Payments Firm Backs 'Crazy' Offline Bitcoin Transactions Experiment

As an Internet-based payment system, most bitcoin transactions today necessitate that users are online or otherwise can print and exchange private keys.

However, Romanian mobile payments provider Netopia mobilPay is now backing a proposal that strives for a middle path. Called OffCoin, the proposal is for a system that allows microSD cards in mobile phones to generate, store, transmit and delete bitcoin private keys.

In effect, OffCoin would be capable of moving digital currency between mobile phones without requiring users to be connected to the Internet or needing to pay the cost of using the bitcoin blockchain. By transacting with NFC, Bluetooth, QR codes or a combination of these technologies, Netopia suggests it can allow users to send and receive bitcoin without paying fees for sending funds over the bitcoin blockchain.

CEO Antonio Eram called the project one of the company's recent "experiments" with bitcoin, which also include the new exchange product, BTKO.in it debuted at a recent Silicon Valley event. An established mobile payments company, Netopia boasts an estimated 24 million customers and relationships with telecommunications giants T-Mobile and Vodafone.

Explaining his firm's interest in the OffCoin project, Eram told Bitcoin News:

"Decentralised bitcoin for offline usage is a reality with our solution. As I have presented, there is only positive impact on the public ledger. We've just created a trusted offline, off-blockchain infrastructure."

Project developers argue that the system is decentralized, since there's no central entity that guarantees the funds. Further, parts of the transaction process are segregated, as the bitcoin wallet would only have part of the private key, to be completed by the microSD cards.

Netopia indicates that OffCoin now works with most Android phones version 4.1 or higher that accepts microSD cards, though the company is seeking to expand its capabilities.

"We have an USB version available for testing and soon one that is compatible with iPhone. This was designed to be universally acceptable and not a solution for high end phones," said Eram. "Our vision is to enable offline bitcoin transactions anywhere in the world. Including the areas where phones are not exactly high end."

Project origins

OffCoin as a concept and project dates back to late 2013, as it is a rebranding and furthering of development of the Othercoin project started by Romanian developer Razvan Dragomirescu.

Under its former name, OffCoin attracted the attention of notable bitcoin developers such as Gregory Maxwell, Adam Back, Mike Hearn and Peter Todd, who offered early and varying opinions on the concept. Maxwell, now a CTO at Blockstream, called the proposal a "fantastic idea", but suggested issues could arise should the issuers of the microSD cards compromise the system. Similarly, Hearn expressed his optimism that advancements with smartphones and Internet connectivity would negate the need for such solutions.

Dragomirescu ultimately developed the project alone, but he attracted the attention of Netopia, which began negotiations to invest and promote the project this year.

"This solution is revolutionary in terms of enabling bitcoin payments and transfers for offline usage," Eram said of the move. "We may be in avant-garde, however, we know the applicability can be expanded exponentially."

Because OffCoin maintains security while keeping transactions private, Eram went so far as to say it could be a potent development tool as the network seeks to increase its transaction processing capabilities.

For example, the recent debate over bitcoin's standard block size rests on the number of transactions able to be transmitted over the network each second. By conducting transactions off-chain more widely, the number of transactions broadcast on the network could theoretically be reduced.

Solution viability

Given the offline nature of transactions, Eram framed the project as one that could have relevance in context of proposals such as the Lightning network that are seeking to reduce the number of transactions that need to be entered directly on the blockchain.

"Offcoin is about real privacy. Achieved offline without any changes in the blockchain, as in forks, or expensive hardware. This is an elegant solution that accomplishes a lot," he said. "Releasing pressure from the blockchain is in line with the discussion of changing the block size for allowing more transactions. With OffChain, we can do this and use the blockchain as a settlement layer."

Still, some observers caution against the widespread use of the tech, with developer Justus Ranvier suggesting a more thorough analysis of the cost of extracting private keys through illicit means would be needed.

Other factors could also limit the usefulness of the system, however, such as the decline in the use of microSD cards in mobile devices, a trend attributable to the cost phone manufacturers can charge for more data space.

Eram, though, believes developments such as Google's Project Vault, which seeks to build a secure computer on a microSD-sized device, demonstrate a continued interest in the technology.

Question of scale

One of the most frequent criticisms levied against the project, while interesting to developers, has been the difficulties in achieving scale, which is where Netopia believes it can help take the project forward.

As a mobile payments specialist, Eram said, the company already has a network of consumers, merchants and telecommunications providers it could leverage to promote solutions like OffCoin as well as bitcoin more broadly.

"Since we are big enough, we can push bitcoin to various markets. We're pretty confident that our investment in the ecosystem will pay off in some time," he added.

Eram said that interest in bitcoin is growing among members of these industries due to the use of bitcoin amongst Romania's freelancers.

"They want to be paid in bitcoins now. That's an income that is in bitcoins, and they have to be used, and so what we have done in the last six to seven months is that we enable a lot of merchants to accept bitcoins," Eram said.

He estimated BTKO.in is now doing roughly 5 BTC in daily volume, but that the service has yet to open to the general public.

No launch schedule

As for when the project may be more widely announced, Eram indicated Netopia is currently looking for the "best opportunity". He suggested this could coincide with the launch of BTKO.in.

Eram noted that Netopia will likely use its standard strategy in promoting the technology, placing an early bet that may be advantageous later.

"We are in a very good position to start a bitcoin business in that region, also we are very well known for innovation, even if we do like crazy experiments," Eram continued.

In particular, Eram said that Netopia is currently investigating how it can enter the European, Latin American and Middle Eastern markets later this year, concluding:

"With OffCoin we think is the same. Huge potential. Maybe not the right time, considering the acceptance of bitcoin, but we are confident that we can make a difference."

Passing notes image via Shutterstock

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Tibdit Raises £122,000 for Bitcoin Tipping Platform

Bitcoin micropayments startup Tibdit has raised £122,080 in seed capital through a crowdfunding campaign.

Founded in September 2013, the London firm lets users send bitcoin tips or 'tibs' between £3–£70 to content producers.

As a result of the raise, which took place on equity crowdfunding platform Seedrs, 161 investors will receive 15.03% equity in the firm.

Speaking to Bitcoin News, Tibdit co-founder Justin Maxwell said the company's decision to use Seedrs reflected the "democratic" ethos of its business.

"Micropayments made via Tibdit are inherently very 'democratic', providing an opportunity for everyone whether they are the online equivalent of buskers [or] mainstream content providers."

Roughly half of its money will go towards additional features, while a third will be used to expand the handful of sites that currently support Tibdit. The remainder will cover operational expenses.

"We have identified a number of sectors where tibbing can be of real value and has a really good fit, and are prioritising these now," Maxwell said.

Access payments

Bitcoin micropayments have been largely popularised by tipping platform ChangeTip, which markets itself as a 'love button' for social media platforms including Twitter, Reddit and SoundCloud. Back in December, the firm raised $3.5m seed funding from investors including Pantera Capital and 500 Startups.

Unlike its competitor, WordPress plugin Tibdit facilitates both tips and 'access payments', where users can pay to view content beyond a publisher's paywall.

As the publisher, or 'tibbee', cannot see the value of each transaction, Maxwell said they are "forced to treat ever tibber equally".

While ad-hoc tipping models like Changetip have had some success with bitcoin, he added, there is still work to be done to rethink micropayments:

"Advertising-swamp, click-bait, and subscription-paywall-popups are encroaching further and further into our online experiences. The need for a viable alternative that really works for both commercial and non-commercial sites has never been greater than it is now."

Money saving jar via Shutterstock

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BitGo Launches New Financial Transparency Service

BitGo has announced a new service that leverages the security firm's status as a consigner on its multisig accounts to allow customers the means to provide greater financial transparency.

As part of the announcement, bitcoin firm ChangeTip will use the new Verified by BitGo service to demonstrate its account holdings. The tipping platform will display its bitcoin solvency on its website, listing assets and liabilities in real-time along with information specific to individual users.

Links to the Verified by BitGo page will also be displayed within each user's ChangeTip account page and on the website's home page when users aren't logged in to the service.

According to the company, Verified by BitGo is seeking to become a foundational security feature for companies operating on the blockchain in the same way that VeriSign's offerings helped expand consumer trust in e-commerce.

As explained by BitGo CTO Ben Davenport, Verified by BitGo aims to mainstream the complex proof of reserves processes long used by prominent companies in the industry as a way to build consumer trust.

Davenport told Bitcoin News:

"You've seen this a number of ways done over time. You've seen it very ad-hoc, where an exchange would make a very large transfer to prove that they had control of the funds. That's very risky, and fraught with operational risk."

The service also intends to showcase the ability of BitGo's technology in tracking more conventional assets, as the service will be able to provide proof of fiat currency reserves for companies that keep consumer balances in such holdings.

As such, Davenport sees bitcoin exchanges as one of the sectors best capable of driving adoption of its new tool, though such discussions, he said, are still in the early stages.

