Bitcoin – Page 3 – A Geek With Guns

Private Keys Must Remain Private

Public key cryptography is great. By handing people a public key they can encrypt message that only you, the holder of the private key, can decrypt. However, there is one consideration that should be obvious. The private key must remain private. Once put publish your private key for others to see anybody can decrypt messages encrypted with your public key. Sometimes the consequences of such a breach are minor but sometimes they result in money being stolen:

On Friday, Miller learned an important lesson. It was an experience that everyone should remember before they start moving their money into the digital currency.

While on air, Miller surprised Bloomberg anchors Adam Johnson and Trish Regan each with $20 worth of Bitcoin.

But as Johnson received the paper gift, he briefly exposed the QR code (see above). This act was effectively like sharing a bank account and PIN number.

Immediately, someone lifted the QR code and stole the $20.

Bitcoin utilizes public key cryptography. Public keys allow other people to send money to other users. Private keys allow people to withdraw Bitcoin from a wallet. If somebody else nabs your Bitcoin private key they have full access to your funds. So don’t do something stupid like hand your private key to somebody else or who it on television.

This Blog Interrupted by Updated Development Software

Last night the developers at Pebble released beta 3 of their 2.0 software development kit (SDK). This release fixed a rather nasty bug that was preventing me from continuing development on WristCoin.

The bug was related to how the phone app communicated Bitcoin pricing information to the Pebble. When the watch app is first opened it asks the phone app to fetch Bitcoin prices from the various exchanges. This operation is done asynchronously on the phone and data is returned for each exchange as it comes it. The bug I ran into was that the first message form the phone app to the Pebble worked fine but all subsequent messages failed. That means that the pricing information for the first exchange would be communicated to the Pebble but none of the others. While I could have rewritten the app to wait for all exchanges to report in before sending the data to the Pebble I found that solution inelegant and chose to wait for an update to correct the bug. Since the latest release fixes that bug I have continued development on WristCoin instead of writing additional blog posts.

Bitcoin Versus Gold: Or How I Learned to Stop Caring About Economic Internet Arguments

I think it’s time we took a moment to chat. If you pay attention to economic, crypto-anarchism, libertarianism, or other similarly intersecting online forums you have probably picked up on the recent Bitcoin versus gold debate that has been raging on. The latest exchange started with Peter Schiff posted this video touting gold over Bitcoin:

This kicked the Bitcoin community into holy crusade mode. The most well written counterargument to Schiff’s video, in my opinion, is this one from Reddit.

I have a problem with both sides of the argument. There is no reason one has to win. We, as a species, are actually capable of using more than one thing as a medium of exchange. For example, gold and silver have historically been found together as mediums of exchange in markets based on precious metals. Today we see the use of dollars, yuan, yen, pounds, euros, and many other currencies used to facilitate transactions. In fact I would submit that having a single medium of exchange is just as dangerous as any other monopoly.

Bitcoin is a new and exciting newcomer. It’s attractive to us neophiles, in part, because it’s an unknown quantity that could greatly shake the foundation of the current monetary systems. Neophobes tend to shy away from Bitcoin because it’s new and unproven. For them gold is a better option because it’s been around forever. I’m a fan of diversification. If Bitcoin takes a dump and gold excels then I’m happy to have gold. If the opposite happens I’m happy to have Bitcoin. If both excel as currencies I’ll be happy to have both. The only way this debate will be determined once and for all is when time leads us to a result. I just hope that whatever result we arrive at is unexpected by all involved interests. Nothing is worse than minds not being blown.

WristCoin

You’re going to notice a complete lack of new material here today. This is due to the fact that I spent last night putting the final touches on the initial design of an application I’m writing. A couple of weeks ago I purchased a Pebble wristwatch. If you haven’t heard of it it’s a wristwatch that connects to your smartphone via low powered Bluetooth and presents notifications in a manner that doesn’t involve digging your phone out. My interest in the device stems from the fact that it’s programmable.

For my first program on the watch I’ve decided to write a Bitcoin price checker. Since I’m horrible with names I’ve dubbed the application WristCoin. Obviously the application is still in the pre-alpha stage, which means it’s riddled with bugs and isn’t feature complete. But I’ve published the source code on GitHub if anybody is interested in following my progress.

