For Merchants: Getting started with Crypto Currencies like Bitcoin and Litecoin

If you’re a merchant, or own a business or storefront, you may have heard about accepting Bitcoins, Litecoins, Dogecoins or any other sort of crypto currencies out there. You may also be wondering what in the world these things are and why they matter. We’ve put together here at CoinManual a short beginners guide for getting started with Cryptocurrencies, including these iconic coins, as well as some important information you’ll want to know.

What are Crypto Currencies?

At their core, cryptocurrencies are digital coins (meaning they are stored online) that are exchanged between people, businesses and other organizations spend and receive. There are many types of cryptocurrencies, the two most popular being Bitcoin and Litecoin.

Just like a regular currency, it has a value based on who trusts it. For example, the United States is trusted by many nations and so its currency, the U.S. Dollar, is used extensively. Cryptocurrencies are trusted for a multitude of reasons including:

  • There is a technology involved called a Blockchain that (from a very basic standpoint) verifies the authenticity of the currency. This means that no counterfeit coins can exist.
  • A limited number of coins are generated each day, and those that receive them use equipment worth thousands (and even million) of dollars to do so.
  • Over the last five years, millions of people have exchanged billions of dollars to hold assets in cryptocurrencies like Bitcoin and Litecoin.
  • It is much cheaper and faster to send and receive cryptocurrencies than it is to send and receive other currencies like the U.S. Dollar

This trust has been growing exponential and now includes major companies such as Overstock and Dell, who support the cryptocurrency Bitcoin. This guide will go over the reasons why these businesses (among thousands more) accept Bitcoin as a payment option, why you should consider to do the same and, if interested, how to accept Bitcoin or Litecoin.

What are Bitcoin and Litecoin?

There are dozens of cryptocurrencies, but the two we’ll discuss in this guide are Bitcoin and Litecoin. Bitcoin is by far the most popular and widely accepted cryptocurrency. It is the original one, created in 2009 and has an immense value. If you added up the value of every Bitcoin, they’d be worth the equivalent of more than $7 billion.

Litecoin is meanwhile a less popular, but still well-known cryptocurrency. It runs on the same technology behind Bitcoin but has a different identification, just as the U.S. Dollar and Australian Dollar operate different, can be exchanged for one another, and are backed by different people. It still is counterfeit-proof and has the same elements of trust as Bitcoin.

Both currencies are distinct from one another – a Bitcoin cannot be mistaken for a Litecoin. They both have different values and there are different amounts of them that exist. Both, like all cryptocurrencies, cannot be duplicated or forged. They are both considered to be legitimate and trustworthy concerns.

What is with all the Bitcoin and Litecoin hype?

Bitcoin and Litecoin received  a lot of attention in late 2013 because they became extremely valuable. Their prices inflated and received widespread attention on media sites such as Forbes and CNN. When the prices dropped in early 2014, the attention subsided. However, Bitcoin is not stock in a company. Bitcoin does not succeed by having a higher or lower price. In the long term, Bitcoin will eventually have stable and consistent prices, but more importantly none of this affects you as a merchant. Whether a single Bitcoin is worth $1000 or $10, you can accept it for whatever equivalent value you want in dollars, pence or any other currency of your choice. Using a merchant provider allows you to take advantage of this.

Are Bitcoin and Litecoin safe? What are the risks?

Bitcoin and Litecoin are as safe, if not safer than accepting cash or credit cards. This is because the digital currencies are uniquely signed and impossible to duplicate. This means that no one can send you a counterfeit Bitcoin or Litecoin. There are risks, like any currency, but in a day-to-day operation of accepting Bitcoin and Litecoin you will actually have less to worry about when accepting Bitcoin or Litecoin as opposed to accepting cash and credit cards. It is also impossible for users to reverse charges and take back the currency they send you once you accept payment.

Accepting these digital currencies is a lot like accepting cash, but is also completely digital like accepting a credit card. This means your customer gets the benefit of a quick and painless transaction, while you skip the trouble of chargebacks, fraud alerts and other concerns related to accepting credit cards.