"We're having conversations with exchanges. I don't think we have specific names but we hope to launch with some additional customers," he said.

Piggy bank image via Shutterstock

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Westpac-Backed VC Firm Among Coinbase's Series C Investors

Reinventure Group, a venture capital firm backed by Westpac, the second-largest bank in Australia, has been revealed as one of bitcoin wallet and exchange service Coinbase's Series C backers.

Coinbase announced in January that it had raised $75m in new funding, a round that drew support from Spanish megabank BBVA and Fortune 500 financial services group USAA, among others.

The participation of Reinventure was disclosed in a 29th June blog post, in which Coinbase said that it planned to "share insights into the use of digital currencies globally" with the VC firm. According to the Sydney Morning Herald, the firm contributed an undisclosed amount to the Series C round.

"We're very excited to be working with such a great management team and look forward to helping them grow their business," Simon Cant, co-founder of Reinventure, told the Morning Herald.

Reinventure's investment portfolio features two financial technology startups: peer-to-peer lending platform SocietyOne and payments firm PromisePay.

Image via Shutterstock

CoinbaseWestpac

Mining Malware Developer Settles with Federal Trade Commission

A cryptocurrency malware developer has settled with the US Federal Trade Commission (FTC) and the New Jersey Attorney General's Office.

Developer Ryan Ramminger and Equiliv Investments were named in the settlement in connection with the development and distribution of a mobile app called Prized that contained hidden mining software.

Prized was initially marketed as a consumer rewards app. After security researchers discovered the app was designed to mine cryptocurrency in March, it was soon dropped from popular app venues like Google Play.

According to the FTC, the malware contained in the Prized app was used to mine a variety of digital currencies, including litecoin, dogecoin and quarkcoin.

The defendants, Ryan Ramminger and Equiliv Investments, are now required to pay $5,200 of a $50,000 settlement, with the remaining amount suspended per the agreement with federal and state law enforcement officials. Neither Ramminger or Equiliv confirmed or denied the charges.

Jessica Rich, director of the FTC’s Bureau of Consumer Protection, said in a statement:

“Hijacking consumers’ mobile devices with malware to mine virtual currency isn’t just deplorable; it’s also illegal. These scammers are now prohibited from trying such a scheme again.”

The defendants are barred from knowingly distributing malware in the future, and face decades of reporting requirements.

Mining malware focused on mobile devices have appeared in various forms, many of which are distributed inocuously as mobile apps or downloadable game files. In some cases, users aren't aware that their systems are being actively used to mine, with evidence appearing only in the event of poor battery life or an unusually high data usage rate.

The full court settlement can be found below:

Settlement Order

CrimeMalwareMining

Kraken Opens Bitcoin Exchange in Canada

Kraken has officially launched in Canada following a partnership with digital currency industry-focused risk management specialist Vogogo.

The San Francisco-based bitcoin exchange now allows users in Canada to convert Canadian dollars into digital currencies using Interac e-Transfer and electronic fund transfers (EFT). Trading fees are then priced between 0.10% and 0.35%, with more active traders receiving more attractive rates.

In statements, Kraken CEO Jesse Powell indicated that the company saw significant potential in the Canadian market. The exchange has been one of the most active US firms in the global market, opening to Japan and adding GBP trading in October. Kraken is also one of the more prominent businesses to pull out of the US market over legal concerns.

Kraken becomes the latest US bitcoin exchange to enter the Canadian market, a move that follows the closures of former market leaders CaVirtex and Vault of Satoshi in early 2015. New York-based platform Coinsetter since acquired Cavirtex in April for an undisclosed amount.

Kraken is currently the market leader in EUR trading according to data from Bitcoin Charts, boasting 24-hour volume of 4,579 BTC, a figure that puts it ahead of competitors including ANX and BTC-e.

Image via Kraken 

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How Can Bitcoin Businesses Bridge the Gap With Insurers?

Charles A Cowan is counsel in the Insurance Practice Team within the Corporate & Securities Practice Group at Drinker Biddle & Reath. He previously managed a team responsible for the investigation of internal and external financial crime and regulatory non-compliance at Lloyd’s of London. 

In this article he discusses the risks that influence an insurer's decision to work with companies in bitcoin, and how they might be overcome.

In 1904, Lloyd’s of London was still largely a marine market. And so, when approached in that year to issue the world’s first automobile policy, underwriters did so while describing the car as a "ship navigating on land". Just as in 1904, insurance and innovation have often been inextricably – if, at times, awkwardly – interlinked.

Those who invest time, energy and financial resources into developing and distributing an innovative product or process are often keenly aware of the vital role that insurance can play in supporting and protecting their ventures. And so, as virtual currency businesses (or 'bitcoin businesses' for purposes of this article) increasingly establish themselves as 'mainstream' enterprises, the logical question arises: what role, if any, should or must insurance play in the process and how should insurers and innovators navigate this space?

Insurance is about risk: assessing, understanding, valuing and sharing risk. Insurers tend to be conservative when it comes to assessing and accepting risk, preferring to focus upon concrete data, loss histories and actuarial models rather than pure instinct. This is why insurers spend a great deal of time, energy and money discussing and analysing 'emerging risks' such as bitcoin.

A heavily regulated space

The fact that an innovative product or process has captured the imagination of venture capitalists, academics and inventors does not mean that it has yet reached a level of maturity necessary to be deemed an 'insurable risk'. To the extent that underwriters have been slow or unwilling to insure risks associated with bitcoin business, what may explain this and what, if anything, can be done to bridge any perceived gap between insurers and innovators?

Insurers operate in a heavily regulated space. From rates to contract wordings; lines of business to reserving practices: there are few aspects of insurance that are not subject to some form of regulation. Depending upon the markets that an insurer serves, moreover, they may answer to numerous regulators at once. In addition, insurers – like many large businesses – must answer to their investors for decisions that they make.

When approached with a new, 'cutting edge' type of risk, then, insurers must often first address the important questions of:

1. Whether they can legally write the risk in the way proposed.
2. What, if any, reputational issues might be implicated.
3. Whether enough information is available appropriately to assess and value the risk.

(There are many more factors, but time and space are limited here.) Each of these considerations is central to an understanding of how bitcoin is often viewed by underwriters.

I will discuss each briefly below and then propose some possible ways that underwriters and bitcoin entrepreneurs can improve dialogue with respect to them.

Regulatory concerns

With respect to regulation, a critical area of concern for underwriters is that of financial crime controls. (The question of the extent to which regulation can or should 'legitimize' bitcoin is fodder for another article.) In an era in which nine- or 10-figure fines have been imposed by US federal and state regulators against banks that have been deemed to run afoul of Anti-Money Laundering or sanctions laws, insurers are keenly aware of the need to ensure that sufficient controls are in place with respect to risks that they accept.

Bitcoin, for obvious reasons, presents a challenge in this regard, not the least of which reason is its association with the Dark Web. Legitimate bitcoin businesses are right to challenge this view as outdated and to point to efforts by both industry and regulators to improve transparency and accountability in the exchange of bitcoins.

But the fact is that news reports persist of a resilient Dark Web marketplace and of the involvement of bitcoin in crimes (either as the target or as the medium of payment). This can be enough to discourage conservative underwriters from considering the risk.

Reputational risk

Closely aligned with the regulatory risk that is exemplified by financial crime controls is reputational risk. Insurance is not merely a transfer of risk, it is a relationship based upon mutual trust. Consumers must be able to trust that insurers will protect them in times of need and, as a result, insurers have very practical incentives for placing a premium (pun intended) on reputation.

Again, while legitimate bitcoin entrepreneurs may protest that there should no longer be a perceived reputational risk associated with bitcoin, for reasons discussed above, many underwriters remain wary of being too closely aligned with bitcoin’s inescapable notoriety.

The availability of information – both generally with respect to an industry and specifically with regard to a proposed risk – are essential in the underwriting process.

Emerging risks such as bitcoin present unique challenges to underwriters in this regard. Bitcoin start-ups, for example, will have no loss history, thereby making it more difficult for even the brightest of actuaries to assess the likelihood of future losses. And loss projections form a central part of risk pricing.

Novelty value

What makes innovations such as bitcoin even more challenging is that there are few analogous industries or products. Insurance has for some time provided cover for businesses engaged in the exchange and storage of digital assets such as copyrighted material, films and the like. And the electronic exchange of 'value' is certainly nothing unique, as witnessed by the fact that consumers worldwide can manage and exchange value between their own insured bank accounts.

But it is the very decentralized, community-based nature of bitcoin that makes it difficult to compare with risks that, while 'virtual' in some sense, are nevertheless subject to transparent and tested procedures, protocols, regulation and the like that make the assessment and valuation of such risks more acceptable.

