-By Milly Bitcoin® – September 20, 2014.
The Bitcoin.me video has been released. The video shows situations where Bitcoin users can use the currency where legacy systems sometimes fail.
-By Milly Bitcoin® – December 28, 2013.
Atlantic City Bitcoin has completed the acquisition of the “Bitcoin.me” web site. This will be part of the Milly Bitcoin project to provide free support for Bitcoin users. A professional production agency has been employed to develop assist with presentation of the site. The “Bitcoin.me” site will have basic introductory material while MillyBitcoin.com will be for interactive support. While the most common question is about how to buy Bitcoin and whether fractional Bitcoin can be purchased, questions are becoming more sophisticated. Recent questions include how to set up web sites to accept Bitcoin and investments into alternate coins (Alt-Coins) which are Bitcoin clones with some of the parameters changed.
Other projects include HELP.org to provide assistance for non-profits to accept Bitcoin and BitcoinFood.com to answer the common complaint that people can’t use Bitcoin to buy food, Punk.org to provide information for musicians and artists to accept Bitcoin, and the Bitcoin Information Center at Bitcoins.info. Other upcoming projects include BitcoinTicker.com to explain the various exchange rates and provide information about the various resources for monitoring the Bitcoin exchange market. BitcoinSec.com will provide security best practices and is being developed by a Certified Information System Security Professional (CISSP).
-By Milly Bitcoin® – December 27, 2013.
The US Department of Treasury, Financial Crimes Enforcement Network (FinCEN) has issues ruling that clears up an issue for Bitcoin mining. The issue involves whether someone who mines Bitcoins for themselves can trade them for cash at an exchange or spend them directly without being classified as a Money Services Business (MSB) and register with FinCEN. Many miners were concerned that the rules would require compliance with extensive regulations (see Jerry Brito, FinCEN explicitly stated in a personal letter that bitcoin miners need to register with FinCEN). The rules could require miners to have things like an auditor on staff making it impossible for individuals to mine Bitcoins and stay within the regulations.
Atlantic City Bitcoin operates several ASICs miners at its facility in New Jersey and asked FinCEN to clarify the rules. The owner of AC Bitcoin is a former federal employee who worked on anti-terrorism and security programs and took early retirement to work on Bitcoin. According to the formal Administrative Ruling miners do not have to register with FinCEN as previously thought as long as they mine for themselves. AC Bitcoin had frequent contact with FinCEN staff and pointed out that if FinCEN had required miners to register they would need to comply with the “Administrative Procedures Act” which would require them to consider public comments before making the requirement.
The ruling goes on to discuss that other arrangements, such as mining contracts where mining is done on behalf of another party, may be classified as a Money Services Business depending on the circumstances. The entire ruling is below and will be published at FinCEN’s web site in the near future.
-By Milly Bitcoin® – December 15, 2013.
Many new users who open Bitcoin online accounts with exchanges or online wallet programs do not fully understand the ramifications of the “API Key.” API stands for “Application Programming Interface.” This key allows for programs to interface with your account. For instance, if you have a computer program that makes automatic trades to your account. Even if you have added security to log into your account, such as 2-factor authentication where a second password is sent via text to your smart phone or a hardware key is needed to be plugged into a USB port the API key will bypass this.
One reported case involved someone who created their account without 2-factor authentication because they had not yet made deposits. Once they made deposits they enabled 2-factor authentication. However, someone had already hacked their way into the account and created an API key. They then proceeded to make withdrawals. From the perspective of the exchange operator they cannot tell if is was actual theft or a scheme by the account holder to try to get a refund they do not deserve.
In another case someone had created an API key when they opened their account and forgot about it. Now the key was somehow compromised and it was used to bypass the 2-factor authentication protection they had on their account. It would be prudent for exchange operators to provide extra confirmation steps before an API key is created so the users is better informed of the risks.
-By Milly Bitcoin® – December 13, 2013.
