Bitcoin and virtual cryptocurrencies

Are you using Bitcoins? I’m missing topic about this one here… I think it can change the world.

Bitcoin offers pseudonymous electronic cash transaction over the internet (for nearly anonymous transactions I’ll share some tips in next article). It is mix of technologies which allow speedy transfer of value privately without any barriers.

There are two bitcoins:

  • With lower b - bitcoin as the underlying technology (mainly the blockchain - which I’m sure we will hear in the future a lot). Blockchain offers distributed accounting ledger which is revolutionary in its transparency and decentralization.

  • With capital B - Bitcoin as the unit of the currency we use to pay with (BTC is shorthand). In this sense currency Bitcoin is first application (example) of the bitcoin blockchain.

I’d like to introduce Bitcoin little bit to those who might not heard about it and share some interesting facts laid out for non-it geeks :slight_smile: Please read my article:

##Bitcoin
The phenomenon of recent times, which was until recently the domain of programmers and IT professionals is starting to wrinkle central and commercial bankers.

Bitcoin is a virtual Internet currency. At first glance, it is just another attempt to dematerialize money and achieve higher transaction speeds. At second glance it is very unique - there is now central or commercial bank nor other institution behind its currency emission. It has no headquarters or supervision, and just like the protocol on which the Internet is built, it is decentralized and entirely independent of the world’s governments.

Inventor of Bitcoin is unknown programmer with the pseudonym Satoshi Nakamoto. His concept was followed by implementation team of about 25 professional cryptographers who since 2010 enhance the security protocol, debug, and tune its internal code. The program is open source and free for download. You can run it on Linux, Mac OS and Windows platforms. The community project, though still in beta, has managed to achieve a market capitalization of about 11.5 billion US Dollars.

Bitcoin in its three-year history has come a long way. From ordering pizza for 10,000 BTC (shorthand for Bitcoin) to a current rate of about USD 600 per 1 Bitcoin. What is behind its success? It is a unique combination of technologies: accounting books are decentralized and shared in peer-to-peer network of thousands of nodes (like BitTorrent), which ensures high stability of the network. Electronic coins are protected by advanced cryptography and coin disposition is tied to electronic private keys (same technology as behind PGP mail encryption and SSL internet banking encryption). The keys are password so complex that even in future it will not be possible to guess them, because number of possible variants is equal to count of the stars in all the galaxies.

High-speed processing of payment transactions and low cost - are the main advantages of this electronic currency. But money is also a store of value. Bitcoin is in this respect similar to gold rather than fiat currencies because it lacks the possibility of printing additional bills or notes. The core of the algorithm - the only real controller of the currency - reduces the amount of currency emission to 21 million Bitcoin. It is expected that the currency Bitcoin will be rare and, together with the growth in popularity gradually valorize. We are well prepared for this - every bitcoin is divisible up to 10 decimal places. To make initial coin emission fair, Bitcoins are “distributed” to the individual operators nodes, to the extent in which they are involved in operation of the network and transaction processing.

In addition, owners of nodes pay for employee wages and operation of sophisticated hardware and software acquisition by earning fees from transactions. When the consignor is sending money he can choose priority of the transaction by setting its fee freely (almost zero fee). High fee transaction will be prepared in 10 minutes, near zero fee transaction can be processed in the coming hours. You usually pay less than a tenth of mille from amount sent. Transaction costs are determined by perfect market environment and depend on network utilization. Network performance is increasing, the current capacity (about 23.000.000 petaflops) is equal to the most powerful mainframes on the planet combined.

You can pay with Bitcoin for coffee or a sandwich, purchase hardware or software from Dell and Microsoft, contribute to Wikipedia, Doctors Without Borders, Electronic Frontier Foundation, buy a domain name with Namecheap or rent Wordpress.com blog or cloud services Mega. You can transfer value from Amsterdam to the end of the world any time you want. There are first bitcoin ATMs launched. Malta based first hedge fund was designed to take advantage of deflationary tendencies Bitcoin. Chinese try to overcome their restrictions on individual foreign exchange. Bitcoin attracts many private investors and speculators. Swiss bankers, US FinCEN, R3 banking consorcium and the ECB are looking at Bitcoin with apprehension. Bitcoin may revolutionize but also risk. A risk is the chance.

Are you using Bitcoins?