Bear in mind that, at most large insurers, underwriting is subject to strict peer review and that, in order to accept an admittedly 'novel' risk such as bitcoin, an underwriter will have to answer to his peers (and managers) questions such as:

• What does a proof of loss look like?
• How can underwriters or insureds 'know' the quantity of bitcoins that were held or 'lost' at the time an incident occurred?
• How can we be sure that we are not insuring the fluctuating value of bitcoin?
• Cold storage, as described, seems all but fool-proof – so why do they need insurance? What do they know about their risk that we do not?
• Are there 'macro risks', meaning those that exist apart from this particular insured’s profile, that nevertheless have a bearing upon this risk (here, the focus is generally upon whether the bitcoin protocol is vulnerable in ways that could lead to an unanticipated exposure at the level of each exchange)?
• In paying claims, how do we address financial crime risk such as those posed by sanctions regimes?

What should happen next?

Given the points outlined above, what can be done, if anything, to bridge perceived gaps between what bitcoin businesses want and insurers (as an industry) have thus far been willing to offer? The key is transparency and openness. Unless and until insurers are satisfied with respect to regulatory or reputational risk, they may be constrained from acting (even if some of their competitors are willing to do so).

Bitcoin businesses must recognize that these are genuine concerns and be willing, at the proposal stage, to address them in a detailed and thorough manner. More importantly, there must be a full and frank discussion of the vulnerabilities that arise from the business proposed.

While the insurance industry is making strides in terms of bringing technological expertise into the industry, at present there is often a significant gap between bitcoin entrepeneurs and underwriters in terms of the technology and any vulnerabilities of which underwriters should be aware. In the long run, both parties are best served by that level of transparency because far too many business disputes are created by a lack of mutual understanding at the outset.

I realize that this article poses more questions than it could hope to answer, but if it serves to foster future dialogue, then it has served its purpose. I can only hope that it serves to foster further exchange (again, pun intended).

Gap image via Shutterstock

Disclaimer: The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, Bitcoin News.

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How Bitcoin's Technology Could Reshape Our Medical Experiences

Matt Weiss is a portfolio director and business designer at IDEO Boston, where he blends his experience in strategic design for large corporations with his roots in the startup world. Alongside Dan Elitzer and Joe Gerber, he runs the Bits + Blocks Lab, a pop-up blockchain startup creation lab hosted at the Harvard Innovation Lab.

This post, which examines how bitcoin's blockchain could reshape our medical experiences, is part of the Humans + Bits + Blocks series. Read the previous post in the series here.

Blockchains and health could be a happy marriage across a multitude of applications. From robust interoperable health records to proof of medication adherence, opportunities abound to create new value and enhance health-related experiences.

For the purposes of making this exploration tangible (as is our goal with this entire series), let’s follow the journey of a person with a chronic condition we’ll call Screenoritis* in a future with blockchains.

First, it’s important to know that Screenoritis is a troublesome condition. The prognosis isn’t fatal, but the symptoms of it are debilitating, ranging from sleeplessness to short-term memory loss. The good news? It is both treatable and reversible, though the path to recovery is not easy.

Jane is 34. She loves her job as an animator and works way more than the average person. It’s Thursday afternoon, she’s totally worn out from a super challenging scene she just finished, and she decides to take a break. It’s beautiful outside, so she heads out for a run by the river. About two miles in, Jane starts to feel a bit nauseous and then lightheaded. She slows to a walk, but even so collapses 100 yards down the trail. A runner coming from the other direction finds Jane unresponsive on the ground and calls 911.

When the ambulance arrives, the EMTs scan the fitness band on Jane’s wrist to retrieve her HealthChain ID, a unique public identifier used for health information. When Jane signed up for HealthChain, she created rules and named individuals who could verify access to her medical records. The EMT’s combine Jane’s ID with their own, which proves that they’re accredited emergency health responders.

They then issue a broadcast on the HealthChain network, which automatically generates alerts to Jane’s four emergency contacts asking them to validate that the EMTs can access Jane’s records. Ten seconds later, after two of her contacts grant access, the EMTs are able to access her emergency health info.

A few hours later, Jane wakes up in the hospital. She’s OK, but she’s shaken up and wants to understand what’s going on. The doctor on call sits down with her to explain her encounter with Screenoritis.

After reviewing some of the facts, the doctor asks if she’s willing to share her anonymized information in the public research repository – this has become standard practice, and she has no problem with it. She’s willing to share her medical history, pertinent data about the event she just experienced, and results from the tests they’re currently running.

Jane wants to learn what people like her have experienced and how she can get better. She and others have opted into share their information in order to participate in a private network. Compared to today’s self-guided searching, the doctor does a criteria match for her profile and finds an entire set of people who share many important characteristics with Jane, ranging from age to location to type of job.

Although Screenoritis is fairly widespread and medications have been developed to treat symptoms, recovery is still difficult and treatment of the underlying conditions have gotten little attention from the medical community.

As part of her initial research about the condition, Jane quickly discovers that there is a publicly crowdfunded bounty for the release of a treatment regimen that will treat the underlying causes of Screenoritis.

Her contribution is governed by a series of smart contracts that provide conditional access to treatments once they’re released. Unlike traditional crowdfunding, her contributions are held in escrow by the contracts until the treatment is ready for her.

Now that Jane has a solid understanding of her condition, she’s begun to see a specialist who has prescribed a daily physical routine for her in addition to well-known Screenoritis medications. Adherence to both is critical for recovery and also rewarded by her insurer. With a watch that can track her location and movements and pills that are instrumented to collect data, the information that the insurer and doctor needs is readily available. So long as Jane sticks to her agreed-upon treatment, the entirety of her bills are covered automatically — no paperwork needed.

Health and blockchains turn out to be a great match. Together, they can usher in a patient-centric revolution in how we take care of ourselves and others. In our most vulnerable moments, we’ll seamlessly share permissions to access important information attached to our identity. We’ll make advance promises of payment in return for new treatments that we desire. Rather than opaque risk models and quotas, insurance payments will be triggered by our verified healthy behaviors.

It’s time for health to get an upgrade. Far from state-of-the-art, our health is tracked, diagnosed and treated without the full benefit of technologies that we take for granted in other aspects of our everyday lives. The addition of blockchains could change that substantially, and we’re excited about these future opportunities becoming real.

* Screenoritis is not an actual disease.

Written by Matt Weiss, Dan Elitzer and Joe Gerber. Visual designs by Kim Miller & Nick Dupey.

Disclaimer: The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, Bitcoin News.

Bits + BlocksBlockchain TechnologyCrypto 2.0HealthHealthcareLifestyle

Bitcoin Opportunity Corp Backs Mexican Exchange Bitso

Bitso has closed a seed funding round led by the Barry Silbert-backed investment fund Bitcoin Opportunity Corp. and including undisclosed angel investors.

Launched in April 2014, Bitso recently acquired competitor Unisend Mexico as part of a bid to strengthen its market presence. Today, the company primarily offers an order-book exchange and Ripple gateway as well as a merchant processing product.

However, in statements, Silbert suggested that he sees the company's greatest asset as its position to help facilitate remittances to and from Mexico:

“Bitso is well-positioned to emerge as the region’s leader in bitcoin exchange and payments, and we are thrilled to partner with them to help build a big, important company in this emerging industry."

According to data from Pew Research Center, remittances to Mexico are estimated at $22bn in 2013, though such figures have fallen since a peak in 2006 due to the US housing market crash and a decline in the US immigrant population.

Mexico receives 40% of all remittances from Latin America, according to Pew data.

Mexico City image via Shutterstock

Barry SilbertBitcoin Opportunity CorpMexicoRemittances

Ex-Coinbase Compliance Exec: Basic Questions Still Hold Back Bitcoin

Digital gold, decentralized ledger, global currency – it's not easy to explain bitcoin in any setting, let alone to regulators or law enforcement officials.

If the task is any easier today, imagine attempting it in 2013. That was the challenge facing Coinbase's inaugural chief compliance officer (CCO) Martine Niejadlik. A former senior director at eBay and PayPal and senior manager of fraud prevention at Amazon, Niejadlik admits even she had trouble coming to terms with the tech.

"Frankly, the first time [CEO] Brian Armstrong called me to tell me about Coinbase and bitcoin I thought he was nuts," she recalls. "It took me some time, quite a bit of it, to understand why the technology could be very disruptive."

Niejadlik ultimately took the role, overseeing Coinbase's compliance during a period of rapid expansion that saw the company's user base grow from 650,000 users in December 2013 to 2 million in January 2015. She left the company in February to take the "greatest job in the world" as a full-time parent.

During her time at Coinbase, she oversaw the company's implementation and management of compliance procedures, ensuring that the firm and its employees operated in accordance with internal and external policies.

One of the biggest challenges of overseeing compliance in this setting, she believes, is the difficulty that comes with fitting bitcoin into existing regulations.

Niejadlik told Bitcoin News:

"Basic questions such as 'What is bitcoin?', 'Is it money?', 'Is it currency?', 'Is it an investment tool?', 'Is it property?' don't have straightforward answers, and different state and federal regulations contain different terms and definitions."

