many owners over the years, and the latest is an anonymous bitcoin cash fan.

As such, the account became highly controversial, tweeting out incendiary comments aimed at Bitcoin Core developers and several other leading figures in the cryptocurrency community who were on their side. Many Core developers saw this as misleading, since the handle was tweeting out things Bitcoin Core, which a majority of users and businesses still see as the “true” bitcoin, didn’t stand behind.

Because of the outrage, Twitter briefly suspended the account and then stripped it of its blue check mark (the account is active again but no longer verified).

Speaking to the debates that have plagued the leaderless tech community for some time, Sterlin Lujan, a bitcoin cash supporter and communications ambassador for Bitcoin.com, told CoinDesk:

“These social media networks should not allow handles to be censored or shut down arbitrarily, just because a bunch of people do not like it.”

And while Twitter has said the blue check mark does not imply its approval or endorsement, Lujan contends, “A person with a check mark has a stronger likelihood of appearing at the top of searches and feeds. What it boils down to is that Twitter verification processes need to be made more clear.”

Market influencers

While Twitter’s verification process is still uncertain, what remains clear is Twitter’s impact on the cryptocurrency markets.

Not only can scammers have a dire impact on user’s crypto holdings, but even those earnestly voicing their interest in a certain crypto project can cause price swings. For instance, Lucas has seen a clear correlation between tweets from influential Twitter accounts and market volatility.

“There’s basically a lot of influence on Twitter when John McAfee or someone mentions a specific coin,” Lucas said.

As an example, when McAfee tweeted about “burst,” a crypto token project focused on creating a “greener” mining process, on December 22, the price of the cryptocurrency quickly doubled.

A similar, albeit temporary, spike happened the previous week when McAfee tweeted about another crypto token project, Safe Exchange Coins. The day before McAfee’s tweet, the cryptocurrency was selling for roughly a penny each, but within 24 hours of the tweet, the price doubled and by the following week, the coin briefly sold for more than $0.06.

Some argue that when McAfee charges $105,000 per tweet, he’s basically advertising for companies for a fee. However, he told CoinDesk it’s not really advertising because he only promotes projects he truly believes in.

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• Five Steps to Stress-Free Crypto Tax Accounting
• After Facebook, Will Global Ad Regulators Reject ICOs?
• Thomson Reuters Is Using Your Feelings About Bitcoin to Make Investors Rich

Twitter chatter doesn’t only drive prices up for new cryptocurrencies and crypto tokens, though. It can also have negative impacts as well.

For example, Lucas has noticed that a lot of Twitter feuds about bitcoin code changes and technical updates correlate to price dips.

“If everyone is talking negatively about something that is getting pushed into a core repo coin, that can also have an impact. If someone with a big following tweets something, it can cause a scare,” Lucas said, adding:

“There’s a lot more influence coming from specific accounts, unlike, say, Reddit, which pushes more topics to be talked about rather than creating influence.”

Twitter account on computer screen image via Shutterstock

The post Bad Checks: Twitter’s Identity Crisis Is Costing Users More Than Bitcoin appeared first on Free Bitcoin.

That’s how much revenue LocalBitcoins is now generating annually off a business that started back in 2011, all with an investment of just a few thousand dollars. One of the longest-running and most controversial bitcoin companiess, the decidedly low-fi website now has roughly 20 employees worldwide and 4 million registered accounts.

And reflecting the global tide, 40 percent of those users have signed up in the last six months.

All that is according to Nikolaus Kangas, the CEO of the company, who started the venture with his brother Jeremias at a time when there weren’t many options outside meeting up face-to-face to trade bitcoin. But the online portal continues to thrive even as the landscape of polished VC-backed exchanges (and even bleeding-edge decentralized alternatives) matures.

Sure, the peer-to-peer marketplace accounts for only a sliver of worldwide bitcoin trading – last week, it handled $62 million in trades, according to Coin.Dance estimates. This may be less than a top-20 exchange does in a day, but the service is gaining traction in markets that are generally overlooked by mainstream providers.

“We are the most global platform out there,” Kangas said. “Our goal is to improve the global trade possibilities, to serve people who have limited access to financial services.”

And, it turns out, even though LocalBitcoins tends to be more expensive (since sellers set their own prices), the company is much needed.

Indeed, Coin.Dance shows that Venezuelan transactions spiked to a new all-time high this month, as did usage in Tanzania and Peru – all countries that are struggling to recover from banking industry slumps. During the peak week of April 14, LocalBitcoins’ trading volume in these three nations combined was worth roughly $55 million – more than six times the value of U.S. trading on LocalBitcoins in the same week.

And when the Bank of Montreal restricted customers from making cryptocurrency purchases, LocalBitcoins activity in Canada spiked.

It’s these instances that make LocalBitcoins so valuable, even in an environment where growing awareness of institutional traders and their high-value swaps (average transactions on LocalBitcoins are just $450) are stealing the limelight.

And that’s paid off. The peer-to-peer exchange, which charges a 1 percent transaction fee, took in more than €22 million (roughly $27.2 million) of revenues in 2017, more than triple the amount from 2016, according to Kangas.

Despite the market dip since December, when bitcoin’s price peaked at $19,783, he said trading volume has continued to grow.

Nikolaus told CoinDesk:

“If you compare us to those big altcoin exchanges that were making $100 million per day or something like that last fall, we are kind of a small player. But I think we are solving a basic problem of how to buy or sell bitcoin for fiat currency.”

Not always easy

And that basic problem was even more apparent in 2011 when the brothers first started in on the idea.

Nikolas, a Finnish programmer, was fascinated by bitcoin – a new stateless currency meant to take power away from the banks, and maybe even governments. But every website he went to that provided services for Finnish buyers was awful in that they were hard to use. The Kangas brothers wanted to change that.

So having saved up a year’s worth of living expenses and with a few thousand dollars to spend on server fees, the brothers launched LocalBitcoins.

Yet, the journey for LocalBitcoins hasn’t always been easy.

The company has tested several products over the years, including a merchant billing service in 2014, but none of those gained traction like its bread and butter – P2P exchange.

On top of that, LocalBitcoins was the platform in the middle of more than half a dozen criminal cases associated with LocalBitcoins traders. For instance, last year, the U.S. Department of Justice sentenced a father-son duo of LocalBitcoins users, Michael and Randall Lord, to several years in prison for operating an unlicensed money transmission business.

And Reddit is full of testimonies about scammers and hackers exploiting inexperienced LocalBitcoins’ users.

Nikolaus said the team is very concerned about criminal activity on the site and cooperates with authorities to investigate any crimes that use the platform.

