Opinions abound:

Fast Company: “Details of the program are sparse–we reached out to the RCM, but haven’t heard back yet–but it appears users are given a MintChip ID, and allowed to top up their accounts with funds. Users can exchange value with each other, or pay merchants via MintChip. The value will be stored on MicroSD cards, USB sticks, or remotely in the cloud, all for use by smartphones running Windows, iOS, Android, Blackberry, or on desktop and mobile browsers–that is, once the apps are created. “

MintChip works online and offline, at the physical Point-of-Sale, on mobile devices, and enables easy person-to-person payments.

Techcrunch: “The reliance on trusted, independent hardware seems like the weak link here, and all it will take is a few hackers (on their own or backed by bank and credit interests) to make public a tool that fools either brokers or merchants into thinking a transaction has taken place. Not a trivial task, but far from impossible. This gives the whole system a bad smell for anyone looking to adopt it. Credit card fraud is rampant, admittedly, but that’s more a function of the system’s widespread use and acceptance. MintChip doesn’t have the advantage of being accepted everywhere.”

Hacker News: “This is a big step backwards from the security of Bitcoin. All someone has to do is break open the hardware and extract its key (or take its key with a side-channel attack) and they can double-spend money. That’s problem one. Bitcoin’s entire byzantine protocol exists entirely to solve the double-spend problem, and it works, while this doesn’t.

Every MintChip has an ID, and every transaction is logged on both the sending and receiving device with the ID of the other device. This means that if someone takes your chip, they get a complete record of every transaction you’ve ever made. In other words, it’s not anonymous at all. That’s problem two. Bitcoin solves this by encouraging users to generate a new address/private key for every incoming transaction, so that matching up addresses to people is hard.

It’s tied to single physical devices which can be lost or damaged. This makes them unsuitable for storing savings. Bitcoin wallets, on the other hand, can be backed up securely.

Both MintChip and Bitcoin can be stolen if the attached device is compromised. Bitcoin is designed in a way that makes it possible to fix that, and developers are working on a fix: multi-signature transactions (so you have several computers, or a computer and a phone, and all of them must agree to any outgoing transaction). MintChip, however, cannot solve this problem in any way except with chargebacks, and the documentation given so far indicates that they aren’t supporting that.”

Something Awful: “are those canadian dollars or real dollars?”

With its fast rise to mainstream type awareness, Bitcoin had some issues.  The main trading platform MT Gox went down, people got accounts hacked and the general instability of Bitcoin valuations cause many people to wonder if it was done before it really got started.

Enter Ruxum: “Ruxum makes it dead simple to buy, sell and trade Bitcoin. We are dedicated to building the best, most secure and easiest to use multi-currency Bitcoin trading platform on the planet.

We are a small (but growing) multidisciplinary team of 16 and we bring both our passion and our experience to be able to build you the best solutions for virtual goods, both offline and online. In the past, we have built Internet banking, trading and other secure, complex and scalable solutions for fortune 500 companies on three continents.”

Ruxum Exchange makes it dead simple to buy and sell virtual goods.

From Techcrunch:

“Today, Ruxum is launching into private beta with a new exchange that will allow users to buy, sell and trade both Bitcoin and Namecoin. Namecoin, for those unfamiliar, is a fork of the Bitcoin project, which uses the P2P network to, instead, build a decentralized domain name system that is less vulnerable to downages. For more on Namecoin, click here.

Ruxum will accept real money deposits, with cash payments being made by bank or wire transfers from nearly anywhere in the world. Currently, USD, EUR, GBP and JPY are accepted currencies, with six more coming in the near future, according to the Ruxum founder. Payments to Bitcoin and Namecoin addresses can be made anytime via a user’s Ruxum account.”

Two factor authentication: ” Ruxum offers an optional two factor authentication security solution for your account.  This means that you need your regular username/password combination + an additional unique authentication.  If both are not provided, access to the account is denied.

Designed to be small in size and low in weight, the trays enable safe, easy and cost efficient transportation of any number of YubiKeys. For example, up to three YubiKeys can be sent with the postal service, using a standard envelope and stamp. A box of 5,000 YubiKeys (100 trays) weighs around 20 kilos.