In the long term, there are discussions about the regulation of Bitcoin and Litecoin, but these have to deal less with merchants and businses owners, but instead with the exchanges. In reality, these regulations will offer more legitimate and safer businesses to conduct your Bitcoin business with, meaning a safer operation for you and your customers.

Are there any fees?

Yes, and no. It depends on how you accept Bitcoin and Litecoin. You can either accept Bitcoin and Litecoins to a personal wallet, or accept them through a merchant provider.

Personal Wallet: You accept Bitcoins and Litecoins and you keep them stored as Bitcoins and Litecoins

The only fees when using a personal wallet are the transaction fees, which are set by the Bitcoin and Litecoin network. These fees cost, at most, mere pennies for even the largest of transactions. It’s like having practically no fees. You will have to later take the cryptocurrency and exchange it to dollars or spend it at other businesses at accept Bitcoin or Litecoin.

Merchant Provider: You accept Bitcoins and Litecoins and you immediately convert them into your local currency, such as the U.S. Dollar.

Merchant Providers typically charge about one percent – a fraction of what a typical credit card company charges in fees. Merchant providers allow you to instantly turn the cryptocurrencies you accept into your local currency at the market price, saving you the hassle of exchange it later. However, exchanging it into the local currency also means you cannot take advantage of the low-fee benefits of paying others in cryptocurrencies.

How do I get started?

If you’re interested in at least seeing what the fuss is all about with Bitcoin and Litecoin, getting started costs nothing and is easy. Depending on whether you want to setup a wallet or a merchant provider, both are easy and available choices for most businesses.

Getting a wallet: Visit the Bitcoin or Litecoin website to learn more about each currency and how to setup a wallet account that stores the currency. We don’t recommend this if you aren’t very tech-savvy.

Getting a merchant provider: Depending on what country you live in there may be a merchant provider available for you to choose from.

If you live in Australia we recommend you reach out to Coinjar, who provides $5 when you sign up, as well as an easy way to accept Bitcoin and pay just 0.5 percent in fees.

If you live in the U.S. we recommend Coinbase for Bitcoin and GoCoin for Litecoin and Bitcoin. Both charge about one percent in fees – which is still a fraction of what you’d pay in credit card fees. All of these providers will instantly turn your cryptocurrency into dollars that you can often get in your bank account by the next business day.

Be sure to also add yourself to a free Bitcoin Directory  or two so people in your neighborhood know you accept Bitcoin and other cryptocurrencies. It may also help to put up signage advertising that you accept Bitcoin and/or Litecoin. If you do a lot of business in credit cards, even just a handful of customers paying instead with Bitcoin could save you a lot of fees in the long run. There are many more ways to take advantage of Bitcoin, Litecoin and other cryptocurrencies, but this is just a short taste of how the currencies work and how you can accept them without any fuss.

Merchants matter – You matter.

In closing, let us note that (believe it or not) you merchants are the most important part of Bitcoin and Litecoin’s success. As more merchants choose to accept cryptocurrencies as a form of payment, more people will ultimately learn about the currencies, choose to adopt them and subsequently pay in Bitcoin and Litecoin. While millions already use Bticoin and Litecoin, the numbers have a long way to go for mass adoption. It depends on merchants at least trying to accept Bitcoin and Litecoin for this to be an ultimate success. We hope more businesses choose to accept Bitcoin and give it a try. It costs nothing to try and it could even bring you new customers, let alone save you cash on credit card fees.

What are colored coins? A quick summary.

If you’re familiar with Bitcoin at all, then you know of the technology that is arguably more important than the coin itself, known as the blockchain.

Originally used for keeping records of every transaction made, the blockchain also supports protocols that are built on top of it, theoretically allowing anyone to make their own coin.

An example of a coin that takes advantage of the blockchain for uses besides transactions is Namecoin. Namecoin uses the blockchain to make a decentralized DNS system, making censorship difficult.