Niejadlik explained that this confusion is evidenced in how different US agencies have approached the subject, with the IRS treating it as property and FinCEN labeling it a currency. She went on to argue that there's a risk the compliance process will become more complicated should other global regulatory bodies follow a similarly diverse approach.

"More clarity and solutions are on the way, but the main question is whether there will be consistent answers – it'll be tough for bitcoin companies if, for example, states, or even countries, take a different stance and there is a real possibility that could happen," she said.

Compliance pain points

While bitcoin companies face many of the same compliance issues as traditional financial services businesses, she said others are unique, including the relative difficulty companies have securing banking partnerships and the high cost of licensing.

Niejadlik noted that simply working with other financial institutions like insurance companies to obtain surety bonds or audited financials that need to be supplied was part of the company's recurring responsibilities.

"The 'big four' are hesitant to sign off on things like whether a company is actually holding the bitcoin they say they are, think Mt. Gox, and for that matter, how to even properly account for such items on financial statements," she continued.

Elsewhere, burdens are placed on companies through mandates passed in the wake of the 9/11 terrorist attacks that aim to address money laundering and terrorist financing concerns.

"It's not easy to build technology that can figure out who is a good guy and who is doing something illicit, or how to figure out if your user is the real person on the Office of Foreign Assets Control [OFAC] list or if he just happens to be an unlucky individual with the same name as someone on the list," she said.

Such systems, Niejadlik says, are expected to be in place from the time a company begins interacting with customers, necessitating that startups "move quickly to implement solutions while working in parallel on their products".

Media pressure

Creating additional difficulty is the state of conversation about the technology among the general public, which Niejadlik framed as overly focused on negative incidents.

"There has been extensive media coverage of negative events such as Silk Road, Mt. Gox and other notable arrests and illegal activities," she said, arguing that this is state of affairs is "uncomfortable" to regulators, law enforcement and those seeking to work with the industry.

Niejadlik suggested that such negative press reinforces the heightened concerns of these parties, thus causing difficulties with what should be basic relationships for financial entities, though the coverage has not been without usefulness.

"I think media attention to some of the negative events is important as it helps the public understand things such as why to not store private keys with a company developed to facilitate Magic The Gathering transactions," said Niejadlik. "However, I do think proportionally there has not been enough attention to the benefits of the system and the good things happening in the bitcoin space."

Other issues, she suggested, have arisen regarding how media outlets portray a company's statements, such as when Coinbase formally launched its exchange.

Striking a balance

A more delicate balancing act, she said, is ensuring that companies are succeeding on both compliance and usability, a task that is not always easy as evidenced by the sometimes public outcry over the actions of industry companies.

For example, Coinbase came under fire following Niejadlik's tenure for what was denounced as invasive information collecting on firms that process bitcoin transactions.

Niejadlik said that privacy requires "ongoing internal conversations" over what's best for the company from a regulatory and product standpoint, especially in light of the push by regulators to be more demanding of the compliance efforts of companies like Coinbase.

"There is pressure coming from both new regulations [like the] NY BitLicense and from banks and their regulators to collect more data upfront, and that can unfortunately push users who are very concerned about privacy to services which are not regulated and may be less secure," she said.

Overall, she suggested that other professionals who fill a similar role in the industry would be wise to involve team members on both the compliance and product side in decision-making.

History repeated

Still, Niejadlik said that such challenges, while unique to the industry, are not dissimilar from those overcome by other the Internet's early success stories.

"Every company has it's challenges and set of problems to work through. In the early days at Amazon we were battling things like fraudulent credit card purchases and account takeovers. At eBay it was a whole host of policy violations such as listing banned items and leaving feedback on your own listings," she recalls, adding:

"Companies in the bitcoin space grapple with many of the same questions that PayPal did, and does, such as how to best balance consumer experience with mitigating compliance and fraud risks."

Niejadlik said that bitcoin companies are now able to rely on services provided by large online e-commerce websites such as analytical, account takeover mitigation and spam email solutions.

Overall, she expressed optimism that the abilities of the technology would be highlighted as similar solutions for the industry are developed, concluding:

"The challenge is that the systems to mitigate these risks are in various stages of development."

Niejadlik declined to answer questions specific to her work at Coinbase.

Martine Niejadlik is speaking at Consensus 2015 in New York. Join her at the Times Center on 10th September.

CoinbaseComplianceConsensus 2015Regulation

Kid-Friendly Minecraft Server Launches Bitcoin Economy

A multi-player server on the wildly popular video game Minecraft has introduced bitcoin to its world as a way of teaching children about digital currency.

While in-game currencies exist in several different minecraft worlds, using bitcoin means that players can take their money out of the game and use it in the real world too.

The server, PlayMC, features an in-game currency called 'bits' which the company has set at 100,000,000th of a bitcoin (commonly known as a 'satoshi'). The unit was chosen for its ease-of-use, as it represents a whole unit and allows players to be rewarded seemingly on a larger scale.

With additional opportunities for players to spend their bits on classes, items and other additional content within the game, PlayMC says it provides a "safe gaming environment for kids to enjoy and have the opportunity to earn their own money".

Minecraft for the uninitiated

As the third best-selling video game of all time, Minecraft has sold over 60 million copies. Especially popular with younger people, it allows players and game developers to build worlds from 3D blocks not unlike digital Lego.

Everything in the game is based on these blocks, which can either be destroyed or moved and placed to create anything within a player's imagination. It is an open-ended world with a high degree of flexibility as to what is possible, though some elements of the world are consistent across the different games.

Players can play alone or connect to servers like PlayMC, allowing multi-player games and interaction in the online world with thousands of other players.

Plugins allow game creators to determine the nature of play and objectives of the game, which usually involves players acquiring resources in order to build tools and structures, and sometimes fight off enemies.

PlayMC's bitcoin economy

PlayMC's server has plugins that change the main Minecraft game into mini-games, where players either cooperate or fight against each other to win. Each game has different objectives and different ways for players to earn their bits.

A company spokesperson said:

"For example in our game type 'ArcherGames' players fight each other in a last man standing game mode. Each player is rewarded a small amount of Bits for killing other players and if they come in first, second or third they are rewarded with a larger amount of Bits."

As well as awarding bits for standard play actions like kills and wins, PlayMC also allows its players to earn them for winning tournaments and powerups, and in non-game actions like bug reporting, blog post writing, bounties, and acting as server staff.

No parents had yet approached the company for more information on bitcoin but plenty of young players have been actively trying to understand digital currency, the spokesperson said.

Most of the team's time is now spent clearing up misconceptions about bitcoin and providing links that explain bitoin in simple terms.

PlayMC also has an extensive explanation of bitcoin and its in-game 'Bitconomy' on the company website.

E-commerce for kids

PlayMC follows in the footsteps of other bitcoin-oriented Minecraft servers such as BitQuest, though PlayMC is aimed specifically at children.

One of bitcoin's touted advantages is the way it provides access to electronic payments to those under 18. Children generally have restricted access to banks or credit card accounts.

Of course, anyone wishing to turn their bits into fiat currency will still need to go through a bitcoin exchange, which have similar verification requirements to banks. This could actually promote a bitcoin-based economy by engaging users who can't easily escape it.

PlayMC was founded from a partnership between AcroMedia and developer Brandon Gordon, the latter of whom has been involved with Minecraft for five years and bitcoin for three. Given his personal interests, incorporating bitcoin into the game "seemed like a no-brainer," he said.

The server was founded to introduce new levels of reliability to Minecraft, which often have an 'anything goes' reputation and servers come and go with regularity.

It boasts 99.9% uptime and is regularly updated to the latest Minecraft version. Its community is always able to make suggestions and the focus is being as kid-friendly as possible.

Minecraft image via Shutterstock

GamingKidsMinecraft

FATF: Regulate Virtual Currency Exchanges to Counter Crime Risks

The Financial Action Task Force (FATF) has recommended closer monitoring of digital currency exchanges and gateways to counter money laundering and terrorism financing.

FATF published its 'Guidance for a risk-based approach to virtual currencies' at a plenary meeting held this week in Brisbane.

The 48-page document acknowledges that digital currencies carry several economic benefits such as decreased transaction costs, financial inclusion for those lacking access to banking services and the facilitation of microtransactions.

However, they also carry risks of money laundering and terrorist financing and "other crime risks that must be identified and mitigated", it warns.

The international anti-money laundering and terrorism financing watchdog held its third meeting for the year under its current Australian presidency.

What the report recommends

Adopting the standard description 'virtual currency payments products and services' (VCPPS), the latest FATF document singles out currency exchanges for examination, saying only these gateways represent a risk at present.

It urges its member nations to gain a greater understanding of how digital currencies and VCPPS function, performing their own risk assessments in order to identify potential risks and allocate resources. Different agencies and policy groups in each country should share knowledge in order to be more effective, it added.

The report recommends that all exchanges should be registered and licensed, subject the same scrutiny as other financial institutions and money transfer businesses. Likewise, VCPPS should do the same due diligence as their traditional counterparts, and those accepting wire transfers from foreign countries should have adequate records of senders and beneficiaries.