MT Gox gets hacked

The hits just keep on coming with every one’s favorite virtual currency.  In addition to a number of new mainstream articles, the primary bitcoin exchange, MT Gox got hacked a few hours ago.  Tradehill, a new exchange, also halted trading to give people time to change passwords that they may have been using for both systems.

Statement from MT Gox:

“The bitcoin will be back to around 17.5$/BTC after we rollback all trades that have happened after the huge Bitcoin sale that happened on June 20th near 3:00am (JST).

One account with a lot of coins was compromised and whoever stole it (using a HK based IP to login) first sold all the coins in there, to buy those again just after, and then tried to withdraw the coins. The $1000/day withdraw limit was active for this account and the hacker could only get out with $1000 worth of coins.

Apart from this no account was compromised, and nothing was lost. Due to the large impact this had on the Bitcoin market, we will rollback every trade which happened since the big sale, and ensure this account is secure before opening access again.

UPDATE REGARDING LEAKED ACCOUNT INFORMATIONS

We will address this issue too and prevent logins from each users. Leaked information includes username, email and hashed password, which does not allow anyone to get to the actual password, should it be complex enough. If you used a simple password you will not be able to login on Mt.Gox until you change your password to something more secure. If you used the same password on different places, it is recommended to change it as soon as possible.

SERVICE RETURN

Service will not be back before June 20th 11:00am (JST, 02:00am GMT). This may be delayed depending on what is found during the investigation.”

Statement from Tradehill:

“TradeHill has recently learned that a large number of user accounts at a competing Bitcoin exchange have been compromised. Because of the possibility that our users may have used the same password on multiple exchanges, we will be halting the ability to trade or withdraw funds for a few hours. We hope this will give all of our users time to reset their passwords if needed. You can reset your password by clicking on your username in the upper right of the website. This merely a precaution, and we do not have any evidence that our site has been compromised in any way. More info soon.”

Tradehill - halts trading after MT Gox hack

The inside story from Dailytech:

“First, it is clear that the Mt. Gox database has been stolen.  According to one source the database had 61,020 entries — roughly in line with Mt. Gox official MagicalTux’s previous statement.

Within an hour of the hack, reportedly 100,000 Bitcoins were sold at incredibly cheap rates on Mt. Gox, plunging the market from around $17.50 USD per Bitcoin to just $0.01 per Bitcoin.  Meanwhile 400,000 other Bitcoins were reported missing.

That’s roughly 1/13th of the total Bitcoins in existence, or about $8.75M USD at the previously market value.

Around the same time an unknown party also posted a Pastebin commenting:

I have hacked into mtgox database. Got a huge number of logins password combos.
Mtgox has fixed the problem now. Too late, cause I’ve already got the data.

Will sell the database for the right price.
Send your offers to:
gfc06@hotmail.com”

A philosophical view from Ars Technica:

“Theoretically, this weekend’s developments shouldn’t damage Bitcoin’s long-term value, since the security model of the underlying currency remains uncompromised. But Bitcoin is a fiat currency; its value ultimately depends on nothing more than public confidence. If the recent string of Bitcoin-related security woesconvinces more Bitcoin users to cash out, the currency’s value could continue to fall.”

Its too early to tell what all of this will mean for the fledgling currency.  I do know I would not want to be writing a business plan that depended on bitcoins, or would I?

Re: I just got hacked - any help is welcome!

Ars Technica reports that a long time Bitcoin miner says his system was compromised and Bitcoins were stolen.  I guess following the hype and valuation jump some kind of subterfuge was to be expected.

From Ars:

“The user known as “allinvain” is a long-time contributor to the Bitcoin forums. He says he’s been mining Bitcoins for over a year, and had amassed a fortune of 25,000 BTC. This was a modest sum a few months ago, when Bitcoins were worth pennies, but over the last two months the value of a Bitcoin skyrocketed to around $20, which means 25,000 BTC would have been worth half a million dollars. “I remember watching the price like a hawk,” he wrote.

And then disaster struck. “I just woke up to see a very large chunk of my bitcoin balance gone,” he wrote.

Like good journalists, Ars followed up with Gavin Andresen:

“Ars Technica talked to Gavin Andresen, the leader of the Bitcoin software project, about the incident. Andresen said that it would be difficult to confirm the authenticity of the report. “All Bitcoin transactions are broadcast on the network,” he said. “So if someone wanted to claim they lost a bunch of bitcoins, they could claim that any transaction on the network belonged to them.”