Yet, just like Craigslist horror stories haven’t stopped people from using the internet marketplace, instances like these connected to LocalBitcoins haven’t slowed the platform’s usage. In fact, the $27.2 million in revenue LocalBitcoins took in last year was more than triple its profits from 2016.

Even with bitcoin’s recent price dip (after December highs close to $20,000 a coin), Nikolaus said trading volume continues to grow.

Compliance for a non-bank

That said, Nikolaus remains steadfast in its interest in staying on the right side of the law.

“We want to follow all the current regulations and laws, but right now it is quite unclear,” he said.

What is clear, though, is that at least in the U.S. the company has to report certain transactions as suspicious. This includes transactions over $10,000 and any transactions set up obviously to circumvent that limit.

Everything else – complying with local regulations – is up to the buyer and seller.

In this way, LocalBitcoins has set itself up to be only a technology provider and not a complicit party to any unlawful actions users of its technology might participate in. This outsourcing of compliance responsibility is one of the reasons the company has been able to stay afloat, even in the face of competition from well-funded startups.

Because LocalBitcoins facilitates generally trades of smaller amounts, they rarely attract scrutiny.

For instance, when the Investor Protection Bureau of the New York Attorney General’s Office sent an inquiry letter this month to more than a dozen cryptocurrency exchanges, including Coinbase, Kraken, and Gemini – exchanges that function more like banks — P2P platforms like LocalBitcoins were notably absent from the dragnet.

It seems it helps to be local.

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For example, Iranian blockchain researcher Ziya Sadr in Tehran routinely uses LocalBitcoins to sell cryptocurrency. Since sanctions keep Iranian banking customers from accessing foreign markets, he told CoinDesk, Iranian traders use LocalBitcoins to find local sellers who accept wire transfers from Iranian banks.

As mentioned before, it’s these kinds of markets, which are cut off from the rest of the world, that need P2P crypto exchanges like LocalBitcoins.

Roman Snitko, CTO of a new P2P exchange called Hodl Hodl, noticed a similar trend on his platform. Russians, who lack centralized exchange options, were some of the first users to flock to Hodl Hodl.

Speaking to this need, then, Snitko told CoinDesk:

“In countries without centralized exchanges, I think P2P trading will play a significant role.”

LocalBitcoins image via Shutterstock

The post Crypto’s Craigslist: LocalBitcoins Is Making Millions Where Bitcoin Is Needed Most appeared first on Free Bitcoin.

That’s how one ethereum user described the latest effort to recover $264 million in cryptocurrency lost due to a code fault in a popular ethereum wallet. But while the recovery efforts that have proliferated since the November incident have been so far shunned, a new effort, now documented in code, aims for a simpler and less invasive way to implement the fix.

Stepping back, in November, the code library associated with U.K. startup Parity’s multi-sig wallet was deleted by a pseudonymous hacker who “accidentally” exploited a function called “self-destruct.” In the fallout, Parity proposed a modification to the ethereum software whereby the self-destruct mechanism would lose its functionality, but the proposal was found to contain significant security risks.

This new proposal, published on April 15 by Parity Technologies communications officer Afri Schoedon, suggests simply restoring the lost wallet library with a version of the code that does not contain a self-destruct function.

Users would be able to regain access to their funds, and on top of that, the new code would protect Parity from similar exploits going forward. As such, the new proposal sends a clear message – when it comes to fund recovery, some developers have no intention of giving up the fight.

“I think simply recovering funds is both more technically sound and more honest than the original proposal to modify the self-destruct opcode,” ethereum core developer Nick Johnson told CoinDesk.

And a number of others agree.

Co-founder of ethereum prediction protocol Augur, Joey Krug, told CoinDesk:

“I do believe it doesn’t make sense to just have all this capital senselessly locked up.”

Case-specific recovery

What seems to be different about this proposal is its limited reach.

Not only is it focused on the Parity software client only, but it’s also targeted specifically at only the 513,774.16 ether lost in the November hack. (This provides a contrast to past proposals, which have aimed at fund recovery broadly).

“Speaking personally, I’m in favor of helping people recover lost funds if the cost to do so is low relative to the funds being recovered, the owner is unambiguous, and the funds are definitively locked up,” Johnson said. “I think the case with the Parity multi-sig bug fits all three criteria.”

The other thing EIP-999 seems to have going for it is that it’s simple to execute. Instead of trying to rework the whole ethereum virtual machine, the proposal would be released to Parity software clients only by way of hard fork upgrade.

Schoedon emphasized this ease to implement, pointing to the pull-request he already submitted to Parity’s code base.

And Krug, like others, believe this request might actually see enough community support to finally put an end to the Parity fund recovery debate.

Although for some, including Krug, the balance between protecting ethereum users and encouraging good security practices should be taken into account when deciding whether recoveries should happen.

“In my opinion, proposals like these should be accepted provided the code was actually audited,” Krug said, adding:

“If it wasn’t, the community should be less forgiving.”

Debate continues

But with the broader debate over the recovery of funds due to code vulnerabilities splitting the community for years, some aren’t so sure even EIP-999 will settle the mess.

“Allowing case-by-case proposals for mistake reversals is a terrible idea and opens up all kinds of concerns. This would set a terrible and dangerous precedent,” one user wrote on an ethereum forum.

This sentiment seems to be the current majority on social media and GitHub, where many are worried about future corruption and bribery.

Indeed, a Reddit user warned, “Some unknown amount of developer mindshare will leave ethereum if this happens.”

Wrapping up what he sees as the sentiment among the community, Johnson told CoinDesk, “It seems plain to me based on an informal survey that a large proportion of the community is opposed to the idea. I think it’s unlikely this proposal will be implemented.”

Yet, the debates have brought about some sort of silver lining.

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• Silent No More: Ethereum Users Spurn Fund Recovery Proposal
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• Hedge Fund Pro Miller Is ’50 Percent’ Invested in Bitcoin

After EIP editor Yoichi Hirai stepped down from his role as a result of an eruption of criticism over the frozen fund recovery efforts, the EIP process was streamlined.

Still, Schoedon is aggravated by the opposition, telling CoinDesk:

“Even though I hear the feedback and apply changes to the new proposal, I get the feeling we’re running in circles here.”

Frozen ether coin image via Shutterstock

The post The New Last-Ditch Effort to Unfreeze a $260 Million Ethereum Fortune appeared first on Free Bitcoin.

The number of initial coin offerings (ICOs) is growing rapidly, having raised an astounding $5.6 billion in 2017 alone. More outrageous is that, by most estimates, over half of the ICOs launched in 2017 have already failed.