If VCPPS or individuals that do not comply with the above requirements, FATF prescribes a "range of effective, proportionate and dissuasive sanctions".

It acknowledges there are, however, difficulties presented by the largely anonymous (or pseudonymous) nature of a decentralized blockchain, as well as an inability to prevent payments for certain prohibited goods, or person-to-person transactions.

There should be international cooperation to assist countries more affected by ML/TF crimes, including confiscation of digital currencies and extradition assistance. Any suspicious activity should be reported to authorities, with customers' identity and digital currency addresses recorded.

Similar to the UK Home Office statements uncovered earlier this week, FATF also mentions the possibility of entirely new digital currencies being developed with built-in mechanisms to mitigate the added risks of decentralized currencies.

FATF and digital currencies

FATF has had its eye on digital currency for some time, having mentioned "decentralised digital currencies" as a topic worthy of examination in a 2013 report.

It published a more focused report mid-2014 and in March this year it advocated for each digital currency to be evaluated separately on its attributes.

FATF has 36 members representing most of the world's major economies. It was established in 1989 to combat money laundering, terrorism financing and "other related threats to the integrity of the international financial system".

There is a rotating presidency among members, who hold plenary meetings three times every year. Its report on recommendations to combat money laundering and terrorist financing is published annually.

South Korea will take over the presidency from Australia starting July.

View the report in full below:

FATF: GUIDANCE FOR A RISK-BASED APPROACH VIRTUAL CURRENCIES

Money laundering image via Shutterstock

FATFMoney LaunderingTerrorism

RBS Trials Ripple as Part of £3.5 Billion Tech Revamp

The Royal Bank of Scotland (RBS) is undertaking a proof-of-concept with Ripple technology as part of its £3.5bn technological revamp.

Chief administrative officer Simon McNamara announced the initiative during a webinar on the bank's 3-year transformation plan last Thursday, just one day after a glitch which caused 600,000 payments to go missing.

The banking group, which has been plagued by a series of IT failures across its four brands, RBS, Natwest, Ulster Bank and Coutts, is now looking to boost its image as an 'innovation leader'.

Ripple is one of 24 other initiatives listed at the proof-of-concept stage with the bank. Logos from bitcoin startups Coinbase and Blockchain also feature further back in the RBS pipeline, under its 'qualification' stage.

Addressing the RBS investors and analysts on the webcast, McNamara said:

"I don’t know what’s going to succeed. What I'm certain of is that we are going to see blockchain solutions, peer-to-peer solutions emerging in our industry and we want to be close to that development."

Banking interest

Since Fidor went public with its Ripple integration in March last year, two US banks and three of Australia's 'big four' have expressed interest in using the peer-to-peer technology to streamline transfers.

According to McNamara's presentation, four teams of RBS experts spent two days exploring how the bank could use Ripple at one of its Technology Solutions Centres (TSC), later presenting their findings to business stakeholders.

RBA has been exploring other cryptocurrency angles as well: in collaboration with several Scottish universities and Design in Action, its Edinburgh TSC also housed a so-called 'Chiasma' where teams could win up to £20,000 to prototype business ideas related to the new technology.

The bank, which was briefly the world's largest prior to the global financial crisis, was bailed out by the UK government in 2008. Earlier this month, Chancellor George Osbourne said he would start selling (paywall) the state’s £32bn stake, despite a potential loss of £7.2bn for UK taxpayers.

Hat tip to Finextra

Featured image: Lucian Milasan / Shutterstock.com

BankingRBSRipple LabsUK

BitMoby's Bitcoin Top-Up Service Wins IT Award

Mobile payments company mHITs has scored two state-level awards for its bitcoin top-up service, BitMoby.

The platform won in both the financial and consumer industry divisions at the Australian Capital Territory's (ACT) iAwards, which honor the achievements of local ICT companies.

BitMoby allows users to send bitcoin to top up pre-paid mobile phone services in 117 countries worldwide, though not yet in Australia itself.

There is no registration requirement, with users needing to supply only their phone number, an email address and bitcoins to top up their account from $10 to $100.

The service is likely to be an advantage for people living in countries where mobile payments via SMS are common, and access to banking and credit cards less so.

BitMoby will now compete at the national awards, to be held in Melbourne from 25th–27th August.

AustraliamHITsMobile

Bitcoin Poker Site Operator to Plead Guilty on Gaming Charge

Bryan Micon, operator of now-defunct bitcoin poker site Seals with Clubs, has agreed to plead guilty to a charge of operating an unlicensed gaming website in Nevada.

Micon traveled from his home in Antigua to Nevada earlier this week to face the gaming charge after a warrant was issued for his arrest in April by the Nevada Attorney General’s Office.

Defense attorney Richard Schonfeld told the Las Vegas Review-Journal that Micon will serve an as-yet-unspecified probation term and pay a fine of $25,000. He will also forfeit assets seized when Nevada Gaming Commission agents raided his home in February, property that includes $900 in cash, computer equipment and just over 3 BTC.

The felony charge would be reduced to a gross misdemeanor, according to the Review-Journal.

The agreement to plead guilty comes months after Seals with Clubs abruptly closed in February, an act closely followed by the raid by the Nevada Gaming Commission.

Poker table image via Shutterstock

GamblingSeals With Clubs

Goldman Sachs Survey: Most Millennials Won't Use Bitcoin

A new survey published by Goldman Sachs has found that just over half of US millennials believe they will never use bitcoin.

Fifty-one percent of the 752 survey respondents said that they had never used bitcoin nor do they have any plans to do so. Twenty-two percent said they currently use it or have used it in the past, and intend to use it again.

An additional 22% said that they have never used bitcoin before but plan on using the digital currency. Just 5% of respondents said they have used bitcoin but do not intend to use it again.

The data forms part of a broader look at the financial inclinations of millennials, including how the demographic chooses financial services and how they manage money.

Among a group of payment options that included credit cards, Apple Pay and Square, bitcoin wallets scored relatively low in terms of trust. Less than 5% of respondents indicated they trust using wallet services, with Coinbase and BitPay being named directly in the survey data.

Few privacy concerns

Notably, a significant number of respondents displayed a general apathy toward financial privacy.

Goldman asked how willing millennials would be to "accept inconveniences" in exchange for reduced privacy and better security.

Thirty-four percent of male respondents and 48% of female respondents said that they were “not too bothered” as long as their service isn’t directly affected.

Twenty-two percent said that they are in favor of sacrificing privacy for the sake of security, whereas 20% of survey-takers replied that they weren’t willing to give up financial privacy.

Thirteen percent said that they are happy to accept loss of privacy for higher security, while 11% indicated that they didn’t care because they presume the government is already monitoring their transactions.

Respondents also expressed a high aversion to fees, with many suggesting that the costs would be a major influence in their choice of financial provider.

Image credit via Shutterstock

Goldman SachsResearchSurvey

Chain CEO: Nasdaq Partnership is No PR Stunt

"This isn't about PR for Nasdaq."

So explains Adam Ludwin, founder and CEO of Chain, the blockchain technology startup that has been in dialogue with American stock exchange and trading technology specialist Nasdaq for the past year.

Yesterday's announcement that Nasdaq would be testing the blockchain for its pre-IPO exchange Nasdaq Private Market with Chain, Ludwin said, was simply the first joint announcement between two companies that have developed a close working relationship.

But, while other tech companies like Microsoft and Dell have made big entrances into the industry only to fade from the spotlight, Ludwin suggests that Nasdaq's interest is more assured, given that the exchange operator believes the technology can solve key business challenges.

Ludwin told Bitcoin News:

"While the technology to exchange messages for trade is fast, the technology to actually move the asset and settle them is slow and very expensive. The opportunity here is to bring asset transfer into the 21st century and that's something we couldn't do easily before the blockchain."

Ludwin went on to suggest that Nasdaq Private Market, which enables private companies to track equity ownership and investor relationships, was the right first step for the company due to the limited number of third parties involved in its operation.

"They can demonstrate that it works and enlist private companies that want to experiment with this type of technology," he continued. "So that's the tactical decision."

The formal announcement follows a period of growing interest from mainstream financial institutions, including Nasdaq and the New York Stock Exchange, in blockchain technology, a sentiment evidenced by statements from Nasdaq CEO Greifeld.

“As blockchain technology continues to redefine not only how the exchange sector operates, but the global financial economy as a whole, Nasdaq aims to be at the center of this watershed development," he said.

Nasdaq had previously announced in May that it would trial blockchain technology in its equity marketplace, and that it would license its trading technology to exchange startup Noble Markets.

Improving private markets

Ludwin predicted that the pilot will be operational by the end of 2015, with Chain shares trading on the platform alongside an inaugural batch of other private companies.

The shares, he said, will move on the Open Assets protocol, a colored coins implementation that allows users to augment small amounts of bitcoin to represent shares. These shares can then be transfered and tracked across the bitcoin blockchain.