Still, the kind of attack described in the post is certainly possible. Andresen says he always emphasizes that Bitcoin is an experiment, and not (yet) for the faint of heart. “Unfortunately, this is an expensive test case for the guy who lost the Bitcoins,” he said.”

Ouch, not exactly the kind of confidence inspiring message from a project lead.

In the comments on the Ars post many people said, well its only monopoly money anyway.  While I agree with that I still hold out some hope that a digital currency will raise above the geekmark and present a real solution.

In the forum post by the miner he states:

“You’re right this can only be blamed on me. I am the flaw with bitcoin, but let’s be honest the wallet should be encrypted. The developers should’ve put a very very high priority on this the moment bitcoin went over $1. They knew that this was bound to happen and someone is going to get hurt and if they taken preventative measures early this could’ve never happened. Now that’s one side of the coin, the other side is that I’m an idiot for keeping a wallet.dat file with so much  money on my day to day machine – especially one running windows.

I’d at least like to know who took them or find out how.”

Not that it makes it any better.  The forum goes on for another 20 or so pages… towards the end another miner suggests a better set up:

“First, I personally would never run “Bitcoin safe” with 25k Bitcoins on a Windows computer. Too big a security risk.

Second, even on Linux, to keep large amount of coins on your computer, it should be extra protected with some complex security. A virtual machine with Linux on truecrypt-encrypted hard drive with Bitcoin installed should be enough – it will make life much harder for any keyloggers & hackers to infiltrate it.

With computers it is quite easy to do virtually infinately complex system of safes to store your Bitcoins. You can create a virtual “room of mirrors” using VM in Truecrypt in VM in VM in Truecrypt in VM in Truecrypt and such.

Such an installation could look like this:
Truecrypt(VirtualBox(VirtualBox(Truecrypt(VirtualBox(Truecrypt(Your Bitcoins))))))

You can store some Bitcoins on every layer of this onion, but you should only store large sums on the last layer.”

Bitcoin trading range - 6/6 to 6/12 2011

Its been a big week for Bitcoin,  everyone’s favorite p2p digital cryptocurrency.  There was a spot on CBS a post on Smart Money and two Senators pushed for “something to be done!” Most all of the recent buzz can be linked to the Gawker article about Silk Road, an underground digital market place that sells drugs.  But in this case the buzz was big enough to attract some interest from the main stream media, albeit from the weird offshoot of needing to fill a 24 hour news cycle.

All of the attention sent the trading range for Bitcoins moving up past $31 on the 10th and 11th, down to just under $11 today and then back to around 20.  I guess this one is going to jump around between hype and bubble for a while.

The CBS appearance was via a video interview with Bitcoin project developer and founder of Bitcoin watch, Jeff Garzik.

“Garzik stopped by to talk about how the currency is being used on Silk Road, the online black market for any drug imaginable, and how he is working with the government to turn Bitcoin into a universal online currency.” 

Um, ok. And great CBS doesn’t have an embedable version and has prevented embedding on the version it put on Youtube.  Why put it on Youtube and turn off embedding?

• “Is this the future of money?” 6m 38s
• “We are working with the government” 7m18s

The Smart Money posts, “The Bitcoin Triples Again,”  covers some of the potential risks:

“It’s not clear that U.S. law enforcement agencies could regulate Bitcoins if they wanted to. The currency runs on software similar to the file-sharing software used to download music and movies, technology the entertainment industry has been trying unsuccessfully to quash for years. There’s no headquarters, main server or central bank to visit, just a network of thousands of users. It’s also not clear whether U.S. regulators would have jurisdiction over a global, virtual currency. Last week, a spokesman for the F.B.I. said he was unaware of Bitcoins and would check into the Bureau’s position on them. Subsequent calls for comment have not been returned.”

And just in time to show a massive misunderstanding of technology and how the tubes works, a few US Senators rallied to shut down the “Silk Road network,” and had this to say about Bitcoins:

“The only method of payment for these illegal purchases is an untraceable peer-to-peer currency known as Bitcoins. After purchasing Bitcoins through an exchange, a user can create an account on Silk Road and start purchasing illegal drugs from individuals around the world and have them delivered to their homes within days.”