In addition to the hundreds of ICOs being launched every month, our management company Crypto Asset Management (CAM), also receives around a dozen emails per day from new companies planning on launching crypto tokens to raise capital. CAM, through the various funds and share classes it manages, invests in less than one out of every 100 ICOs that comes across its desk.

Out of absolute necessity, we have developed an analytical framework for ICOs, which CAM applies to every such opportunity it evaluates.

In this article we explain what we call The Seven Pillars Of ICO Investing, which we’ve rigorously crafted over several years of investing in crypto and other assets.

Pillar #1: Team

The critical element which we are searching for is an experienced team, ideally with a strong track record in developing and launching blockchain technology. In addition, the team should have experience in the market it is targeting. A team that is not only competent, but capable of developing, completing and/or expanding the project is paramount to its success.

A couple of additional issues to consider are:

• Does the team have a vesting token schedule that will properly incentivize it?
• Do the advisors have the right experience and are they actively engaged?
• Does the project have any notable financial backers? (VCs, other hedge funds, etc.)

Pillar #2: Idea

Without a compelling, realistic and timely idea for a blockchain-based enterprise, the investment will almost certainly fail.

A few of the key things we look for are:

• Total addressable market: How large is the opportunity? We want as large of a market as possible (See: ethereum, filecoin).
• Product-market fit: Does the business address an urgent problem? (0x, ChainLink)
• Unique value proposition: What facets of the technology enable it to stand out from the competition? How much competition is there (Wax)? Ideally, the tokens has proprietary technology, and as little competition as possible (Orchid Protocol).

There is clearly an interrelationship between Pillars 1 and 2. However, if we had to choose between them, we would clearly rather invest in an “A” team working on a “B” idea than a “B” team working on an “A” idea.

A talented group of people are the lifeblood of any business, and crypto is no different.

Pillar #3: Execution

In the cut-throat business world we live in, the only thing that matters is results.

A brilliant idea and great team are nice, but execution is everything. Is there a working prototype or does your idea only exist in a nebulously written white paper? We prefer to invest in a product that already exists to some degree (Presearch, Basic Attention Token, Superbloom, FunFair), whether in the crypto space or analogously in the fiat space (Wax).

Finally, we look for some sort of proof that the company will be able to hit future milestones.

Pillar #4: Legal/Regulatory

This pillar is essential given the current and growing regulatory uncertainty in the industry.

Almost every week, there is news of a governmental agency in one country or another taking regulatory action or making a new statement around ICO governance. Of course, almost as often, there is news of a different country considering crypto-favorable legislation. Comprehensive regulation in many marketplaces is on the horizon and it is imperative to ensure that ICOs vigilantly navigate the landscape to the best of their abilities.

The threshold issue is jurisdiction: in what country is or will the ICO company be incorporated and the ICO executed? This determines the rules that will apply to the company’s actions and the ICO.

Depending on the approach taken, we may apply the somewhat arcane rules of the Howey test (in the US or if US investors are targeted or allowed to invest), KYC/AML principles (which are essentially universal) and applicable securities law.

Pillar #5: Tokenization

A significant number of the ICOs we analyze do not actually need the blockchain, tokenization or a public sale of their tokens to be successful.

When this is an issue, it is usually the last – public sale – which is not necessary. (NASDAQ’s settlement system is an excellent example of where tokenization is a brilliant idea but a public market would be superfluous, or even counterproductive.) Also, they are sometimes glorified apps that could be built without creating a specific token, despite how much “utility” the founders may claim their token provides.

With the enormous amount of value exchanging hands over the blockchain and the prospect of getting “free” money without giving up any equity, it’s not hard to imagine why many industrious entrepreneurs try to identify any possible reason to launch an ICO.

That being said, one of the crucial things that every investment we make must have is a legitimate reason for “tokenizing” their business, and for creating a public market for that token (OmiseGo, Icon, Raiden Network, Cosmos).

Pillar #6: ICO Structure

Similar to traditional venture capital investing, the financial underpinnings of the deal ultimately determine the decision to invest. The characteristics of an ICO can have important implications on the expected upside of the token.

This can be split out into two categories – ICO mechanics and ICO deal structure.

• ICO Mechanics – Historically, ICOs with a lower hard cap tend to outperform ICOs with massive hard caps. While it is important that the parent companies be well funded and have sufficient runway to work with, ICOs need to have a convincing plan for use of proceeds as the potential upside decreases in proportion to the amount raised. The precise metric here is valuation of the token economy – a derivation of the hard cap. Both the valuation in light of circulating tokens at launch and the valuation upon release of all tokens are factors that we consider.
• ICO Deal Structure – The deal should be structured in a way so that investors are not at a disadvantageous position to the market.These are a few of our considerations:
  • Distribution: The team should have a compelling structure for the distribution of tokens, fair allocation among team/advisors and investors, programs for market uptake, etc.
  • Distribution Schedule: Given the fast-moving pace of the crypto market, the distribution schedule should not massively favor specific parties. While long distribution periods can be considered acceptable for high-potential ICOs, individual liquidity preferences should be considered.
  • Discounts: Discounts are ubiquitous in the ICO environment, so examining the discount levels given to different tranches allows investors to understand where they stand in relation to other stakeholders.
  • Equity Stakes: At Crypto Asset Management, we like to be part of the growth of the company and investing directly into the equity of a company allows us to play a greater role in that development. In the world of token sales and short-term liquidity, people often forget that the value proposition of a company can be just as great or even greater than the token ecosystem it is developing.

Pillar #7: Price Drivers

Even if we believe a team is able to create a great product that incorporates a token with an imperative use case, this does not necessarily mean that we will want to hold the token or invest in the ICO. A token must additionally have a mechanism to drive price appreciation.

A token with constant supply without any incentive to hold, will not be subject to buying pressure which significantly outweighs selling pressure over the long run (Votes). This is underpinned by the concept of price risk, in which individuals will lean towards reducing their exposure to price volatility in favor of fiat or a form of stable currency. (Kyle Samani has written an in-depth piece on this velocity problem here.)