Atlantic City Bitcoin will be offering free Bitcoin support at the Philly Punk Rock Flea Market on Saturday, December 14. Most Bitcoin events are geared towards techies and entrepreneurs. This event will give members of the public the opportunity to ask questions about Bitcoin while they do some Christmas shopping. Atlantic City Bitcoin operates MillyBitcoin.com that provides free online support. A wide range of questions ranging from using, accepting, investing, the what the future may hold have been submitted to the web site. As questions come in the answers are provided in FAQ’s and articles at CoinText.com. The most common question involves buying a fraction of a Bitcoin. Since Bitcoin is completely digital, fractions are used and a whole Bitcoin has no special significance. Physical Bitcoins will also be on display. Several Bitcoiners have signed to attend via Meetup.com.
The event features more than 500 local artists, entrepreneurs and vendors of all-things-interesting, the flea market represents a wide cross-section of the city’s alternative culture. While the event is labeled as “punk rock,” it is by no means restricted. The event won a Reader’s Choice award from the Philly City Paper in 2013. A $3 admission fee goes to support the First Unitarian Church and other proceeds from the event are being donated to Skateistan.org to help young girls in Pakistan learn how to skateboard.
-By Milly Bitcoin® – December 8, 2013.
While there are many contributing factors to Bitcoin’s price volatility in relation to established government currencies one contributing factor is a misunderstanding of Bitcoin.
Bitcoin is a currency, a “commodity,” and payment system. Many investors only see the commodity aspect and often point to “no intrinsic value.” To an investor there is no “intrinsic value” because you cannot hold it or sell it if the value plummets. For instance, even if the gold market crashes it still has value to make electronics and jewelry. “Commodity” is in quotes because Bitcoin does fit the exact definition of a commodity but it is being discussed by regulators during recent US Senate hearings.
Non-investors often say Bitcoin does have intrinsic value as a payment system and a protocol. For instance, the TCP/IP protocol has an “intrinsic value” in that it is used to operate the Internet. The value of Bitcoin is in its use as a disruptive technology to displace outdated legacy services. This disconnect is the result of different perspectives of the definition of “intrinsic value.”
Bitcoin is an experimental protocol. Many discussions of Bitcoin compare it to established payment systems and conclude Bitcoin will be a failure. While there are many issues with Bitcoin it is too early to make final conclusions about how it will pan out. Someone looking at the Internet in the early 90’s would see rudimentary browsers that crash all the time and no search engines, no flash, no streaming video, no database-driven sites, etc. If you ever sent your credit card info to a web site your funds would likely be stolen, and many businesses refused to have web sites because they were concerned about being associated with porn. Some groups would claim that no advertising would be permitted on the Internet because it was designed for research collaboration. Others claimed the Internet was for circumventing “real world” laws and used the Internet for all sorts of illegal things. None of these issues, many of which still exist today, resulted in a “failure” of the Internet.
Exaggerations create false expectations. Many people exaggerate the Bitcoin economy. For instance, it is often stated that there are many thousands of merchants accepting Bitcoin. While it may be technically true that thousands have signed up to accept Bitcoin the actual number of businesses selling things is substantially less. For instance, BitcoinFood.com is a site maintained by Atlantic City Bitcoin. It you exclude local places that accept Bitcoin the number of places accepting Bitcoin for mail order food is less than 50 for the entire world. Of course this was probably less than 5 a year ago. When you strip away all the hype over the exchange rate volatility Bitcoin is actually experiencing essentially a linear and steady growth. Some misinterpret the overheated price and hype bubbles as a sign that Bitcoin has no underlying value at all and compare it to things like Beanie Babies.
Other exaggerations and misinterpretations include claims that Bitcoin will replace all currencies, that Bitcoin will cause the failure of central banks/the federal reserve/governments and so on, or that Bitcoin is solely as a tool to create “anarchy.” Of course there is no way to predict how these things will pan out but those that focus on these hyperbolic issues rather than the how the technology can be used to disrupt current services often leads to misinterpretations and misunderstandings.
The Bitcoin price is a bubble, on top of volatility, on top of a steady increase. Bubbles are being caused by hype and misunderstandings, volatility is cause by lack of liquidation among exchanges, and the steady increase is due to the usefulness of the technology. The volatility is often cites as a problem with merchants accepting the currency without considering that the problem may go away when liquidity is available.