As was pointed out in a commenter to one of my first Bitcoin posts, Bitcoins are traceable: “…[p]urportedly untraceable” is incorrect. Every transaction and bitcoin is accounted for. Check out blockexplorer.com and learn a little about it. There is a level of psuedo-anonymity, but bitcoins are not completely anonymous.”

Taking the Senator at face value, Business Insider blog The Daily Reckoning had this to say:

“Now that the pair have their straw man, we can be sure it will be used as a pretense to attack free-market currencies themselves. Stay tuned as the story unfolds on that front…

For now, we wonder what users of bitcoin are to do now that the self-appointed invigilators of free market activity are on their case? Well, for the past few weeks at least, they’ve been rejoicing. The currency has almost quadrupled in value since the Silk Road issue came to the fore.

Bitcoin enthusiasts may wish, therefore, to thank Senators Schumer and Manchin for, without their commitment to proffering illogical, largely ignorant remarks in the nation’s mainstream press, bitcoin might have taken a while longer to reach the critical mass on which it must now surely be verging. “Bravo, Senators,” we can almost here the cyber underground chorus, “Thanks for the free publicity!”

Bitcoin Chart - 6/2 to 6/5

I was planning on getting some Bitcoins and looked at the price on Thursday when it was trading around 10, up from the 8 or so jump after the Gawker article.  I decided I would get ready,  see what happened and either way buy today.  Until I checked the price this afternoon.  It went from 10 on the 2nd to 19 on the 4th.  That’s a pretty big move in any market.

I have been planning on buying from MT Gox. The pair trade I have been looking at is the USD/Liberty Reserve.  Since I don’t know what a Liberty Reserve note is I had to do some reading: “Liberty Reserve is a private currency exchange system issued by Liberty Reserve S.A. of San José, Costa Rica.” I feel safer already!

The forums are buzzing about who is ok to trade with and the rest of the crowd alternates between specing mining rigs and wondering if its too late

But its got to be safer than dollars, right?

A recent article in MIT’s Technology Review asked the question: “Isn’t a fixed supply of money dangerous?“

It’s certainly different. “Elaborate controls to make sure that currency is not produced in greater numbers is not something any other currency, like the dollar or the euro, has,” says Russ Roberts, professor of economics at George Mason University. The consequence will likely be slow and steady deflation, as the growth in circulating bitcoins declines and their value rises.

“That is considered very destructive in today’s economies, mostly because when it occurs, it is unexpected,” says Roberts. But he thinks that won’t apply in an economy where deflation is expected. “In a Bitcoin world, everyone would anticipate that, and they know what they got paid would buy more then than it would now.”

Mt Gox exchange rate for Bitcions vs US dollar

A recent Gawker article about online drug sales highlighted the virtual currency Bitcoin’s use in black markets.  Bitcoin has been on a roll lately, receiving publicity and raising awareness. That fact is reflected in the value of a Bitcoin vs the US dollar.  That’s a hell of an increase in a short time.

From Gawker:

“Bitcoins have been called a “crypto-currency,” the online equivalent of a brown paper bag of cash. Bitcoins are a peer-to-peer currency, not issued by banks or governments, but created and regulated by a network of other bitcoin holders’ computers. (The name “Bitcoin” is derived from the pioneering file-sharing technology Bittorrent.) They are purportedly untraceable and have been championed by cyberpunks, libertarians and anarchists who dream of a distributed digital economy outside the law, one where money flows across borders as free as bits.

Since it launched this February, Silk Road has represented the most complete implementation of the Bitcoin vision. Many of its users come from Bitcoin’s utopian geek community and see Silk Road as more than just a place to buy drugs. Silk Road’s administrator cites the anarcho-libertarian philosophy of Agorism. “The state is the primary source of violence, oppression, theft and all forms of coercion,” Silk Road wrote to us. “Stop funding the state with your tax dollars and direct your productive energies into the black market.”

There are a number of ways to get Bitcoins but one of the most sraight forward is to buy them on MT Gox. “Mt Gox is an exchange. It allows you to trade US Dollars (USD) for Bitcoins (BTC) or Bitcoins for US Dollars with other Mt Gox users. You set the price you want to buy or sell your BTC for. “

As the general understanding of the failings of fiat currencies increases, alternate currencies have received a lot of interest.  Many people have decided to buy gold or silver, either through paper holdings in ETFs or in actual physical. Bitcoins represents a similar hedge although of a completely virtual nature.