A few of the price drivers we look for include:

• Network Volume: In almost every instance the value of a token increases as the number of transactions on the blockchain increases (bitcoin, ethereum). This is one of the most basic, yet influential, indicators of demand, and is also the reason we invest primarily in protocols rather than dapps.
• Market Leadership: We look to invest only in tokens that are clear market leaders, or have the potential to be in the near future. Usually, these tokens have a distinct and growing unique advantage over their competition (Practical VR).
• Incentives to Hold: There is a clear reason why a user would rather hold than spend the token, which can be related specifically to speculated price increases or other non-monetary rewards (Presearch, PROPS). We won’t invest in a token that’s only purpose is a medium of exchange.
• Supply Changes: This can include limiting inflation, meaning the token supply does not dilute the value of all tokens over time, or token burning, where the supply of tokens in the system decreases over time (Binance Coin, Iconomi).
• Profit Sharing: Part of the value that is extracted from the system is given back to the token holders (Augur, NEO, Neon Exchange, Ethorse).
• Staking: Having users of a network to lock up their tokens either for network consensus or as a requirement in certain processes. (Bee Network, Open Platform, NuCypher, Video Coin).
• Sufficient Liquidity: If the project isn’t proactive about getting listed on multiple exchanges, preferably top-tier exchanges, we will likely not make an investment.

Please note that, as a general rule, we are not in favor of asset-backed tokens as an investment vehicle at this time. There are no real drivers of price formation after an initial, relatively small boost for convenience (Sandcoin, OneGram) and the opportunity cost is consequently too high (there are far great returns elsewhere).

Read Also:

• Making Peace with Crypto’s Capacity for Evil
• The Telegram ICO: What We Know (And Don’t)
• Telegram Doubles Amount Raised in ICO to $1.7 Billion
• Monero Fork Underway In Bid to Block Big Miners
• Hating On Craig ‘Satoshi’ Wright Has United Crypto

Importantly, the effect of implementing strong incentives to hold is multiplicative. Not only will the price increase be driven by the inherent tokenomics design, but also by speculation directly related to the implementation of these drivers.

Despite the incredible number of fly-by-night operations in the world of ICOs, it is certain that token generation events are here to stay. Such events are completely transforming the traditional venture capital industry and, for savvy investors, are creating fortunes literally overnight. For unsophisticated or undisciplined investors, ICOs are a minefield that should probably be avoided. However, for those who perform proper due diligence, the odds increase for realizing breathtaking returns on your investments.

This article is an abbreviated summary of our process for investing in ICOs.

Here at Crypto Asset Management, we’ve also developed more in-depth tools, such as our innovative 64-point ICO Scorecard and a more traditional Private Equity Due Diligence Checklist.

Stack of coins via Shutterstock

The post The Seven Pillars of ICO Investing appeared first on Free Bitcoin.

In 1987’s Black Monday stock market crash, Sam Walton, the world’s richest man, lost more than half a billion dollars in a few hours.

When reached for comment, Walton said, “It’s paper anyway. As far as I’m concerned we’re focusing totally on the company doing well and taking care of our customers.”

He didn’t care about dollars; he cared about his asset Wal-Mart, and he still owned that.

History of the #HODL

In bitcoin’s volatile and roller coaster past, “HODL” was the meme that bound the cryptocurrency community together. It stood for the proposition that we all believe in the future of bitcoin. It’s both funny and insightful.

Here is the original post by GameKyuubi on a Bitcoin Talk forum (spelling errors and profanity included):

I AM HODLING

I type d that tyitle twice because I knew it was wrong the first time.  Still wrong.  w/e.  GF’s out at a lesbian bar, BTC crashing WHY AM I HOLDING? I’LL TELL YOU WHY.  It’s because I’m a bad trader and I KNOW I’M A BAD TRADER.  Yeah you good traders can spot the highs and the lows pit pat piffy wing wong wang just like that and make a millino bucks sure no problem bro.  Likewise the weak hands are like OH NO IT’S GOING DOWN I’M GONNA SELL he he he and then they’re like OH GOD MY ASSHOLE when the SMART traders who KNOW WHAT THE FUCK THEY’RE DOING buy back in but you know what?  I’m not part of that group.  When the traders buy back in I’m already part of the market capital so GUESS WHO YOU’RE CHEATING day traders NOT ME~!  Those taunt threads saying “OHH YOU SHOULD HAVE SOLD” YEAH NO SHIT.  NO SHIT I SHOULD HAVE SOLD.  I SHOULD HAVE SOLD MOMENTS BEFORE EVERY SELL AND BOUGHT MOMENTS BEFORE EVERY BUY BUT YOU KNOW WHAT NOT EVERYBODY IS AS COOL AS YOU.  You only sell in a bear market if you are a good day trader or an illusioned noob.  The people inbetween hold.  In a zero-sum game such as this, traders can only take your money if you sell.

so i’ve had some whiskey

actually on the bottle it’s spelled whisky

w/e

sue me

(But only if it’s payable in BTC)

It was not about bitcoin versus bitcoin cash or 1,000 other cryptocurrencies. It was bitcoin vs. the world and we ALL embraced it.

It only took 11 minutes for this post to become a meme that became the rallying cry for the entire crypto world. We were all on the same rollercoaster ride and GameKyuubi, in the depths of his frustration, had (sort of) elegantly articulated both what it feels like and the best trading strategy for an asset this volatile.

Buy and HODL.

The good traders

GameKyuubi was wrong about only one thing: There aren’t any good traders.

There are lots of us who believe we are good traders. But we aren’t. Of course, some of the loudest voices on Reddit regularly remind us about how well they time the market. Except when they don’t time the market well.

A paper published last October by the Haas School of Business at UC Berkeley entitled “Do Day Traders Rationally Learn About Their Ability?” used nearly 15 years of stock market day trading data to conclude that all day traders are irrational, the vast majority of day traders lose money, and even when day traders are successful, they “irrationally attribute success disproportionately to their ability rather than luck.”

This sounds exactly like the crypto trader. Any post you see mocking HODL is likely someone who thinks they are really smart because they made money by trading crypto last year.

Of course, their success was due to their unique trading ability and not the fact that the entire market rose like a rocket.

HODLing works

Still, empirically, even in volatile assets like bitcoin, carefully choosing an asset and holding long-term positions has proven to offer the best return.

Warren Buffett, the most successful investor of modern times, has often said that he only invests in what he knows. His preferred holding period: forever. With that model, his company, Berkshire Hathaway, has averaged a 19 percent annual return since 1965 which means it has risen more than 1 million percent.

Theoretical models that assume participants know when markets will move against them can offer better returns but, in practice, market movements cannot be reliably predicted so even when people like Bernie Madoff try to make us think that they’ve figured it out, they haven’t.

Long-term investment in quality assets remains the only reliable investment strategy.

Simply put, HODLing works.

More possibilities

For those not interested in limiting their activity to HODLing, there are two new and useful ideas that have begun bouncing around that really do advance cryptocurrencies: #BUIDL and #SPEDN.