Successful decentralized coin systems are not easy to launch. Anyone can launch a new coin system since the software is based on open source and is freely available to anyone. Hundreds of such systems have been launched (see CoinChoose.com). However, a new systems takes a critical mass of users, miners willing to process the transactions, and merchants willing to accept the coin. It is possible one of these systems will overtake Bitcoin in popularity but the chances of this are limited since Bitcoin users could decide to adopt some feature of these alternate coins if advantageous. If Bitcoin does get replaced in popularity by some other system it would most likely be a system that is substantially different rather than one of these knock-offs.
Common Bitcoin Misconceptions – Great for new users and press reporters.
-By Milly Bitcoin® – November 24, 2013.
Many questions have arisen lately about investing in virtual currencies other than Bitcoin. This issue can get somewhat complicated and a few risks need to be understood:
Decentralized vs. Centralized. Bitcoin is decentralized, meaning no central authority or bank, controls the supply. It is controlled by people who run the software. Centralized coins, like Amazon coin, are controlled by the central authority or company that operates the coin. In this case the central authority controls the supply. For instance, Ripples (XRP), is a centrally controlled currency operated by OpenCoin, Inc. Currently, the only use of XRP’s to facilitate transactions on the Ripple system. An investment in XRP is more like an investment in OpenCoin, Inc.
Alt-Coins. This is the terms given to coins based on the Bitcoin software. Since Bitcoin is open source anyone can take the code, change some things, and create another coin system. New coins systems get created all the time (see CoinChoose.com). Generally, these coins depend on the Bitcoin developers to put out new versions of the software and they adapt it to whatever parameters they use. If any of these coins were to overtake Bitcoin in popularity they would need their own developers.
Proof of Work, Hashing Rate, and Difficulty. The security of decentralized systems depends on the “proof of work” algorithm and the amount of computer power to “mine” these coins. Some coins use different proof of work algorithms so their hashing rate cannot be compared one-to-one. The “difficulty” is a measure of how difficult a problem is to solve.
One scenario that has happened is that many people will start mining a specific coin, the hashing rate will rise and the difficulty goes up. If the exchange price of the coin drops for some reason they trade their coins and move their mining equipment to another coin. Now the difficulty is so high it takes weeks to solve the next section and all transactions stay in limbo. Meanwhile, they sold off many coins and the value goes to essentially zero since it is essentially a non-functioning system.
Another scenario that has happened is a “51% attack” which is where one entity has a majority of the hashing power. They create their own block chain ledger and create s situation where they can spend the same coins twice. Or they can simply disrupt the whole system by delaying transactions.
Alt-coins replacing Bitcoin in popularity. Some other coin could replace Bitcoin as the most popular virtual currency. However, if one of these Alt-coins does something better than Bitcoin it is possible that Bitcoin users could adopt this change within the Bitcoin system rather than switching to another coin. It remains to be seen what will happen.
Availability of exchanges. Being able to exchange these alt-coins also depends on exchanges willing to exchange the coins. Currently, these coins, if they are exchanged, may depend on one or two exchanges. Of course Bitcoin was the same way when it started and still is to a certain extent.
Malware. Some users report being infected with malware from downloaded alt-coin software. One user reported that one program used a key logger. This logs every key stroke and sends the information back to the attacker. The information was used to steal funds from their various wallets. Do not load this software on a computer where you have Bitcoin stored or do Bitcoin transactions or other important things, such as accessing your bank account.
-By Milly Bitcoin® – November 18, 2013.
Investing in Bitcoin has become all the rage in recent days. It could be described as a bubble on top of volatility on top of a steady increase. Keep in mind that Bitcoin can be used as a payment system and the volatility is only important if you hold bitcoins. The price does not matter if the Bitcoins are converted immediately after transactions. If you do want to invest here are a few considerations:
-New investors have entered the market pushing and many people have taken notice.
-Investment by Chinese savers looking for store of value has increased.
-US Congressional hearings went well and pointed out the innovation potential of Bitcoin.
-Many who previously panned Bitcoin are starting to realize it is an underlying protocol and services can be built on top of it.
-Only a tiny percentage of potential users are using Bitcoin now. Gains can be large and dramatic.