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Bitcoin Privacy Tutorial for Growers

This tutorial is not about keeping bitcoins safe in your wallet. It is about safety, security and privacy when using bitcoins to trade, buy and sell stuff.

Bitcoin is very specific because offers pseudonymous transactions by default. All transactions are kept in bitcoin blockchain so it is very transparent as it allows to track movement of particular coins between addresses. (See it in action on Blockchain.info) Bitcoin addresses are just bunch of random numbers and characters without any connection to your name, ip address or software you are using but they are identifiable by means described in this article. Thus they are not 100% anonymous but only pseudonymous. There are services which aim to track down and disclose different “clouds” of addresses which belongs to particular bitcoin services. If you want to see example of this analysis, visit WalletExplorer.com.

If you want to keep your privacy and make bitcoin transactions as anonymous as possible you can use following tips to obfuscate and hide your transactions, so that they are not easily trackable by blockchain analysis.

What private information can be possibly obtained from blockchain?

  • How many bitcoins a person owns
  • Where (how) he has obtained them
  • How many bitcoins he is sending
  • To whom he is transferring bitcoins
  • Reason for particular payments
  • Where he lives, which bitcoin wallet client he is using, etc.

Motivation: Why track participants of transactions?

  • just for fun :wink:
  • tracking stolen coins
  • sniffing customers or clients
  • checking incomes by financial institutions
  • indentifying interesting targets

How to find owner of bitcoins or other information about bitcoin address?

  • we can try google that address (or search in some discussion forums)
  • look up tag at Blockchain.info or similar pages
  • follow transactions in blockchain
  • analyse internet traffic on the bitcoin network

How transactions work?

Inputs to transactions are outputs from previous transactions. Input is spent as a whole. Any surplus goes on address called “change address”. Fee to miners is deducted automatically and it is equal to difference between sum of inputs and outputs. Coinbase transaction (miners rewards) have no inputs, only outputs.

Types of wallets

How you can handle your coins?

  • Private wallet
    • wallet with single address (mobile clients)
    • more addresses, but created per request, change goes to one of them (Multibit, blockchain.info)
    • change address is new everytime (bitcoin core, electrum, armory)
  • online service
    • one or more publicly known addresses (Satoshi Dice)
    • every user gets his own address, but these are recycled (BitPay)
    • every user has only his own addresses (one or more)

Passive tracking

Practices that facilitate monitoring (what to avoid)

  • using same address for multiple payments
  • linking addresses together to the input of a single transaction
  • sending a rounded or otherwise numerically significant amounts
  • receiving same amounts regularly
  • paying non-standard fee
  • vanity addresses (own custom tailor-made address like 1Overgrow5aiajabed3g1jefjab)
  • unconventional (or always the same) number of inputs / outputs or address types
  • spending yet unconfirmed outputs
  • creating transactions in typical times (habits, time zone)
  • doing business with people who do not respect practices for anonymity

Active tracking

How to look up identity of participant on non-active address?

  • send fraction of bitcoin and wait for them to combine with another address (repeatable)
  • sending fragments of bitcoins to addresses around watched address (to identify other connections)

Tracking using other means:

With help of external servers:

  • light clients do not download blockchain and do have to ask external servers about incoming payments. this way they expose list of addresses
  • when looking at our addresses at websites we also disclose our or neighbouring addresses to blockchain explorers.

Tips and tricks against tracking

How to be the most anonymous?

  • Always use a different address for each incoming payment
  • If it happens that one receives multiple payments to one address, then spend all coins at once (in one transaction)
  • Use a client which sends the change to newly created (unused) address
  • Use a client which can use Coin Control and manually select all inputs to transaction (especially be careful about purses that
    select inputs in deterministic fashion)
  • If it is necessary to combine the inputs, it is better to put together transactions incoming from single person or single change address
  • If surplus amount is too low it is possible to send change to external service (anonymous!) and withdraw someday in future
  • Time to time send bitcoin through some centralised service or mixing service (see below).
  • Use CoinJoin, blockchain.info “shared send”, DarkWallet, etc.
  • Best solution is to send bitcoins to anonymous multi-currency exchange, convert it to another currency (ideally with integrated mixing), send it to other currency exchange and trade alt-coin back to Bitcoin then withdraw. (see below)
  • Use one of more anonymous alternatives (Monero, Darkcoin, BitcoinDark …)
  • If on some of old addresses some change arrives, leave them there (or you can destroy them using OP_RETURN)

How to verify anonymity?