WristCoin requires both the 2.0 beta Pebble firmware and the 2.0 beta Pebble smartphone application. In its current state WristCoin grabs prices off of Bitstamp and displays the last price on the Pebble. I will be adding more exchanges in the near future and the ability to bring up more detailed pricing information for each exchange. Progress on the application will heavily depend on my free time but it’s small and shouldn’t take a great deal of time.

The application, as you can guess based on my views regarding intellectual property, is public domain so you can do with it whatever you wish.

Raspberry Pi Bitcoin Miner

As those of you reading know, I’m a big fan of Bitcoin and a big fan of the Raspberry Pi. It was only a matter of time until I decided to follow in the footsteps of many and setup a Raspberry Pi Bitcoin miner. In an unrelated Amazon search I noticed that the ASCIMiner Block Erupters had come down in price (they sell for $29.98 on Amazon’s main page but cheaper units can be had from other Amazon vendors) so I decided to order a couple.

Mind you, nobody is going to get rich off of a Block Erupter. My desire was to experiment with them. I’ve often wondered how much a somewhat decent miner could be built for. Combining cheap Block Erupters with cheap Raspberry Pis seemed like an excellent want to build an affordable miner (with the acknowledgement that the setup was unlikely to pay for itself). I followed the setup guide on Adafruit and was mining Bitcoin in minutes. What follows are some issues I ran into.

First, my Raspberry Pi wasn’t able to provide reliable power to both modules. This wasn’t unexpected. While the Pi could run one Erupter without any issue the second one would periodically die from loss of power. The mining application I used, cgminer, continuously notified me of hardware errors. Fortunataly, I have a second Raspberry Pi that runs my Tor relay so I unplugged the second Erupter from the first Pi, plugged it into the second Pi, and got it up and running without any trouble. The obvious solution to this problem is to purchase a powered USB hub.

Second, Block Erupters run hot. I learned this lesson when I went to unplug my second Erupter from my first Pi. If you’ve been running an Erupter make sure you give it time to cool down before touching it (or be impatient, like me, and grab some gloves). You will also want to invest in a small fan to keep your Erupters cool. This USB powered fan has been recommended by several people and costs all of $8.00.

Third, as I feel this needs to be pointed out, setting up a mining rig isn’t the most efficient way to acquire Bitcoin. Sites like Coinbase are better sources. The amount of Bitcoin you can mine with an Erupter isn’t going to pay for the hardware for quite some time (even before calculating in the cost of electricity, fans, powered hubs, etc.). I’m perusing this project for fun and to fulfill my curiosity. When I need to acquire Bitcoin in usable quantities I tend to buy from sellers.

FBI Having Troubles Seizing Dread Pirate Roberts’ Bitcoin Stash

This story demonstrates one of the features I most like about Bitcoin:

In order to transfer Bitcoins out of a “wallet”, the name for the digital file which contains the encrypted information necessary to spend the currency, users need to know that wallet’s password or “private key”.

According to Forbes’ Kashmir Hill, that hurdle is causing the FBI difficulty.

“The FBI has not been able to get to Ulbricht’s personal Bitcoin yet,” wrote Hill. An FBI spokesperson said to Hill that the “$80m worth” that Ulbricht had “was held separately and is encrypted”. At current exchange rates, that represents slightly more than 5% of all bitcoins in circulation.

It looks like Bitcoin is pretty secure against state seizure. Mind you, that doesn’t do Mr. Ulbricht much good as he’s currently being held in a cage. But the Federal Bureau of Investigation’s (FBI) inability to take Ulbricht’s supposed $80 million worth of Bitcoin is good news for other people facing state theft.

Think about countries such as Greece and Spain that are seizing personal fortunes and freezing assets in bank accounts. If you want to conceal your personal wealth from the state money grabbers converting it to Bitcoin seems like a pretty good option. Here in the United States things are worse. Your wealth can be stolen under civil forfeiture laws if a police officer simply suspects that wealth is tied to a drug-related crime. Under civil forfeiture laws the burden of proving any wealth isn’t tied to a drug crime is on the accused. Bitcoin may be an effective defense against civil forfeiture laws and a dying state’s last ditch attempt to raise money by stealing directly from the bank accounts of citizens.