Since it’s on the Bitcoin blockchain, it would be secured by the biggest hash rate, as well as have similar characteristics such as 10 minutes confirms and low transaction fees. You are still sending Bitcoins after all.

What you are doing when making a colored coin is you are “coloring” them with specific attributes. This allows you to substitute them for anything, common examples being shares in a company, gold certificates, to even houses and cars.

This opens up Bitcoins usability in many situations, instead of just being used as a payment system. Want to trade gold but across the world? Issue a colored coin as a certificate. It’s possible to make a colored coin for anything you want, you just have to make it.

Colored coin is more of a theoretical thing right, with very few wallets now supporting colored coins. Coinprism is one of the bigger names in colored coins, and is the first wallet to support them.

Colored coins are not a perfect solution however. One of the biggest concerns is that colored coin transactions require trust, at least for credit-based coins or the like. An example of a credit-based coin is like a colored coin to represent gold, or stocks.

That can easily be fixed with third party rating agencies, but it still makes some people uneasy that have gotten used to the decentralized and trustless implementations that accompany cryptocurencies.

Another possible concern is not with the coin itself or the concept, but legality issues. Bitcoin is having enough trouble being regulated, and it’s just a payment system. What will happen when Bitcoin is used to exchange assets, commodities, goods?

As colored coin is still a concept, there are no examples of working and used coins. But just like Bitcoin, I fully expect them to shake up the world once implemented.

The Dogecoin Dilemma

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When Satoshi Nakamoto mined the genesis block on January 3, 2009, Bitcoin became the first cryptocurrency to use a block chain secured by the proof-of-work (POW) process known as mining. The algorithm used to mine Bitcoin blocks is two rounds of SHA-256 hashing.

Soon after, the Bitcoin community gained an appetite for a distributed naming system. The project was initially named BitDNS. It was finally implemented when Bitcointalk user vinced mined the genesis block of Namecoin in April of 2011. Namecoin also used two rounds of SHA-256 hashing as its mining algorithm.

Using the same mining algorithm became a problem as Bitcoin and Namecoin then competed to attract miners to secure each block chain. As time went on, it became clear that the dominant network effect behind Bitcoin and its more valuable block reward would win it the vast majority of mining power. This left Namecoin and other SHA-256 coins vulnerable to a 51% attack.

To solve this problem, the Namecoin developers implemented the merged mining system originally suggested by Satoshi Nakamoto. With merged mining, one block chain (Namecoin) allows miners to use solutions found mining another block chain (Bitcoin). In this case, Namecoin is called the auxiliary block chain and Bitcoin is called the parent block chain. No modifications need to be made to the parent protocol, but a hard fork is required in the auxiliary protocol.

The process of auxiliary proof-of-work (AuxPOW) is really quite simple. A miner first creates a block hash for the auxiliary chain. This hash will almost certainly not be low enough to count as a valid block, but it does not matter. Next, the miner creates a block of transactions for the parent chain that includes the hash of the auxiliary block in a transaction and begins hashing it. If the miner finds a hash low enough for the parent chain’s difficulty, the block is published as usual throughout that network. If the miner instead finds a hash that is low enough for the auxiliary chain’s difficulty, the block can be redeemed and published on the auxiliary chain instead.

Since block 19200, Namecoin has been accepting auxiliary proofs-of-work (AuxPOW) from Bitcoin. As a consequence, its mining network is nearly as secure as Bitcoin without needing to compete for miners. The coins and their communities remain entirely separate, linked only through a technical aspect of mining.

More alternative cryptocurrencies have been developed since Namecoin. Many of these attempted to solve the competition for miners by using completely new POW algorithms. The most popular algorithm, Scrypt, was chosen by Charlie Lee when he created Litecoin. In time, Litecoin grew to dominate the Scrypt mining scene much as Bitcoin dominates SHA-256. Other Scrypt coins such as Dogecoin fall under the threat of a 51% attack just as Namecoin once did.