BUIDL has been used to help remind us that, in the words of a CypherPunk’s Manifesto, “Cypherpunks write code.” In order for the blockchain to really be useful and valuable, we need to build stuff on it. Watching the price go up and down either as a trader or a HODLer does nothing to make bitcoin work better.

We need to create some of the promised applications that can really change the world. To date, the blockchain community has fallen short in this regard outside of the areas of payments but there are some real wins.

Just this weekend, Voatz, a Medici Ventures portfolio company is running party county convention voting in Utah, state convention voting in Michigan and state primary voting for overseas and military voters in West Virginia, all on a blockchain platform.

Blockchain voting is a simple application, but it is one that can bring a much-needed security and transparency to elections. And we are doing it now.

SPEDN is a nod to the many of us who realize that, for bitcoin to be useful, we need to be able to spend it to buy things. And I mean everything. It really doesn’t matter whether it is through second-layer solutions like lightning or forks like bitcoin cash; we need more ways to use cryptocurrencies in real-world transactions.

A focus here, rather than complaining about HODLers would be helpful. We need many more merchants to accept cryptocurrency before it becomes useful. Options to spend bitcoin remain severely limited in most areas and this will ultimately limit bitcoin’s value.

As for me, I will HODL until I can buy useful stuff and SPEDN.

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• Airdrop Attack? Monero Fork Condemned as Privacy Threat

HODL on

This year has seen intense regulatory pressure on cryptocurrencies and its time we stop pretending that HODL was stupid. It isn’t and it wasn’t. Anyone who doesn’t like the HODL mentality needs to give HODLers something else they can do with their bitcoins.

Trading is no solution for intelligent people. What we need are new ways to use cryptocurrency.

We need BUIDLers and merchants who will let us be SPEDNers.

Hard hats via Shutterstock

The post HODL On: In Defense of Bitcoin’s Best Investment Strategy appeared first on Free Bitcoin.

Indeed, one of the most hyped ways in which the technology could come to proliferate is through its union with a concept called the internet of things (IoT), whereby nearly everything (think watches, refrigerators and automobiles) is connected to the internet and as such, “talks” to each other. For instance, a sensor on your milk carton in the refrigerator might notice that you’re down to the last cup and send out an order to the local grocery store.

The project IOTA is garnering quite a bit of attention for adding cryptocurrency-inspired technology to this use case, turning it into a more open market.

Indeed, at tech meetups in New York City, it’s not uncommon to hear developers remark that IOTA’s underpinning technology, the “blockchainless blockchain,” or the so-called “tangle,” is the future of the blockchain space.

Not only is IOTA touted as a way to upend the silos of the current centralized system, streamlining business in terms of time and cost, but also as a way to rid the blockchain industry of all that plagues it – such as the technology’s scaling issues, which cause transaction backlogs and high fees and the massive amounts of energy the technology’s architecture consumes.

“The obvious thing is that [IOTA] is the first project that went beyond blockchain. Got rid of miners. In the process we solved the main pain points of transactions – no fees,” said IOTA co-founder David Sonstebo, in an interview with CoinDesk.

These bold claims appear bolstered by partnerships with large enterprises and agencies, including Volkswagen and the City of Taipei in Taiwan.

Yet, the IOTA team of 150 developers, cryptographers and others can’t always keep their stories straight, and have other times dealt poorly with criticism, especially as it relates to security holes in its architecture.

As such, experts question whether many of IOTA’s ideas will actually work in practice and if they don’t, whether current investors and users, which are supporting a $2.7 billion network by market cap, will be left out of luck.

“It’s pretty horrifying. The horrifying thing is their market cap is so high,” said Aviv Zohar, a crypto researcher and senior lecturer at The Hebrew University.

Since researchers have pointed out so many holes in IOTA already, he expects more to come, and the IOTA bashing to continue.

Zohar told CoinDesk:

“IOTA is a currency I love to hate.”

MIT head-to-head

Zohar isn’t alone there.

The negativity surrounding IOTA’s tech started in September after an investigation by researchers from MIT’s Digital Currency Initiative (DCI) found what they argue is a vulnerability in the project’s code.

According to the researchers, IOTA developers used a hash function created in-house (called P-Curl) to secure data within the system, a huge no-no among cryptographers, who argue it’s preferred to use the highly studied and scrutinized functions that already exist today.

But IOTA developers say, in fact, the decision was intentional – designed to prevent anyone from copying their open-source software.

Researchers, though, have shot back, arguing that doesn’t make much sense since the basis of open-source software is that it is given to the broader developer community to be freely copied.

“The IOTA developers haven’t been able to explain to me why they think their insecure hash function is safe,” tweeted Matthew Green, a cryptography professor at John Hopkins.

But things escalated even further from there.

“He should be scared, there are lawyers working on that already,” tweeted IOTA co-founder Sergei Ivancheglo, threatening Boston University’s Ethan Heilman, one of the researchers who reported the hash function vulnerability.

During the Financial Crypto 2018 conference at the end of February, Ivancheglo’s tweet was a major discussion point. While nerdy debates turning vicious is nothing new for the cryptocurrency space, security researchers argue that threatening lawsuits can severely undermine the industry.

As UCL computer science researcher Sarah Azouvi told CoinDesk:

“The founder suing researchers is very, very concerning. Researchers try to measure and try to make things more secure. It could have a serious impact if people are afraid to report bugs.”

A $4 million hole

While it doesn’t appear any IOTA users have lost money because of the custom-made hash function, some IOTA users lost a substantial amount of their cryptocurrency – to the tune of $4 million – in what some industry observers argue is sheer incompetence on behalf of the IOTA team.

IOTA’s official wallet didn’t have what’s called a “seed generator” to help users produce keys for controlling their coins.

Although the IOTA Foundation detailed the most secure way to generate randomness, giving a list of all the websites that were secure for doing so, some users went to websites that weren’t on the list – one being a scam that stored keys created on its site and eventually used those to steal funds.

“A lot of naive people gave their private keys away to this individual. This was a very unfortunate event,” IOTA’s Sonstebo said, calling the perpetrator a “scumbag.”

Yet, critics argue IOTA is victim shaming when, in fact, the project’s foundation should have made sure its official wallet had a seed generator attached.

“It’s past Hanlon’s razor for me,” tweeted Tadge Dryja, a lightning network developer and crypto enthusiast, pointing to the aphorism, “”Never attribute to malice that which is adequately explained by stupidity.”