Admittedly, Bitcoin fluctuations can be pretty wild. But everything has its risks. You risk losing wealth if Bitcoin’s exchange rate drops but you risk losing wealth if you keep cash on hand or in a bank account. I recommend divesting wealth. While divestment doesn’t protect all of your wealth it stands a good chance of losing everything if the one protection strategy you’ve chosen fails.

Civil Forfeiture Strikes Again

Pop quiz ladies and gentlemen. How do civil forfeiture laws differ from outright theft? They don’t. Government agencies use civil forfeiture laws to confiscate property when they lack actual evidence of wrongdoing. When you think about it civil forfeiture laws are a wonderful scam. The very concept of innocent until proven guilty gets turned on its head since civil forfeiture mandates that you prove that your confiscated property wasn’t tied to a crime (which is really hard to do in a country where most people commit and average of three felonies a day). Traditionally civil forfeiture laws have been used by drug enforcement agents but the Internal Revenue Service (IRS) likes to get in on the action as well:

I’ve always paid my taxes and have never been arrested or charged with any crime in my life. I am a successful small-business man. But in January of this year, I woke up to find that my business’ entire bank account — more than $35,000 — had been wrongly seized.

Read the story. It’s a sad case of an independent business man having his assets seized by the IRS without being accused of any criminal activity. This brings up an interesting point that I’ve been discussing with people. Putting your assets in a bank is dangerous. While we often think of banks as secure strongholds the truth is they are willing to hand over anything they’re holding to government agents. That means the money sitting in your business account could disappear tomorrow because some IRS agent felt the need to harass you.

The more I think about it the more I’m beginning advocate the idea of holding cash assets in Bitcoin. Bitcoin has a very nice feature: the only way to transfer funds out of a wallet is if you possess the private key. A government agency can’t simply seize your Bitcoin unless they are able to obtain your private key, which can be protected from seizure in many ways. Instead of taking deposits to a bank and leaving the money in an account you transform that money into Bitcoin using any number of Bitcoin services. Once that’s done you then transfer your Bitcoin from the wallet created for you by the service to a wallet solely under your control. At that point surprise seizures become very difficult because government agents will have to obtain your private key from you to transfer your funds.

As the state become more greedy we’ll probably see more businesses, especially small ones, utilizing things like Bitcoin to keep their wealth from prying hands.

Bitcoin Mining isn’t an Environmental Disaster

I don’t know what possesses people who don’t understand the advancement of technology to write about the advancement of technology. Bitcoin has been headlining many news sites recently. Most of the headlines discuss the recent crash but Mark Gimein had decided to write about another aspect of Bitcoin, the energy requirements of Bitcoin mining. According to Mr. Gimein Bitcoin mining is an environmental disaster:

Most people aren’t used to thinking in terms of the energy it takes to solve math problems; a few minutes of Excel may not take much energy. But make the problems complicated enough, and things change. “Mining” Bitcoins takes so much processor power that it’s often done with specialized computers optimized for rapid repetitive calculations. So how much power can that take?

Blockchain.info, a site that tracks data on Bitcoin mining, estimates that in just the last 24 hours, miners used about $147,000 of electricity just to run their hardware, assuming an average price of 15 cents per kilowatt hour (a little higher than the U.S. average, lower than some high cost areas like California). That, of course, is in addition to the money devoted to buying and building the mining rigs. The site estimates the profits from the day of mining at about $681,000, based on the current value of Bitcoins. So mining, at least for the moment, is a lucrative business.

The trade-off here is that as virtual value is created, real-world value is used up. About 982 megawatt hours a day, to be exact. That’s enough to power roughly 31,000 U.S. homes, or about half a Large Hadron Collider. If the dreams of Bitcoin proponents are realized, and the currency is adopted for widespread commerce, the power demands of bitcoin mines would rise dramatically.

What Mr. Gimein fails to understand, or at least mention, is that Bitcoin is in its infancy and, like any technology in its infancy, is still running inefficiently. New technologies always start off rough around the edges and improve over time. A majority of Bitcoin mining was originally performed using computer processors. Today a majority of Bitcoin mining is done using graphics cards. Both processors and graphics cards, especially the powerful ones that were and are used by Bitcoin miners, can require a great deal of power. However the technology is improving.