As Dogecoin mining profitability waned with the lowering value of the coin and the decreased rate of production, it had been quickly losing its mining network and becoming particularly vulnerable to a 51% attack. The Dogecoin network hash rate has recently been only about 6.5% that of Litecoin. In a sincere offer to help Dogecoin, Charlie Lee has proposed that Dogecoin accept AuxPOW from the Litecoin mining network.

This offer was originally met with opposition from the Dogecoin community. Accepting AuxPOW from Litecoin could be interpreted as an admittance of defeat and inferiority to Litecoin. Many other community members were simply confused about the extent to which Dogecoin would be linked to Litecoin and did not want an association between the two.

Hurried by a declining hash rate, the Dogecoin developers eventually committed to implementing AuxPOW. In typical Shibe fashion, the Dogecoin community rallied around the decision and began making light of the situation.

With its more stable mining network, I wish the Dogecoin community the best of luck as they reach for the moon.

Trevin Hofmann
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The necessity of a centralized voice for Bitcoin

The Bitcoin community is in need of centralization. By centralization I do not mean a core authority, but rather a core voice. This is not an optional element in the future success of Bitcoin. While the origins of motivating adoption to Bitcoin have been grassroots, a continual shift in the way Bitcoins are earned by new users is a key reason why a central voice to the currency is essential for merchants and new users to trust adopting the currency.

The transition to exchanges & authorities

The nature of mining has changed dramatically for cryptocurrencies in the few years Bitcoin has existed. As the computing difficulty grew exponentially with the arrival of ASICs, the ability to earn Bitcoins shifted from the hands of independent users and into those with more powerful (and expensive) hardware. Meanwhile, new users no longer turned to their GPUs and CPUs for Bitcoins, and would instead buy Bitcoins with fiat currency. This transition has already brought the access of Bitcoin away from independent users and toward authorities of some shape and size. It is not difficult, if not impossible to independently acquire Bitcoins without a major capital investment totaling thousands of dollars. Even Satoshi Nakamoto’s original whitepaper expected this eventual transition.

In either case, this transition is where we are today. When people are encouraged to adopt Bitcoin, they don’t need to be tech-savvy or already own powerful computers. Instead, they only need an interest in the currency and a bank account. Acquiring Bitcoins with fiat currency is easier than ever, where not too long ago you’d have to meet with someone in person and exchange prepaid gift cards. This is all evident of how beneficial these exchanges and authorities have become, even if some still ground the success of Bitcoin on its ability to be anonymous and decentralized.

In reality though, the term “decentralized” will forever, at least with Bitcoin, remain an oxymoron. Bitcoin is not developed through an anonymously maintained, flat-hierarchy development team. It has a lead developer and a core team. That core team decides the future developments and goals of Bitcoin. Even though the currency could technically fork, the amount of money and resources invested into the core team almost completely assures they are the ones who will be followed for future developments. This fact is why embracing the decentralized nature of Bitcoin is impossible, at least for Bitcoin. A future cryptocurrency could be created that allows for a more decentralized core development, but Bitcoin is pretty much centralized, whether you like it or not.

The woes of the Bitcoin Foundation

For many, disliking the centralization is easy when you consider which organization sits at the center. The Bitcoin Foundation has had a harsh amount of criticism directed at it for being more or less a lobbying organization. Membership is not based on your commitment to the currency but instead your financial commitment to the Foundation.

Another core flaw of the Bitcoin Foundation is the type of companies it best represents. At this time, the Foundation is seen very closely aligned with exchanges and ASIC providers, but not large merchants and firms that help spread interest about Bitcoin to new users. The Bitcoin Foundation should be partnering and rewarding the companies that commit to offering Bitcoin as a trusted payment method, as well as bringing new customers directly at the cash register.

But this thesis is not about the Bitcoin Foundation. It just so happens the Bitcoin Foundation is in charge of core development, but chooses not to do as much as it can to mold a central message about Bitcoin. So far the groups doing the best job of painting Bitcoin in a positive light are Coinbase and BitPay. This is evident not by what they claim or say, but by the customers they’ve convinced to adopt Bitcoin. The Bitcoin Foundation and the Bitcoin community at large could learn a lot from these companies about how to market Bitcoin from these organizations.