He continued, saying that he must “assume malice” since adding a seed generator is “absolutely trivial,” requiring only a single line of code.

Speaking to the issues that arise when a cryptocurrency project doesn’t provide seed generation tools to their users, Heilman told CoinDesk, “Almost all cryptographic software is designed to generate secure random numbers for their users. Making users responsible for secure randomness generation is dangerous as users may use a bad source of randomness.”

IOTA co-founders are mixed on their responses to this event though.

Co-founder Dominik Schiener acknowledged that the user experience is far from ideal, but argued that IOTA shouldn’t get lambasted for it since the user experience throughout the crypto community is inferior as a whole. While Sønstebø argued that the project wants to leave randomness generation up to the user so they have more control.

“We leave it up to the individual to get their own randomness,” he said, adding:

“We give them the liberty to do that. You’re in crypto. The entire point is you don’t have to trust anyone.”

That said, Sønstebø pointed out that IOTA would be launching a new wallet called Trinity in the coming weeks to address the issue. Not only will this wallet have a built-in random address generator, but the team is also planning to run its code through a security audit for good measure.

“If your grandma smokes crack, then she should still be able to use it,” he said.

Unique isn’t always useful

Another unique quirk of IOTA is it’s addressing scheme.

While the scheme was created to work even after the inception of quantum computers – powerful computers that could unwind much of the cryptography underlying cryptocurrency systems – it’s drawn criticism for the fact that users can only use an address once, otherwise it becomes susceptible to theft.

One Reddit user going by the name “guselbindel” even claims this type of hack happened to him a couple months ago, leading him to lose $30,000.

And actually, the exploit goes further than that. In fact, Willem Pinckaers, a researcher at security firm Lekkertech found that even without using the public keys, they can be exploited.

“Still, the fact you can’t reuse public keys safely is still batshit crazy,” blockchain consultant Peter Todd tweeted.

At their core, the criticisms of IOTA seem to be focused on the project’s lofty ambitions, but less than ideal execution on those promises.

While IOTA advertises itself as a “permissionless” and “scalable” solution, there is some subtlety in those terms.

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• Ethereum’s Raiden Network Has New Scaling Competiton

For instance, IOTA is a bit more centralized – with its development team having more authority over the protocol – than most cryptocurrency enthusiasts might like. Some IOTA users even figured that out the hard way, actually, when the IOTA Foundation discovered a technical vulnerability that put user’s funds at risk, and as such, seized trillions (yes with a “T”) of IOTA coins from users.

The foundation eventually returned those coins after the vulnerability was patched, but the incident nonetheless left a lasting impression on some that IOTA’s developers have too much control.

Sonstebo even doesn’t really deny this – despite the claims of decentralization made on the IOTA website and its marketing material.

“Currently it’s semi-centralized,” he said. “There’s a central coordinator node.”

IOTA nodes today can validate transactions without this coordinator node, but it’s less secure. As such, a significant amount of trust is put on the central coordinator node.

That said, IOTA developers are working on it.

Just as more bitcoin and other cryptocurrencies become more decentralized as adoption increases, so to will IOTA, Sonstebo said. And it’s important to note that IOTA isn’t the only cryptocurrency that has sought to project a message that change is coming, with time.

He concluded:

“You can’t create a fully decentralized network overnight. You have to start somewhere.”

Iota coin image via Shutterstock

The post IOTA: The $3.7 Billion Cryptocurrency Developers Love to Hate appeared first on Free Bitcoin.

According to a statement on the company’s website, the funds were lost as a result of the exposure of private keys, the cryptographic code that unlocks and moves blockchain-based assets, by the company’s chief security officer Dr. Amitabh Saxena in an attempt to distribute bitcoin gold (BTG) to customers.

In a FIR (first information report) with the cybercrime unit in New Delhi, the company says, “We feel that he is making a false story to divert our attention and he might have a role to play in this entire incident.”

Speaking to CoinDesk, CEO of Coinsecure, Mohit Kalra, said the theft occurred at no fault of the company, rather, “It was our CSO’s system which was compromised as he claims.

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The procedures he followed were “never supposed to be done online in the first place,” he claimed.

The company has also asked the cybercrime unit to seize Saxena’s passport to prevent him from absconding.

Speaking on the website, Coinsecure asked its customers to stand by the company in its efforts to recover the lost funds. Speaking to CoinDesk, Kalra called this as an “unfortunate event.”

He concluded:

“We are working day and night to resolve this. It might take time to recover the lost funds, but our customers will be indemnified from our company’s funds and we will relaunch much stronger.”

Crypto assets via Shutterstock

The post Bitcoin Exchange Implicates Employee In $3 Million Theft appeared first on Free Bitcoin.

Now a startup whose staff numbers in the hundreds, R3 is proposing its distributed ledger technology platform, known as Corda, be used to link together a wide range of businesses, not just financial ones. The core idea is similar to the one originally pitched: if companies share data and assets with each other on Corda, they can ax duplicative processes and trust that they are all on the same page about who did what.

In an example offered by R3 CTO Richard Gendal Brown, airlines, travel agents and hotels around the world could reach consensus on which plane seats and rooms have been booked, knowing that the data being shared is the same for everyone all the time.

Taking this idea further, R3’s platform lead Mike Hearn claims Corda would power a future “automatable economy” where bots help to run supply chains.

“When we stepped back and looked at what we had built, we saw something that was far more broadly applicable,” Brown told CoinDesk, adding:

“It’s the freedom and power that comes from knowing that what you are looking at either as a human or a business or even some sort of futuristic robot – is not only correct, but it’s current, and it is shared with your counterparts.”

While Brown said Corda has attracted interest from a variety of industries (“people in insurance, people in healthcare, people in government, energy – you name it”), the new positioning of the platform comes at a time when the dust appears to have settled after 2016’s hype about corporations exploring blockchain.

All eyes are now looking for delivery.

Meanwhile, rivals such as the Hyperledger consortium, with the help of IBM, are courting seemingly every sector and business line with some flavor of enterprise blockchain solution.

For R3, it’s a pivotal time, as the startup is finalizing the first commercial distribution of the open-source Corda platform, targeted for the end of the second quarter. This paid product will be widely available to businesses, beyond consortium members.

Open, but private

While R3, one of the first companies to promote the idea of members-only blockchains, is moving toward a more inclusive model, it’s not going whole hog.

Rather, Brown describes the vision as “an open shared network – but still private, secured and permissioned.”

The R3 Corda team were inspired by ethereum’s goal of participants all running the same business logic while getting rid of silos and friction between different applications, he said.