First, let’s understand the the current trend in computing is power efficiency. More computing is being performed on mobile platforms, which need to run off of energy stored in batteries. A mobile phone, for example, doesn’t do much good if it can only run for an hour before the battery goes dead. This is why manufacturers are sinking huge amounts of research and development dollars into making more power efficient chips. Consumers always want more. They want more powerful devices and better battery life. Manufacturers want to make consumers happy because making consumers happy is what nets manufacturers a profit. So we are seeing more powerful processors and graphics processors that also consume less power.

The age of wearable computing is also beginning. Google has introduced Glass, the Pebble watch is selling very well, and there are rumors that Apple is planning to introduce a watch of its own. Wearable computers are even smaller than mobile phones, meaning there isn’t as much room for batteries. When wearable computers begin to take off the demand for even more power efficient chips will increase.

Today Bitcoin mining may take 982 megawatt hours a day. Tomorrow it will likely take less. Not just because of more power efficiency processors and graphics cards, but because current efforts are being focused on Application-Specific Integrated Circuits (ASICs). ASICs are chips designed to perform a specific task. This contrasts with general purpose computing chips such as the processor and graphics card (which are more specialized than processors but still capable of performing other tasks) found in your computer. Because of this ASICs can be designed to use less power. The linked article linked to Butterfly Lab’s website. Butterfly Labs is purporting to build ASICs for Bitcoin mining (I say purported because I know several people who have ordered from Butterfly Labs but have so far received no hardware). ASCIMiner is another ASIC aimed at Bitcoin mining and is powered off of a standard USB port.

Mr. Gimein must believe that Bitcoin miners like sinking vast amounts of money into buying electricity. If that was the case then Bitcoin miners wouldn’t be looking for more efficient methods of mining. But Mr. Gimein’s apparent belief is incorrect, Bitcoin miners don’t like spending great deals of money on electricity, which is why money is being put into developing more efficient mining hardware. Doing more with less has been the trend in human technology. When somebody makes estimations based on current technology they are doomed to fail. One must also predict how technology will advance. The electricity required in Bitcoin mining will decrease as the technology matures.

More Thoughts on the Bitcoin Crash

It appears that Bitcoin hasn’t hit the floor yet. This news has left many members of the Bitcoin community scrounging for a scapegoat. Reading various Bitcoin communities (although the /r/bitcoin subreddit has provided me with the most entertainment) it seems the recent devaluation of Bitcoin was caused by automated trades performed by bots, fake libertarians (I guess you can only be a libertarian if you invest heavily in Bitcoin), and a secret cabal of central banks. While the last scapegoat sounds the most plausible of the three (those central banks are ruthless bastards) I think the community is ignoring the most likely cause: Bitcoin is a new technology.

Bitcoin really is the first notable crypto-currency. Although previous crypto-currenciies have existed none of them enjoyed the prominence that Bitcoin enjoys today. Most people alive today have lived their entire lives using state controlled fiat currencies. Bitcoin is the opposite of what we call money today. It’s a decentralized currency that cannot be inflated past a certain point (only 21 million Bitcoin will ever exist). The decentralized nature of the currency means no single entity can wield monopoly control over it. It is also the first free-market monetary system that most of us have experienced. In other words, Bitcoin is a revolutionary idea and, like all revolutionary ideas, nobody can predict how it will, or won’t, change things.

Speaking in software terms the concept of Bitcoin (not to be mistaken for the network, clients, or services) is in the alpha stage of development. People participating in the Bitcoin community should understand that they are testers and should expect to find copious amounts of bugs that need to be worked out. Is Bitcoin vulnerable to Distributed Denial of Service (DDoS) attacks? If so, that must be corrected. Is Bitcoin too reliant on single points of failure? If so, that must be corrected. Is it too hard for the average person to acquire Bitcoin or use it in everyday transactions? If so, that must be correct. Growing pains are unavoidable when working with a technology that few, if any, understand the ramifications of.