Developing mission critical goals.

With this concept of a central voice in mind, what Bitcoin then needs is a set of mission critical goals: objectives that are possible and are measurable. While goals like less volatility are ideal, they cannot be easily controlled. One goal that can be controlled and measured well however is adoption of Bitcoin. Getting people to buy and then spend Bitcoin is what will help fuel success for the currency in the months ahead. Building trust is another element behind growing adoption. What The Bitcoin Foundation ought to do is develop a roadmap for these goals to succeed, much like many other public advocacy organizations. If they choose to collect fees, they should also demonstrate how those funds are reinvested into the currency, not stored at the core or spent on lobbying – neither of which compare well to the efforts of Coinbase and BitPay.

Ultimately, this also crosses over with a major flaw behind Bitcoin users: An inherent desire to hold, rather than spend. Many people see Bitcoin in its potential value, as opposed to its present value. As a result, many are waiting for some sort of price to then sell Bitcoin like a stock. This however isn’t best for building trust, encouraging adoption or the overall utilization of Bitcoin as a currency. These are the values that some core organization – be it the Bitcoin Foundation, a company like Coinbase, or the communities of /r/Bitcoin and BitcoinTalk – should be sharing.
Josh Sherman
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An Introduction to PGP

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The Internet is not an inherently secure medium for sensitive communication. When Alice sends a message to Bob through the Internet, that message passes through the hands of various Internet service providers before arriving at its final destination. Depending on the messaging platform used, it may also pass through the hands of Facebook, Google, or Microsoft, or other operators. We can always assume that someone is watching.

Each individual with access to the message on its path between Alice and Bob has the opportunity to read or even modify it. This could be very problematic if the message contained private information such as passwords that could be read or financial information such as a Bitcoin address that could be modified.

Cryptography solves this problem. By encrypting a message before sending it to Bob, Alice can ensure that nobody except Bob will be able to read it. Similarly, Bob can verify that the message was not altered if Alice includes a cryptographic signature. This introduction will not explain the mathematics behind cryptography, but Nick Sullivan wrote a great primer on the topic for anyone interested.

Developed in 1991 by Phil Zimmerman, Pretty Good Privacy (PGP) is now one of the most popular tools for signing and encrypting files. PGP leverages a web of trust to verify the identities of users when encrypting files for them or verifying their signatures.

Many PGP software implementations are available. HushMail uses PGP standards to provide an encrypted personal email service. Symantec offers various products powered by PGP such as drive encryption and email encryption. The GNU Privacy Guard (GnuPG, or GPG) is a free and popular command line tool, with Gpg4win for Windows and GPGTools for Mac OS X. Kleopatra is a graphical user interface for the Windows version of GPG. This introduction will explain how to use Gpg4win with Kleopatra. Directions for Mac and Linux users will vary, but the general process should be similar.

Navigate to the Gpg4win downloads page. Download and install the most recent full version including Kleopatra. Make sure to install the GnuPG, Kleopatra, and Gpg4win Compendium components.

Once installed, open Kleopatra. You now need to create your first PGP key pair. If you are not automatically prompted to do so, navigate to File and then New Certificate. Enter your name and email, but note that this information will be linked and made public. Continue by clicking Next and creating your key. When prompted for a passphrase, choose a new secure password. This passphrase will be needed to decrypt and use your private key.

Next, you should import the public key of somebody you trust. To add mine, copy the public key block at https://gist.github.com/thofmann/fc645404e45feb1f1944. Once it is copied to your clipboard, right click the Kleopatra icon in your system tray and navigate to Clipboard and Certificate Import.

To practice encrypting a message for someone, select some text to encrypt and copy it to your clipboard. Now right click the Kleopatra icon, but this time choose Encrypt. Now click Add Recipient and choose the person to encrypt a message for. After adding all intended recipients, click Next and Ok. Your encrypted message has now been copied to your clipboard and you can paste it anywhere such as an email body or forum post.