However, the global broadcast design of public blockchain networks, while perhaps necessary in a trustless system like bitcoin, is unpalatable to enterprises.

“My critique of some of the enterprise blockchain platforms is that being originally inspired by a full broadcast system, I would argue that often they share too much,” Brown said.

To address this problem, the governing Corda design sought to minimize the amount of data that has to be shared among participants, while convincing someone that something is true.

Corda will not show data up front, Brown said, but will send a piece of evidence to convince the other parties about a fact or set of facts, regardless of whether it’s to do with banking, hotels or airlines.

‘Demilitarized zone’

Aside from keeping data private within the Corda network, sharing it via the internet presents another, more immediate problem. Most companies have their own highly secured data centers, and run their existing applications on their own infrastructure behind lots of firewalls.

“The data that actually matters, the data that you want to bring into consensus, is hidden deep inside data centers of banks and large firms,” Brown said. “This necessarily involves the opening of connections between these firms and sharing data, over the public internet.”

Simply putting an enterprise blockchain node on the internet, as one would do with a bitcoin or ethereum node, is insufficient at best and possibly hazardous, he said.

“Firstly, it’s nowhere near the corporate data, and second what happens if it gets hacked? That’s a big attack surface.”

To reconcile this, the Corda node, which needs to be close to the systems of the bank or the manufacturer or the airline, runs there on existing servers or on cloud infrastructure owned by that firm, securely managed in a way that these firms know how to do, Brown said.

But a small part of the node that needs to be able to connect to the other firms and receive connections from them has to be visible on the internet.

“We take a tiny bit of the node – we call it the float – and allow it to float out away from the main node and just sit out in the demilitarized zone as they call it,” Brown said.

This piece of the node is “very small, very hardened, very protected,” Brown said, adding:

“That’s the bit that is exposed to the bracing winds of the internet,”

In this way, Corda nodes are connected yet stay protected.

“The main business logic runs where it matters inside the organization and a tiny highly secured piece floats out onto the internet and is responsible for all communication,” Brown said.

‘Working insanely hard’

Ahead of the commercial release of Corda expected this quarter, R3 has just shipped version 3.0 of the free open-source version, which features what Brown calls “wire stability.” This gives developers the same certainty about their data that API stability did for their code.

Read Also :

“One version of a Corda 3 node deployed to a network will be compatible with any future version of Corda, so that you don’t have to upgrade the whole network,” Brown said.

Asked if he has detected any loss of appetite in the enterprise blockchain space, Brown said: “No, not really. Of course you might expect me to say that. But here’s why – because what I see is developers working insanely hard” in response to demand.

“Regarding the commercial version of Corda we are offering, I am being asked every day when is that going to ship,” he added, concluding:

“Maybe this is not visible from the outside, but the people who are preparing to launch major initiatives and go live, they are so heads down on delivery and execution they are not making much noise yet externally.”

R3 office image via CoinDesk.

The post Beyond Banking: R3’s Expanding Vision for Global Blockchain appeared first on Free Bitcoin.

That’s the simple question that lies at the heart of a complex debate happening across major cryptocurrencies, where developers from projects as diverse as ethereum, monero and zcash are up in arms over what to do about the arrival of a new form of hardware that could upend the delicate balance of their distributed communities.

Designed specifically to enable operators to earn a greater share of their networks’ rewards, “application specific integrated circuits,” or ASICs, have emerged to mine a handful of cryptocurrencies that were previously only able to be secured by those using GPU hardware.

At stake, however, is the very access and openness of the protocols themselves.

Stepping back, it’s important to unpack just what occurs during the “mining process,” a somewhat complex phrase that denotes the practice by which anyone can theoretically devote spare computer hardware toward running and securing blockchain networks.

Ethereum, monero and zcash can all be mined today with GPU hardware, graphics cards sold at major computing stores and that are available for only a few hundred dollars. More expensive ASICs, however, are specifically designed for an optimized mining process, and that’s at the heart of some of the complaints against the arrival of this new slew of products.

That’s because, as bitcoin has proven in the past, GPUs won’t be able to co-exist with ASICs, as their arrival is likely to push the hashrate to a level where other types of miners will become unprofitable.

And the threat and opportunity that lies ahead is now splitting cryptocurrency users, many of whom may have invested previously in products that are now effectively obsolete.

A miner going by the handle “fpbitmine,” for example, went so far as to accuse zcash creator Zooko Wilcox of not doing enough to support those who have invested in helping the network gain value.

“You are biting the hand that feeds you,” the miner wrote on a zcash forum, adding:

“ASIC mining acceptance would mean that every single miner that has supported the zcash network will be displaced and forced to either switch coins or invest in new hardware.”

The back and forth

As such, many miners are threatening to take their hardware elsewhere or else create alternate versions of the cryptocurrencies they’re already mining, something they can freely do by cloning the codebase.

Last week, privacy-centric cryptocurrency monero executed a hard fork, a system-wide software upgrade, to remove the ability for ASICs to be used on the network. But in turn, three groups hard forked to create their own versions – monero classic, monero original and monero zero. (Each new software is compatible with and open to ASIC miners.)

The divergent ideas about whether ASICs are beneficial for, or a threat to, monero mirror the opinions of other cryptocurrency communities as well.

For instance, ethereum developers have spoken out against an emergency hard fork in response to ASICs, with its creator Vitalik Buterin even calling for a “no action” on the issue. Still, in response, one ethereum miner called Buterin’s standpoint a “slap in the face.”

He wrote:

“Everyone that thinks they can possibly convince people that the community is against a hard fork to prevent ASICs are sadly mistaken.”

Echoing that sentiment, the vertcoin Twitter handle tweeted how it believes action is needed.

“We are sad to see news of possible ASICs being created for ethereum. We believe that it is time to take a stand against monopolised mining,” it said.

And the same head-butting is happening in the zcash community.

While a zcash miner warned on a forum that “there are consequences” for a crypto that fails to keep out ASICs, zcash founder Zooko Wilcox told CoinDesk that he believes forking away from ASICs “could even do more harm than good.”

Adding to that, IC3 researcher Phil Daian has said that anti-ASIC efforts are akin to censorship, and others have argued that such efforts increase the power of the core developer team.

But all these complaints to the anti-ASIC sentiment seem to be on the minority side of the debate.

As a way to measure sentiment, several twitter polls were conducted [1, 2, 3] that show a majority leaning toward anti-ASIC hard forks, a procedure that would require editing a crypto’s underlying algorithm.

Do what you want

Yet, those on the other side of the debate aren’t particularly fired up; instead, their comments feel like a kind of “good riddance.”