As a result, he suggested that the platform could remove traditional paper management systems and provide a better service than software management systems by eliminating "human errors" that could take place in such systems.

Ludwin said that Nasdaq would likely augment the Open Assets implementation to suit the company's needs.

"There are ways of implementing asset issuance and transfer that are more private than Open Assets," he said. "It will be more private than what people think of as a colored coin today."

Agnostic approach

Still, while Nasdaq has decided to build on top of the bitcoin blockchain, Ludwin suggested that Chain, and by extension, Nasdaq, are taking an agnostic approach to the technology.

"We believe that there will be an Internet of chains, there will be many, many interoperable blockchains," he continued. "As that innovation moves forward, one of the things that Nasdaq and First Data have selected us to do is make that transition very simple, starting with Open Assets but over time [maybe] moving that to a sidechain without interrupting the service."

Ludwin said that Chain is currently exploring all blockchain technologies and decentralized ledgers, but that it made the decision to build on top of bitcoin as he believes it was the "best tool for the job today".

The statement is notable given the increasing interest of Wall Street in more experimental permissioned ledgers, alternatives to the bitcoin blockchain that aim for greater levels of efficiency or attempt to create blockchains without tokens. This interest is perhaps best evidenced by Digital Asset Holdings' acquisition of decentralized ledger startup Hyperledger and its plans to release a range of blockchain-based financial products.

Ludwin went on to suggest that enterprise financial institutions are perhaps wary of the public nature of transactions on the bitcoin blockchain. Even though such transactions are pseudonymous, tracing the transactions of entities on the blockchain is possible, as new data tools have helped show.

In particular, he cited the privacy feature introduced by Blockstream in its latest Sidechains Elements release.

"We're very bullish on the pace of innovation happening at the protocol level and the privacy and security features that are continuing to be explored," he said.

Still, he suggested that both solutions will likely play a role in a blockchain-enabled future, speaking out about the "media circus" that pits these ideas as one-size-fits-all approaches.

"I think to build an interoperable Internet-based financial network, it's only going to happen if the industry and the open-source community collaborate, and I don't think that can happen if you're building a proprietary protocol," he said, adding:

"[But] I think for that those who have a serious interest and need, like Nasdaq and First Data, there's never just one answer."

Image credit: Stocksnapper / Shutterstock.com

ChainColored CoinsNasdaq

BitFury Taps Ex-CFTC Chair, Bitcoin Core Developer as Advisors

BitFury has announced a pair of high-profile appointees to its advisory board and established a new body of technical advisors.

New to BitFury's advisory board are former chairman of the Commodity Futures Trading Commission (CFTC) Dr James Newsome, and president of the Institute for Liberty and Democracy (ILD) Hernando de Soto.

Dr Newsome is also the former CEO of the New York Mercantile Exchange (NYMEX). An appointee of President Bill Clinton, he assisted the administration as a member of the President's Working Group for Financial Markets and led the CFTC’s regulatory implementation of the Commodity Futures Modernization Act of 2000 (CFMA).

Dr Newsome currently serves as a founding partner of Delta Strategy Group, a full-service government affairs firm based in Washington, DC. De Soto heads the ILD, named by The Economist as one of the world's two most important think tanks.

Dr Newsome said he was honored to serve on the board, stating:

"The forward-thinking approach by BitFury founders and management team regarding education, regulation and support for the entire blockchain community are perfectly aligned with my views."

De Soto compared BitFury's work to mankind's efforts to manage and utilize its information over the centuries, saying blockchain technology "may just be one of the most significant contributions to the history of organizing knowledge".

The bitcoin mining firm has also opened a new office in Washington, DC, a move it suggests will put it closer to some of the US's biggest lobbyists and policy influencers.

Technical advisory board

Separate to its main board, BitFury has also established a technical advisory board that includes bitcoin luminaries Jeff Garzik, original bitcoin core developer and CEO of Dunvegan Space Systems, and Paul Brody, former IBM vice president and Internet of Things (IoT) expert.

Brody is currently the Americas Strategy Leader for the Technology Sector at Ernst & Young.

Echoing his past statements about blockchain technology, he said it has more uses than in just the financial industry:

"It's about securing a world of billions of smart devices. BitFury has a unique understanding of the scale and scope of the opportunity combined with their deep expertise in hardware and software."

Previously announced members of BitFury's advisory board include former federal prosecutor Jason Weinstein; Samsung Electronics president and chief strategy officer Young Sohn; former chairman and CEO of UMC Dr Jackson Hu and founder and Binary Capital partner Jonathan Teo.

BitFuryCFTCIBMJeff Garzik

Blythe Masters Firm Acquires Two Blockchain Startups

Digital Asset Holdings, the secretive distributed ledger startup led by former JPMorgan executive Blythe Masters, has announced the acquisition of two blockchain startups: Hyperledger and Bits of Proof.

Hyperledger, which specialized in permissioned ledgers with no native cryptocurrencies, will merge with the Digital Asset (DA) team. Hyperledger CEO Dan O'Prey will become DA's chief marketing officer while CTO Daniel Feichtinger will join the company's engineering team.

In addition, DA has acquired bitcoin software startup Bits of Proof, a move that finds CEO and founder Támas Blummer joining as DA's chief ledger architect.

In a statement, Masters said that the acquisition of the two startups enables her company "to help clients harness the power of distributed ledgers to serve their own customers".

She continued:

"We integrate financial infrastructure with a variety of innovative new technologies inspired by the blockchain. Different ledger technologies serve different purposes and all of those we integrate with are additive."

The acquisitions come amid rising interest in blockchain technology among the world's financial institutions.

Banks and other financial companies have been looking at both the use of the bitcoin blockchain as well as private, permissioned blockchains as a way to reduce settlement times and increase the degree of trust between parties.

The sales amounts for the Hyperledger and Bits of Proof deals were not disclosed.

DA, Bits of Proof and Hyperledger did not immediately respond to requests for comment.

Handshake image via Shutterstock

Bits of ProofDigital Asset HoldingsHyperledger

Coinplug Wins $45,000 Prize for Blockchain ID Service

Bitcoin services company Coinplug has snatched the top prize in a financial technology competition sponsored by major banking group JB Financial Group.

Over 100 companies vied for a total prize pool of 130m Korean won ($116,200) at the FinTech Frontiers Fair held in Seoul, South Korea.

JB Financial Group is a financial services company with over 35.5 trillion Korean won ($32.3bn) in assets and 3,300 employees. It is one of the leading innovators of financial technology in East Asia.

Coinplug's winning entry, which scored 50m KRW ($45,500), was a system utilizing the bitcoin blockchain to verify user identity in online transactions. It works by taking a cryptographic hash of a user's personal information and using that hash to create a certificate, which is then recorded on the blockchain as a transaction.

The blockchain's permanence means that information cannot be altered or modified once saved. Personal information is further protected from leaks, since Coinplug uses only the hashed information to verify, never seeing the original. No personal information needs to be stored at all.

Benefits over existing systems

Coinplug CEO Ryan Uhr told Bitcoin News the system offered three main benefits: accessibility on more web browsers, security of private information, and reduced cost of issuance.

The blockchain system can be used in any web browser and does not require additional software such as ActiveX or NPAPI, which need plugins for proper operation. The certificates can also be re-issued easily on Coinplug's smartphone application.

Chief Security Officer Dr Joo Han Song and Researcher Saang Lee led the project

Coinplug is already in talks with several financial organizations who are interested in offering the service, and Uhr said winning first prize at a mainstream even definitely made other companies pay attention.

"When blockchain-based authentication systems become a widely used method for financial transactions and e-commerce payments, there will be a very interesting and noticeable change in the market for user certification."

Cost advantage

South Korea's e-commerce and banking systems are currently required to authenticate users with Microsoft's ActiveX technology, running only on Windows and in the Internet Explorer browser (see details below).

Coinplug's system would also deliver significant cost savings, Uhr added.

The current market size of Korea's user certificate system is around 120bn KRW ($110m), with each new certificate issuance for an individual running at 4,400 KRW ($4) and 110,000 KRW ($110) for a corporation. Registering instead through the blockchain would cost just the 0.0001 BTC (30 KRW, or 3 cents) transaction fee.

Coinplug now needs to wait for official government approval to work its system into the national financial infrastructure.

Particularly important for Korea

Coinplug's use of blockchain technology could free Koreans from a legacy 1990s e-commerce law unique to that country, one that has prompted several security concerns.

In that decade, South Korea developed a local encryption system called SEED, designed to encourage e-commerce by providing user authentication with digital certificates. The only problem was that all e-commerce sites needed to verify the certificates with Microsoft's ActiveX plug-in.

Since ActiveX is supported only on Windows, Korean users were locked into using that system and the Internet Explorer browser. ActiveX is known to have several security flaws, increasing risk of hacking attacks and personal information leaks, with even Microsoft now discouraging its use.