Confessions of a Bitcoin trader – Reddit:

“Well, there is certainly money to be made in trading. Like I said, I made my first large purchase of bitcoins back when it cost about 20 cents per bitcoin. BTC prices are currently hovering around $10, thats a huge increase.

Stan Stalnaker, Founding Director of Hub Culture

Bitcoin blew up this week with some new attention from Calacanis and his team.  Now in a guest post on TechCrunch, Stan Stalnaker of Hub Culture talks about the recent history of virtual currencies and in particular Ven and Bitcoin.

Virtual currencies have been around as long as the internet and were mainly used in game environments.  The exceptions were the egold systems that tried to gain acceptance in the late 1990′s.  Stan takes us through more recent history and then talks about the current systems and the differences in each approach.

From the Techcrnch post:

The recent history of virtual currencies:

“Digital currencies are really just online account books that measure and record transactions of financial value between nodes on the Internet.  The first ones—Beenz, Flooz and others, arrived with the first wave of the Internet in the 1990s and failed.  By the middle of the last decade, the virtual currency economy boomed on the strength of gaming systems:  the Linden Dollar in Second Life, World of Warcraft Gold, Entropia and Tencent’s QQ in China encountered success with volatility.

Now Internet currencies are moving out of virtual gaming systems and into the global economy, with Flattr (an electronic tipping currency), Bitcoin, Ripple, Ven and local exchange trading systems (LETS) leading the way. The central differentiation between these digital currencies is whether they operate in a closed loop (Ven, Flattr, Amex Rewards) or open nodal architecture (Bitcoin, Ripple). This distinction determines to a large extent their ability to be managed.”

On the impact of small systems and massive social networks:

“Even if Bitcoin and Ripple do not become a huge force (which they will), it sets the course for more such distributed currencies, and sets the stage for a currency free for all: open markets, open currency, open chaos, and a cambrian explosion of value sets.  The ultimate impact may come from Facebook, Google and other large social network currencies, which could have larger implied users than the Euro right from the moment of exchange trading.”

The future of real world fiat currencies:

“The idea of national currencies will become not just obsolete, but redundant, with no more currency meaning than the value of a “Like” or a banana or a reputation, which will all effectively speak to national currencies in a kind of common “mathematical language.”  Eventually, all of these things will be equally and instantly interchangeable.  It is tough to say how quickly or how slowly this will happen, but it is the single, inevitable consequence of the second phase of the Internet.  The first phase being the P2Pization of communications, already well underway.”

The emergence of Singular Value:

“I don’t believe that the world will end up with a single global currency or a single reserve currency, but in the very near term a network of reserve currencies will allow humans to pick and choose new options for trade. In fact, they are already here, and those mentioned are just the first.  In the long term, these currencies, along with everything else of value, will be measured and represented on a unified system—most probably the Internet itself.  The result of this will be the end of currency and the emergence of Singular Value.

The rise of Singular Value implies more efficient capital markets and the potential for ongoing GDP expansion. It implies a hybrid of fixed asset values and the more efficient monetization of knowledge, which is continually expanding.  This combination could lead to an expanding supply of value relative to hard assets, which are almost certainly subject to peak resource pressure in the coming period anyway.  The tension between these two assets and their relative value will set the agenda for much going forward.”

Philip Rosedale

Philip Rosedale, Second Life founder, launches a new company today called CoffeeandPower.  Testing in San Fransico first, CoffeeandPower lets users exchange virtual currency for real world services.  If it sounds a bit like Zaarly, you are right it does.

RRW lists two main differences between the services:

“First, CoffeeandPower utilizes a virtual currency. Users who sign up and give their cellphone numbers so they can receive SMS updates are automatically seeded with C$20 to get started. C$ is exchanged when goods are bought and sold. More can be purchased (at an exchange rate of US$0.75 for C$1) and users will be able to “cash out” as well. As many of the transactions on the site might be quite small, the virtual currency will help minimize transaction fees for every exchange. In other words, you can earn from C$ and then buy things on from other users without any fees.