Next, try signing a message. Just as you would for encryption, copy the message to your clipboard. Right click the Kleopatra icon, and choose OpenPGP-sign. Select your certificate to sign with and click Next. You will be prompted for your passphrase. After entering it, your message will be signed. Click Ok and your signed message will be copied to your clipboard.

As a last test, verify this entire article’s signature. Copy the entire article and signature from the beginning of the message to the end of the signature. Right click the Kleopatra icon again and select Decrypt/Verify.

Congratulations! You are now capable of the essential features of PGP.

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Multisignature Possibilities

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For most of Bitcoin’s short history, the primary mechanism for transferring bitcoins has been the simplest one: immediately transferring value from A to B with a single signature. There are notable drawbacks to using this irreversible transfer system in certain environments. Without the ability to dispute payments for undelivered goods and services, Bitcoin consumers have had nearly no protection from fraud and scams. All trust was placed on the recipient.

With the development of multisignature transactions, this is beginning to change. Now, reversible payments with the consumer protection that PayPal, VISA, and similar companies provide can now be built on top of the irreversible system of Bitcoin. The advantage multisignature has over traditional consumer protection is the transparency and modularity provided by the block chain. Any entity can offer themselves as an arbiter, charging their own unique fees and offering a unique perspective. For example, the customer support at a credit card company may not be well versed in website development, but Bitcoin users could specifically select a multisignature arbiter that specializes in software sales when hiring someone to create a website.

Additional applications of multisignature beyond escrow and arbitration are also being worked on. The possibilities range from blockchain-enforced inheritance funds to instantly confirmed Bitcoin payments. One simple multisignature-based inheritance scheme is to split the required signatures amongst the heirs and a lawyer. To implement instantly confirmed payments, a multisignature wallet would be used where the signatures required would prohibit the owner from creating transactions without the signature of a trusted entity similar to the arbiters previously discussed. As long as the recipient trusts the arbiter to never sign a double-spend, any signed transactions coming from such a wallet could be considered instantly confirmed and irreversible. This would eliminate the wait of approximately ten minutes for a block confirmation.

So, how exactly does multisignature work? The common implementation is called P2SH – an initialism for “Pay to Script Hash” – first described in BIP-0016 (Bitcoin Improvement Proposal 16) by Gavin Andresen. P2SH introduces a new type of Bitcoin address that begins with the number 3 instead of the usual 1. These addresses represent a special type of script that describes the requirements to spend received funds. For example, an address could be created that requires signatures from any 2 out of a specified 3 ‘normal’ Bitcoin addresses. This would be called a 2-of-3 multisignature address. The more general description is an M-of-N address, where M is the number of signatures required and N is the total number of possible signatures.

By modifying the M and N parameters and distributing the keys amongst specific entities, many possibilities appear. One implementation of instantly-confirmed payments would be a 2-of-2 address, where one key is held by the wallet owner and the other key is held by a trusted entity that signs any transaction except for double spends. A typical implantation for escrow is the creation of a 2-of-3 address, where the sender, recipient, and escrow agent each hold one key. With this setup, the escrow agent does not need to be involved in the transaction at all if the sender and recipient are both satisfied. Only during a disagreement would the escrow agent need to intervene and make a decision. To further distribute trust, multiple escrow agents could be used by increasing the M and N parameters.

Some of these solutions are already being offered. Bitalo uses multisignature addresses both to secure users’ wallets and to arbitrate trades in its peer-to-peer exchange. Unsystem’s Darkwallet and BitPay’s Copay are both open source solutions for do-it-yourself multisignature transactions. Greenaddress.it is using multisignature to secure consumer wallets and is beginning to experiment with instant confirmation payments. Bitrated is using 2-of-3 addresses for arbitration.

Consumer protection, instant confirmations, and secure storage are all coming to Bitcoin users, and it is all thanks to the multisignature feature.

Trevin Hofmann
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Bitcoin and the “R” Word

The “R” word—Regulation—is a polarizing one in the virtual currency world. On one hand, any sense of acknowledgement or potential trust by a government or financial agency is a sign of impending widespread adoption. On the other, regulation stifles innovation and, for even a radical few, is against the very values of virtual currencies. In reality, the news of potential regulation by the New York Department of Financial Services is a necessary reality for Bitcoin to become a currency for the masses.