Use web sites like WalletExplorer.com

Links

Time to time some sites are hacked and bitcoins stolen. I do not endorse any of sites and I’m listing them for your information only! Use them at your own risk!

Biggest bitcoin forum: https://bitcointalk.org/

Mixing Services

https://cryptomixer.io/
https://bitmixer.io (TOR mirror: http://bitmixer2whesjgj.onion/)

These services wash bitcoins by mixing them with other bitcoins. The downside is that your coins are probably mixed with other dirty coins… But if you chain more of these services your coins are practically untrackable.

Person to Person exchange

https://localbitcoins.com/

When selling or buying bitcoins use person-to-person transaction to avoid using bank account linked to some official exchange.

Three way exchange (Altcoins)

Very hard to track are transactions through other altcoins. Use Bitcoin -> Altcoin -> Bitcoin exchange through two independent and anonymous alt coin exchanges. Deposit BTC on first, buy altcoin, send altcoin to second exchange, sell altcoin to bitcoins and withdraw BTC.

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Anybody got into Bitcoin before Christmas? There were huge gains during last two weeks of 2016… About +25%

Im not economist and not know too much about. But

for nearly anonymous transactions… nearly? funny… yes or no, nothing between not exist! Difficult to track is not anonymous.

At second glance it is very unique - there is now central or commercial bank nor other institution behind its currency emission. It has no headquarters or supervision, and just like the protocol on which the Internet is built, it is decentralized and entirely independent of the world’s governments. Is it really too stable and inviolable in order to could be considered an advantage?

High-speed processing of payment transactions and low cost. Low cost of what? Payment? :smiley: for me nothing. If you think low cost for goods with BTC… where? Just dream in central europe. (compared to buy BTC, if you know what I mean… I not know to wrote it better in English)

everything is digitize… slow way to hell in my opinion. Just a little and all papers in your wallet loses value. Why is it bitcoin different?

But thanks for the topic, I learned something new. Maybe convince me.(?) Generaly Im not fan of commercial and government banks.

EDIT I read a little about it…bitcoin not convice. But technology of blockchain is very intersting. :+1:

Thanks for the topic, @papinian.

I am big fan of virtual currencies.

I see that as a good thing… There were many cases in history where government or central bank did monetary reform and basically confiscated % of citizen money (with the support of commercial banks). Last time I remember it happened practically overnight in Cyprus back in 2013.

Actually if you compare bitcoin transfer costs to a similar (almost instant) service like Western Union money transfer it is really cheap… WU’s fee is about 4-8% depending on currency (of course that includes currency exchange) while bitcoin transfer costs few cents (independently of the amount sent).

I agree that it is great to see competition for established players!

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Thanks, must learn more about it :wink:

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I use neither bitcoin or other.

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up to $2800 today. Last year around this time it was about $250, way to miss the boat for me. :confounded:

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Only 1780 USD on BitStamp today and still near the all-time-high of 1892 :smiley: (I don’t know where are you getting those inflated values :))…

Best source for prices is probably https://bitcoinwisdom.com/markets/bitstamp/btcusd

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lol it was a typo I meant $1800 but still its a lot more than it was. Thanks for the link that chart is awesome, never seen it!

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Bitcoin price increase in last 10 months is incredible…

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What is your take on this @Herbie!?

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MoooooooooN :grin: Big green dildos :laughing:

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Well sorry to those that didnt get any btc under $5500 at the start of last month on the dip, just sold mine to make a quick 2 grand per btc, I will buy back on the next drop.

Now who said MOOOOOOOOOOOON :laughing:

@LemonadeJoe @MadScientist

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what exchange do you use?

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For European bitcoiners, use www.bitstamp.net (used multiple times happily)…

For US there are www.bitfinex.com and www.kraken.com/ both very respectable.

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@Herbie please inform me of your next buy. i’m going in with you.

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Been kicking myself in the ass almost every day these past couple months! Was very interested early on, but i was one of the non-believers that thought it would tank early. And now, replacing space heaters with mining equipment sounds like it would have been a good choice…

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Im always too late on the smart buys…im on alot of forums and was talking about bitcoin about a few years ago…i was sceptic…why oh why didnt i buy a tleast a$100 worth back then or more…dammit…i saw yesterday it was like 7400 a coin…if im correct.or something like that

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Do you feel it will continue to escalate?.or deflate soon…

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