For instance, speaking to CoinDesk, Rob Stumpf, the moderator of EtherMining, the ethereum mining subreddit, said, “If a developer believes that he or she can improve upon [ethereum] and wishes to start their own fork, they can do just that.”

And monero core developer “rehrar” said during a recent call that there were “no hard feelings” toward divergent monero groups.

“It’s a mental shift for people, that they’re not used to yet, that the power is in their hands to have the discussions that they want to have,” rehrar said.

One discussion that this chaos has brought back to the forefront is ethereum’s interest in scrapping mining by moving from proof-of-work to proof-of-stake. Buterin told developers at a recent meeting that ASICs would be flushed out with the upgrade so there isn’t much to worry about (although there still isn’t a date nailed down for that change).

Read Also :

Speaking to ethereum developer’s interest in eliminating mining, Stumpf said, “Mining was always doomed from the start; it is just a ticking difficulty bomb waiting to explode.”

And Wilcox echoed this, telling CoinDesk:

“Maybe instead we should work on some other solution, such as switching to proof-of-stake, or getting major hardware companies like Nvidia and Huawei to sell hardware miners to anyone.”

Pseudonymous Monero Research Lab developer Sarang Noether even seemed to think the dip by between 70 percent and 80 percent in hash rate that occurred after the hard fork, was proof that ASICs were secretly being used on the network. And then they were gone.

Monero developer “hyc” told CoinDesk:

“The community is, as always, mixed. Most seem to recognize that the dev team has simply carried out its commitment to egalitarian mining.”

Cracks in screen image via Shutterstock

The post The Anti-ASIC Revolt: Just How Far Will Crypto’s Hardware War Go? appeared first on Free Bitcoin.

Notice the difference?

Bitcoin isn’t without its irritating kinks, and tiny bitcoin pieces called “dust” are among the lesser-known. As the analogy above shows, the bitcoin protocol sometimes needs to generate tiny output coins when users send bitcoin back and forth, coins so small in value they require more fees to spend than they’re actually worth.

But since blockchain room is limited and small value transactions, say $0.01, still can often take up just as much room as larger transactions, too many of these tinier coin pieces can lead to performance issues in the system as a whole.

In the past, dust wasn’t necessarily problem for bitcoin users. The story changed, however, as fees grew higher than ever late last year, making smaller value transactions much more expensive to send. In short, some developers argue the time is ripe to get rid of bitcoin dust now that fees are down again.

Decentralized applications developer Greg Slepak, like many others in the space, is thinking ahead to a time where bitcoin adoption and transaction rates increase – something that might or might not happen.

If that does happen, the argument goes, it’s more profitable to move these tiny data pieces while fees are relatively low, especially if a user has collected a lot of them.

Slepak, for one, isn’t about to take any chances.

He told CoinDesk:

“That time might not come again.”

Extinguishing dust

To get rid of this “dust,” users need to “consolidate” their all their dust “transaction outputs” into one. That just means sending one transaction that effectively lumps them together.

Going back to our original analogy, it’s similar to trading in a bunch of pennies, nickels and dimes for a fresh dollar bill. How (and whether) users can identify and get rid of dust, depends on their wallet, however.

Slepak recommends Electrum, a long-standing simplified payment verification (SPV) wallet, that validates transactions with less data, and is thus common to use on mobile devices.

A user can select a number of “change addresses” holding dust, then select the “send from” button to create one transaction consolidating all these little dust particles into a single transaction output.

Some wallets might not offer this granular level of control, especially if they’re custodial wallets like Coinbase, which essentially manage these sort of details themselves behind the scenes – choosing whether to keep or get rid of dust.

Bitcoin wallet Blockchain and offers a variation of this feature as well.

Bad for privacy?

One caveat, though, is extinguishing dust in this way can reveal more about your financial history than you might like.

Say you have dust collected in a number of different accounts. In cryptocurrencies, it’s best-practice for financial privacy not to reuse bitcoin addresses. (Though not everyone actually does this since it’s not very convenient.)

If this the case, consolidating dust from several accounts at once can compromise a user’s privacy. Since the blockchain is public, it’s easy to tell that all these transactions at least might have come from the same user. This is especially the case if a user has gone through a know-your-customer (KYC) filters at a bitcoin exchange, where users are required to confirm their identity, as a way to curb financial crime in the cryptocurrency world.

If one user’s address is tied to a real-world identity in this way, then all the other addresses storing dust in the consolidation transaction will suddenly be as well.

“It’s like saying, ‘Yes indeed, and these other addresses belong to me, too,'” Slepak remarked.

“This is why people should use Monero instead,” he added, pointing to a cryptocurrency that is more private by default and where this sort of privacy managing wouldn’t be an issue.

These privacy concerns really depend, though. If a user’s dust is already all tied to the same account, then the dust is already linked together anyway. So, mashing the dust together into one transaction, in this case, won’t harm a user’s privacy.

So, while Slepak thinks that this is the time people should move to stamp out their dust “if they don’t want to lose those funds,” he said, they should only do so if such “privacy implications” don’t bother them.

Bigger obstacles ahead

On the other hand, Blockchain data software engineer, Antoine Le Calvez, one of the blockchain’s most avid data trackers, argues that dust levels have already been decreasing by quite a bit.

That’s thanks to bigger bitcoin businesses. Because of the high fees earlier this year, larger bitcoin companies were driven to adopt more efficient transaction technologies – including getting rid of dust – to reduce fees.

“Coinbase cleaned their wallet. And they were quite a massive contributor,” Le Calvez told CoinDesk. “Since the end of the consolidation, there’s been less dust created.”

Users can consolidate transactions to potentially save money in the future – if they so desire. But bitcoin companies might have a larger-scale impact on overall dust levels – as they already have.

But, just like Slepak, Le Calvez is thinking about the future. Fees might get worse if bitcoin ever gains more attention on a larger scale. This could happen if and when the Lightning Network, trumpeted as the future of bitcoin payments, since they’re cheaper and gives bitcoin more scale, actually gains traction.

Read Also :

“I think that anything that results in more usage of the blockchain can lead to fees that are higher than the dust itself,” Slepak said.

Le Calvez added that “it’s easy” to clean up dust when payments aren’t coming in at such a high volume, like they are today. That might not be the case if and when the level of transaction “heats up” again.

He stated:

“The real test, though, will be the next run up.”

Gold dust image via Shutterstock

The post Bitcoin Dust: How to Tell If You Have It And Why You Should Get Rid of It appeared first on Free Bitcoin.