For some time now, Benjamin Lawsky of New York’s Department of Financial Services has been taking an exceptional amount of time to learn about Bitcoin. From AMAs on Reddit to in-depth conversations via Twitter, Lawsky has spent much of the last six months devising a way to bring Bitcoin to the mainstream financial landscape. At the forefront of this plan is, of course, regulatory policies. By issuing Bitlicenses for companies that serve as wallets, banks, vaults, exchanges or creators of virtual currencies, Lawsky wants to ensure that virtual currencies like Bitcoin are set to the same standards as every other brick-and-mortar financial services firm.

This of course costs money. Lots of money. One major flaw in this regulatory proposal not yet addressed is what this will do to all the startups without the millions of dollars of capital, but the genuine interest and support for Bitcoin as an effective financial tool. Some goes as far as to even say that the regulations are overkill and will hinder innovation, forcing the early-adopters an early, perhaps even unnecessary tax on the process. It’s up to personal opinion whether you think all these financial tools included in the regulatory framework are necessary. They all however do exist in some form for all banks and similar financial institutions for Fiat Currencies. The framework isn’t perfect, but it is suggesting a very bright future for Bitcoin as a financial asset if key stakeholders choose to embrace the framework.

Others, like Sean King, argue that Bitcoin is not financial in nature, grounding the technological principles of the Blockchain and of Bitcoin as superior to its analogy as a financial tool. Put simply, Bitcoin and its technology are like the internet; they shouldn’t be regulated, but that something more specific within it perhaps should be. This is an argument that tries to have its cake and eat it too. Bitcoin is not about being financial and its goals are not financial, but its primary usage at this time just happens to be financial.

What this leads to is a dilemma in definition, and inherently a philosophical debate as much as a political and economic one. The DFS defines a virtual currency as anything that is used digitally as a payment method or can be converted into Fiat Currency. Pretty much every Bitcoin and scrypt-based currency falls under this category if any sort of exchange carries it.

But the Blockchain itself is not being defined as the virtual currency. It’s the path to Fiat Currency and other goods and services that Lawsky and the DFS is concerned about regulating and monitoring—and these are legitimate concerns. As much as the virtual currency community shrugs off the debatable statistics of Bitcoin usage in illegal transactions, the fact remains that it’s a lot easier to do illegal business with Bitcoin than it is with other currencies.

Another reality is that while Bitcoin is inherently a protocol, it really isn’t being used or marketed as one. The biggest selling point about Bitcoin is the fact it can serve as an effective and borderless currency. The arguments of the extensibility of Bitcoin to tag or identify rights to more than just currency alone are not wrong, but miss the entire point of what Bitcoin has become, as opposed to what it was designed as. The public opinion and the goals of those driving the innovation and usability of Bitcoin are not pushing it as a digitally signed messaging service, but as a currency. The top stakeholders in the currency are invested in the success of Bitcoin as a currency and not as a protocol. It seems backwards to argue that Bitcoin is about the protocol while ignoring the opportunity to accelerate the status as a currency forward. For Bitcoin to continue earning the trust it needs regulatory policy is not inevitable, but essential. Is the DFS giving the most ideal regulatory policies? No, but it is nonetheless giving Bitcoin a generous amount of trust.

The technology behind Bitcoin is not at risk. The product of these regulations will not hinder the ability to use a Blockchain-based technology to send digitally signed messages, to affirm ownership or any other extensible function so long as that there is no direct, intentional gateway to Fiat currency. The technology behind Bitcoin is about carrying an individual identity that can be verified without a central authority. In this scenario there are many opportunities to still utilize the extensibility behind Bitcoin’s technology while earning the benefits of mainstream adoption through a trusted regulatory agency. Worldwide adoption and trust are the necessary elements for the success of Bitcoin. Regulation is a powerful tool in encouraging both.