This system is only now beginning to disappear from Korean networks. A law in 2010 mandates that companies who wish to authenticate users with non-ActiveX technology must prove to the government their system offers the same level of insurance.

Seoul image via Shutterstock

AsiaBankingCoinplugSouth Korea

FTC Warns Consumers of Bitcoin Shopping Risks

The US Federal Trade Commission (FTC) has penned a new blog post aiming to give advice to consumers who may pay for products with digital currencies such as bitcoin.

Written by Kristin Cohen of the FTC's Office of Technology Research and Investigation, the post outlines the types of complaints the US agency receives in relation to the emerging technology.

According to the FTC, these are the most often-cited issues with merchants who accept bitcoin and other digital currencies:

"The FTC has received hundreds of complaints involving bitcoins and other virtual currencies. The two most common problems? Online merchants who don’t deliver the product on time — or at all — and merchants who give refunds in store credit, rather than currency."

The post was released with an infographic that sought to illustrate this pain point, showcasing a return process where a consumer spends $100 in bitcoin, only to be refunded $75 due to the fluctuating value of the digital currency.

Cohen goes on to recommend that those who buy items with bitcoin first check the seller's reputation before exploring how the payment will be processed by the merchant.

"If you pay with bitcoins, the only way to get a refund is through the seller or payment processor, so it’s important to choose companies you trust," the post states.

Refund and return

One common problem, the FTC suggests, is the differing ways merchants that accept bitcoin handle the refund process.

Accordingly, Cohen recommends US consumers determine the merchant's policies regarding damaged goods, the exchange rate that will be used for refunds and how the refund will be processed before proceeding with a sale.

"Because people can change their virtual wallet accounts, a seller can’t always send a bitcoin back to the wallet it came from," the agency cautions.

The FTC also instructs consumers to ask how their financial information will be protected given the wallet addresses that execute bitcoin transactions will be available in the technology's public ledger, the blockchain.

"If the seller uses a payment processor, check its privacy policy, too. A recent FTC report found many shopping apps had privacy policies that included broad rights to collect, use, and share data," she continues.

The post concludes with information on how consumers may file complaints with the FTC.

Wake-up call

The FTC's writings were further highlighted in a subsequent advisory issued by law firm Manatt, Phelps & Phillips, LLP to its clients that sought to highlight conclusions for firms operating in the digital currency industry.

Writing on behalf of the firm, Carol Van Cleef and Linda Goldstein suggest that the post could foreshadow more formal actions by the agency against industry participants.

"The blog post makes clear that the FTC believes it is very important consumers in these transactions be made fully aware of all of the material terms of the merchant’s return and refund policies since these payments do not enjoy the same legal protections as credit card payments," the authors write.

Van Cleef and Goldstein sought to portray the advice to consumers as potentially significant for industry merchants and processors.

"Sellers and processors in consumer transactions involving virtual currency should expect the FTC to scrutinize their privacy policies and procedures like those of sellers and processors in other types of transactions," the authors write.

The guidance goes on to conclude that the industry should treat the blog post as a "wake-up call" about the need for merchants and processors to address privacy concerns.

Image via Shutterstock

FTCMerchants

Blockchain Startup Raises $2 Million for Intellectual Property Solution

A startup that uses the bitcoin blockchain to establish digital ownership of art and other creative works has raised $2m in seed funding.

Ascribe received backing from Earlybird Venture Capital, Digital Currency Group, Freelands Ventures and a group of angel investors, according to a report by TechCrunch.

Founder Bruce Pon told the news outlet that the idea for the product first took shape in 2013, explaining:

“The idea to use blockchain to allow artists to create digital scarcity germinated in mid-2013 when [founders] Trent and Masha [McConaghy] asked ‘Can you own digital art like you own bitcoin?’"

The prototype for the project, Pon explained, was built by McConaghy in fall of 2013, with the founders leaving to pursue the project full time in 2014.

"Since then, we’ve been refining the technology and working with early users," he continued.

Artists that use ascribe essentially create digital deeds for their work, which are then subsequently time-stamped onto the bitcoin blockchain. As shown below, once a file is uploaded to Ascribe, it creates a digital certificate that can be then be traded, tracked or loaned, thereby creating a chain of ownership for that work.

 

 

 

 

 

 

 

 

 

Proof of the transaction can then be found on the bitcoin blockchain. Ascribe utilizes an open-source protocol called SPOOL that sits on top of the bitcoin blockchain as a registry for works.

Ascribe has seen growing interest from both artists as well as companies that provide digital media, according to the company. Notably, the startup began partnering with Creative Commons France earlier this month.

Data bits image via Shutterstock

ArtIntellectual PropertyLifestyle

Overstock Reports Over $100k in Bitcoin Losses for Q1 2015

UPDATE 25th June 0:00 UTC: Updated with comment from Overstock cryptocurrency group general manager Judd Bagley.

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US retail giant Overstock lost $117,000 on its investments in cryptocurrencies during the first quarter of 2015, according to the company's latest quarterly earnings report.

Overstock listed its cryptocurrency holdings as valued at $233,000, down from $340,000 on 31st December.

Long one of the largest merchants in the digital currencies space, Overstock had previously indicated that it was holding as much as 10% of its proceeds from such sales in bitcoin.

The filing suggests Overstock is still holding the funds in bitcoin, as it noted subsequent increases in the value of bitcoin could be recognized in later filings. What remains unclear is whether the company is still actively adding to its holdings from bitcoin sales.

In its latest SEC filing, the company noted that it receives all bitcoin payments via a third party denominated in US dollars.

The company wrote:

"At present we do not accept bitcoin payments directly, but use a third party vendor to accept bitcoin payments on our behalf. That third party vendor then immediately converts the bitcoin payments into US dollars so that we receive payment for the product sold at the sales price in US dollars."

In addition to cryptocurrency, Overstock also holds nearly $10m in gold and silver as well as interest and equity in businesses that will help facilitate its plan to build a decentralized stock market.

Clarification given

Speaking to Bitcoin News, Overstock cryptocurrency group general manager Judd Bagley indicated that the loss was primarily the result of declines in certain altcoin markets in which the company has invested.

"The swing in the value of our cryptocurrency holdings is attributable to the sale of some of our non-bitcoin cryptocurrencies, the use of some of our bitcoin to pay for services including our membership in the Chamber of Digital Commerce, and changes in the market," he said.

He went on to clarify that the company "holds more than just bitcoin", but did not clarify which digital currencies Overstock has invested in.

Bagley stated that, in its quarterly filing, the holdings are considered a part of the same asset class.

"We’ve invested in other cryptocurrencies over time, and for the purposes of the SEC filing, we lump them all together," he continued.

Risky business

Elsewhere, cryptocurrencies are listed as a potential legal risk for the company, with Overstock noting that penalties for non-compliance with local laws governing cryptocurrencies could "negatively impact" the business.

Overstock was also upfront about the risks it faces carrying out its decentralized stock market project, Medici, writing that it does not have significant internal experience with this type of project, and that it may be expensive or ultimately unsuccessful.

Such language, though, is used broadly and throughout the filing, with Overstock noting its attempts to brand the company as O.co overseas may also fail to gain traction.

Despite the risks, however, the filing suggests Overstock will continue to be long on its investment in bitcoin as a speculative asset.

"In the future, we may transact in cryptocurrency directly or increase our cryptocurrency holdings," the filing states. "This will subject us to additional exchange risk and other risks as described above, which may have an adverse effect on our results."

Stan Higgins contributed reporting.

O.co image via Shutterstock

MerchantsOverstockPatrick Byrne

NY Bitcoin Businesses Now Have 45 Days to Apply for BitLicense

The New York State Department of Financial Services (NYDFS) has officially adopted the BitLicense following the framework's publication in the New York State Register.

Now in effect, the BitLicense makes New York the first US state to formally launch a custom-made regulatory approach to bitcoin and digital currencies.

The publication in the register also kicks off a 45-day grace period, during which time companies and individuals that offer digital currency services to New York residents must apply for a BitLicense.

Obtaining the BitLicense means paying a $5,000 non-refundable application fee, with the possibility of additional application costs as determined by the NYDFS, and submitting details about those running the company, their financial and legal histories and their plans for running a digital currency business.

The final version of the BitLicense states that once a business or individual has applied, they are considered compliant until a determination on their application is made. If denied, they must immediately stop doing business in New York.

The text suggests that any entity that doesn't apply faces possible sanction, noting:

"Any person engaged in virtual currency business activity that fails to submit an application for a license within 45 days of the effective date of this regulation shall be deemed to be conducting unlicensed virtual currency business activity."

Yet, the BitLicense text itself is silent on the issue of how non-compliant businesses might be cited or penalized. When reached for clarity, a representative for the NYDFS declined to comment on how enforcement actions may be taken.

The NYDFS is expected to post an update on its official website regarding the official launch of the BitLicense and the commencement of the 45-day grace period.