Second, CoffeeandPower really emphasizes the community around this marketplace. That’s not a surprise when you think of Philip Rosedale’s work in creating the virtual world Second Life and its online community and economy. Users will be able to chat with each other, both in a public timeline and in private messaging and video chat.”

CoffeeandPower chat interface

Rosedale says. It’s a

“place where people can create new and unique value for each other. So choices like using live public chat to let everyone ‘near’ each other easily talk – that comes right from SL. Also that it needs to be fun, crazy, quirky – again these are the ways things like this get started. Gotta get some basic parts in place and then get out of the way and let people do strange and beautiful things with it. We bet there will be a much larger and different range of things people will do with CoffeeandPower than anyone (including us) can initially imagine – just like Second Life.”

From the Bitcoin site:

“Bitcoin is the first digital currency that is completely distributed. The network is made up of users like yourself so no bank or payment processor is required between you and whoever you’re trading with. This decentralization is the basis for Bitcoin’s security and freedom.

You don’t have to be a criminal to wake up one day and find your account has been frozen. Rules vary from place to place, but in most jurisdictions accounts may be frozen by credit card collection agencies, by a spouse filing for divorce, by mistake or for terms of service violations.

In contrast, Bitcoins are like cash – seizing them requires access to your private keys, which could be placed on a USB stick, thereby enjoying the full legal and practical protections of physical property.”

Calacanis and his team have uncovered the following:

After month of research and discovery, we’ve learned the following:

1. Bitcoin is a technologically sound project.
2. Bitcoin is unstoppable without end-user prosecution.
3. Bitcoin is the most dangerous open-source project ever created.
4. Bitcoin may be the most dangerous technological project since the internet itself.
5. Bitcoin is a political statement by technotarians (technological libertarians).*
6. Bitcoins will change the world unless governments ban them with harsh penalties.

These coins can be sent to and from users three ways:

1. Direct with peer-to-peer software downloaded at bitcoin.org
2. Via an escrow service like ClearCoin
3. Via a bitcoin currency exchange

The benefits of a currency like this:

a) Your coins can’t be frozen (like a Paypal account can be)
b) Your coins can’t be tracked
c) Your coins can’t be taxed
d) Transaction costs are extremely low (sorry credit card companies)”

Watch the TWiST show here:

Gavin Andresesn explains Bitcoin:

‪Who is Satoshi?‬

Calacanis’ final prediction:

“Bottom line: The world is going to be turned over by bitcoins unless governments step in and ban them by prosecuting individuals.

This is about to get really interesting, everyone.”

Avery Pennarun’s four reasons Bitcoin will fail:

• FAIL #1: If you like bitcoin, then you must think the gold standard was a good idea.
• FAIL #2: Even if it was a good idea, governments would squash it.
• FAIL #3: The whole technological basis is flawed.
• FAIL #4: It doesn’t work offline.

And here’s Rick Falkvinge:

“Here’s what’s on my radar: banking. There’s at least a dozen different variants of decentralized cryptographic currencies and transaction systems out there, very sophisticated and totally incomprehensible. There’s Ripple, BitCoin, ecash and others.

Just as BitTorrent made the copyright industry obsolete in the blink of an eye, these stand to make banks obsolete. These, or their successor, will hit a tipping point as soon as somebody makes it easy enough to use. The technology is there, the use case is there — there’s certainly no shortage of annoyance with big banking. It’s just a matter of usability now.”

Gigaom weighs in:

“And what is Bitcoin’s value backed by? Well, that’s where things get complicated. The value of a Bitcoin is determined in part by supply and demand — the system is set up so that there are only a finite number of Bitcoins in existence, which prevents the problem of people just “printing” more Bitcoins the way crumbling governments have in places like Germany in the 1920s. Bitcoins are actually generated by the routine functions of a computer that is processing large mathematical problems (known as “Bitcoin mining”), so the supply is controlled, and will never exceed 21 million.

Even apart from convincing people that they should start accepting or using it as currency, however, the biggest problem Bitcoin could have is a legal one: if the U.S. government decides to treat it as a “private currency,” then it could be subjected to all kinds of strict regulation — such as the need to integrate with the taxation system, or provide for exchange into U.S. currency at certain rates — or it could simply be outlawed entirely.”