Instead of playing the blame game I believe the Bitcoin community would be better served by noting the failure and thinking of methods to utilized the currency’s main features to overcome that failure. For instance, I’ve seen a lot of blamed aimed at Mt.Gox, the largest Bitcoin exchange. Bitcoin is a decentralized currency, why was one exchange allowed to gain so much influence over the exchange rate of the currency? Having a single point of failure is always a bad idea. Trusted members of the Bitcoin community should start developing more exchanges. More Bitcoin exchanges would mean more resiliency as it would be difficult for attackers to bring down or manipulate all of them simultaneously. Members of the Bitcoin network should put more work into developing easy methods for the average person to buy Bitcoin. In today’s world people like the convenience of credit cards. Credit cards, due to the ability of a purchaser to perform a charge back and the inability to recover sold Bitcoin, don’t work well for purchasing Bitcoin so some other convenient method must be created. The idea of Bitcoin Automated Teller Machines (ATM) is a good start, but they need to be located in high traffic areas such as grocery stores and gas stations. Until people can acquire Bitcoin as easily as they can buy things with their credit cards they won’t adopt the currency.

Another feature that should be leveraged more is the mostly anonymous nature of the currency. I’ve seen a lot of comments from Bitcoin advocates trying to refute the claim that Bitcoin is most heavily used in the drug trade. Stop that. Embrace it! Expound the fact that Bitcoin is used by drug dealers and purchasers because transactions cannot easily be tied to physical individuals. As the world governments continue to wring more and more money out of their people those people are going to look for a place to hide their wealth. A currency that is outside of the state’s control, can be used to store wealth in a mostly anonymous fashion, and allows individuals to perform transactions in a manner that that state can’t record for taxing or prosecution purposes should be huge and will be necessary as the state’s rate of expropriation increases. By denying that Bitcoin is used for “black” market purchases members of the Bitcoin community are downplaying its most valuable feature. Don’t try to control its image, let its image develop freely.

As an agorist and a crypto-anarchist I want to see Bitcoin succeed. In order to succeed I believe the Bitcoin community needs to understand that Bitcoin is a revolutionary idea, will have growing pains, and must be rid of state dogmas against the “black” market. Trying to shoehorn it into mainstream monetary and political principles will relegate it to always being an interesting idea that never gets widely adopted.

The Great Bitcoin Crash

Yesterday my prediction based on the utmost scientific research came true. Bitcoin, which has seen a remarkable increase in value compared to dollars, began to crash. Supposedly the cause of this crash was a Distributed Denial of Service (DDoS) attack:

We’ve reached out to one of the biggest exchanges, Mt. Gox, to see what happened. But another San Francisco-based exchange called TradeHill is saying that the crypto-currency is falling because of apparent distributed denial of service attacks on Mt. Gox and Bitstamp. A denial of service attack happens when an attacker overwhelms a target with external requests, so that it can’t honor regular requests from legitimate users.

All commodities are vulnerable to some amount of manipulation and Bitcoin is no different. The sudden drop in value demonstrates a potential exploit that can be used to make a great deal of money off of Bitcoin. Let’s hypothesize that the DDoS attack was planned some months back. Planning to execute a DDoS attack against several prominent Bitcoin trading sites individuals decided to first buy a large number of Bitcoin as the then current price and then move to manipulate the price by bringing the currency to the media’s attention. After generating a good deal of interest those same individuals begin to trade some Bitcoin for larger amounts of dollars, which raises the high point trade value. Seeing an increase in the high point trade value people uninvolved with the plan begin trading at higher prices. Eventually the system becomes a sort of Ouroboros, a self-feeding cycle that causes the price of Bitcoin to continuously rise. Once the value of Bitcoin has been manipulated high enough the manipulators sell off all of their Bitcoin and begin their DDoS attack. With the most prominent Bitcoin trading sites down the perceived value of Bitcoin tumbles along with it. After that the cycle can begin again. Buy low, manipulate the price higher, instigate a DDoS attack to drop the price, buy low, and so on.

The scenario I just explained is hypothetical, I’m not implying that it is fact. But the scenario is a possibility.

It will be interesting to see what the price of Bitcoin does over the next several days. Will is drop in price? Will it return to the pre-DDoS high? Will it climb even higher?