New York skyline image via Shutterstock

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Deal Brings Bitcoin Option to Over 20,000 Japanese Retailers

A deal between bitcoin exchange Quoine and payments network Econtext will allow more than 20,000 online and eventually physical merchants to accept bitcoin in Japan.

The move essentially allows merchants that already use Econtext's payment processing services in thousands of online stores to accept bitcoin payments without the need for a bitcoin-specific processor. The service will be available for businesses to use today.

Quoine CEO Mario Gomez Lozada said his company had entered into discussions with Econtext last year, and has since done extensive integration work to connect it to Quoine's payments platform.

Gomez Lozada told Bitcoin News:

"For us, it's a pretty significant deal."

According to Gomez Lozada, Econtext has signed up a couple of merchants to accept bitcoin already and is actively approaching others.

The partnership could spur a large increase in the number of bitcoin-accepting merchants in Japan, where adoption has been slower than in other nations due to negative media attention from the Mt Gox insolvency.

How the system works

Quoine's exchange interfaces with the merchant's checkout system, supplying a bitcoin price for the merchant to quote to the customer.

The quoted rate is locked in for both customer and merchant for 30 minutes, even if bitcoin fluctuates wildly in that time. Econtext supplies a payment method selection screen for its merchants to use, which will now feature a bitcoin option and display QR codes customers can use to make the payment.

The company is a recently-acquired subsidiary of Digital Garage Inc, a Japan-based technology investment company. It provides 'settlement services' for businesses, working with payment systems like credit cards, electronic money and loyalty points, as well as convenience stores, banks and communications carrier bills.

Quoine bolsters offering

Known more to professional forex traders than general consumers, Singapore-based Quoine claims to be the highest-volume bitcoin exchange operating in the Japanese yen market.

Gomez-Lozada said the exchange currently averages volumes of between 500 and 1,000 BTC a day, with that number leaping much higher on special days and holiday periods.

"Our growth has been quite significant in terms of volume, it's been quite amazing and we continue to see volumes going up."

As well as bitcoin, Quoine allows accounts in 10 fiat currencies.

Quoine recently enabled the ability to trade bitcoin through other fiat currencies on its platform. While users could previously only trade with their local fiat currency, they may now speculate for profit on another level by trading BTC for other currencies using their original local balance.

The exchange also allows up to 25x margin trading (with bitcoin or fiat collateral), algorithmic trading, Japanese yen futures, interest-earning bitcoin lending and API access.

Street image via Shutterstock

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Crypto Processor Vogogo Nets $12.5 Million in New Financing

Online payments service provider Vogogo has raised $12.5m as part of a bought deal financing round led by prior investors Beacon Securities, Clarus Securities and Salmon Partners.

The funding brings the public company's total fundraising to $21m since the start of 2014. Vogogo raised $8.5m in venture funding in August of last year, prior to its debut on the Toronto Stock Exchange in September.

As part of the bought financing, Beacon, Clarus and Salmon acted as the official sellers of Vogogo shares on the open market in exchange for a fee on the total proceeds.

Vogogo CEO Geoff Gordon indicated that the funds will be used by the company for key acquisitions, security deposits with banking partners and in furthering its first-mover advantage as a compliance-focused firm in the cryptocurrency space.

Gordon told Bitcoin News:

"I think there are groups that are capable of doing it, but we're clearly ahead of any potential competitors. We're here for the long haul and we want to enable this industry with good risk management and compliance."

Gordon suggested the funds will help "settle down" the company's stock, which has declined from a three-month high of $3.50 per share on 10th April to a press-time total of $1.93.

Vogogo estimated it now has 20 cryptocurrency industry clients integrating with its products, with the most high-profile being exchange such as Bitstamp. However, Gordon indicated that this client pool is diversifying as the industry evolves.

"We're just getting going with the platform, but we continue to see new groups coming to us. You still have big exchanges, but it's now remittance services and different financial services," he said.

Image via Vogogo

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First Spanish University Installs Bitcoin ATM on Campus

The number of global universities equipped with bitcoin ATMs increased on 22nd June with the announcement by Pompeu Fabra University (UPF) that it would install a unit on its Poblenou campus.

With the news, Pompeu Fabra joins MIT in the US, Simon Fraser University in Canada and the University of Zurich in Switzerland as universities that have installed bitcoin ATMs. Founded in 1990, the university boasts a community of nearly 10,000 students and an annual budget of €118M.

UPF professor of technology and communications Miquel Oliver suggested that the installation is part of the university's broader mandate to expose students to potentially disruptive new technologies.

Oliver said in a statement:

"We want to contribute to the general discussion on how the Internet impacts our lives."

Operator Miquel J Pavón Besalú told Bitcoin News that the earnings from the ATM will be used "to promote cryptocurrency research and for crowdfunding university projects" related to bitcoin.

As part of its efforts to promote the ATM, UPF will team with the Barcelona Bitcoin Community, a local meetup and interest group that boasts more than 500 members, to engage the student community.

The ATM, manufactured by Boost VC-backed startup BTCPoint, allows both buy and sell functionalities and will enable students to purchase up to €1,000 in bitcoin per day.

UPF's new bitcoin ATM may not be the last, as the university indicated that it may consider adding a second unit to its Ciutadella campus should the first unit prove popular.

Images via UPF; Television Barcelona

Bitcoin ATMsBTCPointSpainUniversity

Home Office: UK Should Create a Crime-Fighting Cryptocurrency

The UK Home Office believes the government should consider creating its own digital currency that limits anonymity and increases the traceability of transactions.

In a response to the Treasury’s call for information on digital currency, the Home Office highlighted both the positives and negatives of existing digital currencies, such as bitcoin.

The government department, which is responsible for immigration, counter-terrorism, police and drugs policy, recognised the low cost of transactions and increased speed of payments provided by digital currencies.

However, the document, which was obtained by Bitcoin News via a freedom of information request, also highlights some of the associated downsides, such as the fact cryptocurrency affords a degree of anonymity to criminals.

With this in mind, the Home Office said in its submission: “We believe that there might be a number of advantages of any digital currency for the UK being created and owned by central government.”

Restrictions

It goes on to say one major advantage of government-created digital currency is that it could be designed to limit use for criminal and terrorist purposes.

“In particular, a digital currency owned by the UK government would be controlled by a central body ... It could also be pegged to a fiat currency, to reduce potential fluctuations in its value,” the submission continues.

The response suggests a government-issued digital currency should be designed in such a way that its ownership and use can be traced, enabling law enforcement agencies to identify whether it has been used for criminal or terrorist purposes and who by. It continued:

“Access to such information would need to be restricted, but would be of use to law enforcement agency investigations and anti money laundering work. It would also have the additional benefit of acting as a deterrent to criminal use, as criminals would be unlikely to want to use a currency that it is traceable.”

Regulation should also require that any digital currency involved in criminal activity can be seized by the authorities, the department’s response states.

Preventing fraud

The Home Office highlights that, as bitcoin transactions are irreversible, fraudulent payments can be made without recourse.

It suggests a government-created cryptocurrency should be designed in such a way that fraudulent transactions can be reversed.

“It would make sense to identify how fraudulent transactions can be unwound and the digital currency reimbursed to the legitimate owner,” the submission states.

However, it does not mention that the irreversibility of transactions is seen, by some, as a positive feature of bitcoin. Many merchants favour this feature as it means they are not subject to fraudulent chargebacks.

Exchange licensing

According to the Home Office, cryptocurrency exchanges should be licensed, with their licenses withdrawn if they fail to meet certain requirements, such as the monitoring of transactions and reporting suspicious activity to the National Crime Agency.

The department suggests digital currency companies, such as wallet providers and exchanges, should be required to carry out the relevant anti money laundering and know-your-customer checks on its users.

Essentially this would mean digital currency exchanges face the same requirements as other financial institutions.

In order to ensure the success of regulation created in the UK, however, the Home Office claims international cooperation is “essential”. The response states:

“The conversion point where fiat currency becomes digital, and vice versa, is hard to oversee, given digital currencies have global reach. Without global consistency in approach, oversight and security is difficult.”

Similar themes

The Home Office response offered some similar recommendations to the response submitted by Citi’s Treasury and Trade Services Technology and Innovation Team. Citi also suggested the Treasury should consider creating its own digital currency.

The response from MasterCard, on the other hand, emphasised the risks associated with cryptocurrencies and stated that currencies such as bitcoin don’t have many, if any, strong benefits.

Another company to submit a response was Accenture, which suggested the UK government should consider regulating bitcoin wallets and apply the same identification requirements to wallet providers as it does to banks.

Action taken

Little action has been taken by the Treasury since it received responses to its call for information. In March, it published a report, stating plans to apply anti-money laundering regulations to digital currency exchanges.

The report said the Treasury will also hold a "full consultation" on the topic of cryptocurrencies and revealed that £10m had been earmarked for research into digital currency technology.

View the Home Office response to the call for information in full below:

Home Office Digital Currency Response - Bitcoin News

London image via Shutterstock. Home Office image via Flickr.

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