There are many people who never heard about Bitcoin before are inquiring about investing. Discussion boards are full of discussions about a “new paradigm” and some are advising people to take out loans to buy more now before it goes up even further. More cautious advice is to invest a small amount so a huge gain would be great but a small loss won’t matter much. Some claim that the bubble was the jump to $900 and when it went back to $500 it was over and the rest is just a normal increase..
Before investing a significant amount you should consider a few more things:
-Each time the market has increased like this before it corrected violently downward. However, it has always come back up and exceeded previous highs in a relatively short amount of time.
-Bitcoin is still in its experimental stages and the software is still in “beta.” (version still starts with a “0”).
-Professional investors are involved who have worked on Wall Street. Max Keiser, a big Bitcoin proponent and investor, worked on Wall Street for years and has a patent involving virtual currency exchanges. They know what they are doing when it comes to investing.
-Depth in these markets is small. This means a small number of investors with large holdings can sway the market. Large changes in the price can occur in minutes any time of the night or day. There is mostly no regulation to prevent market manipulation.
-Bitcoin is currently limited to about 7 transactions per second. Visa/MasterCard can handle thousands of transactions per second.
-While the number of merchants is increasing, it is still very small. BitPay has 12,000 merchants but it is difficult to find more than a few hundred that sell products and the selection is often thin. China has only a handful of merchants who accept Bitcoin. BitPay Directory | CoinMap.org | BitcoinFood.com
Profits and losses can be swift in this market. Be careful!
-By Milly Bitcoin – November 18, 2013.
One of the most common complaints about Bitcoin is “I can’t take it the supermarket and buy food with it.” Well, now you can at BitcoinFood.com. The site offers free listings to anyone selling food products for Bitcoin. A link to CoinMap.org is also provided which shows a map with local businesses who accept Bitcoin for those that want an immediate meal rather than mail order. Bitcoin is great for small businesses and many unique items and specialty products are available for Bitcoin.
-By Milly Bitcoin – November 6, 2013.
Atlantic City Bitcoin is getting ready for the holiday season by offering letters from Santa for Bitcoin. SantaGram.com is a low cost service that sends fully customizable physical letters from Santa using festive stationary. A discount can be offered for Bitcoin due to the reduced transaction fees. Several example letters are provided or a customized message can be composed. Bitcoin is perfect for low cost services such as this. The price for the 2013 season is just 12 MillyBits to send a letter to anyone in the world. Email can be sent to Santa free at [email protected] or at http://Santa.Claus.org. All services protect the privacy of users and no information is sold.
BitcoinSanta.com will be opening shortly for Bitcoin enthusiasts and will provide Bitcoin decals and promotional coins that can be included with the Santa letters sent to bankers, brokers, regulators or others who may wish to receive a Bitcoin greeting.
-By Milly Bitcoin – November 3, 2013.
“Brain Wallets” are wallets created by a passphrase. It could be a sentence or phrase or just a group of words. Some users are confused about how complex this password or phrase must be in order to be secure. The advice, Don’t do it.
The misunderstandings comes from several things. A password attack that most users are similar with is where a user attempts to log into their e-mail account or a web site. In these cases the attacker is communicating with a server that is processing the requests and this is often detected or limited in some way. A “brain wallet” attack is done offline so the attacker can use many large computers to make many, many attempts without being detected.
Another misunderstanding is just how many attempts can be made. For instance, replacing “S” with “$” probably isn’t going to add much security. Many people are surprised after they lose funds with complex or obscure phrases.
Users are also shocked how fast the funds are taken, sometimes less than 5 seconds. It works using “Rainbow Tables” which are tables of Bitcoin addresses and the associated private keys pre-calculated. The Bitcoin transactions are monitored in real-time and when a match is seen, the money is withdrawn immediately via a script. Some users think that if the funds are not taken right away then they are safe. However, the script may wait until the balance is larger. Also, the attackers are growing these “Rainbow Tables” over time and these is no telling how large they will become.
While it is possible to do a “Brain Wallet” securely a certain percentage of users will not do it correctly. The easiest and most secure way to back up your funds is to use Bitcoin Armory wallet. This is a “deterministic” wallet which means you just need one key to create or “determine” all the addresses used by the wallet. It is backed up using a long string of letters. Backing up this string of letters, without identifying it as a Bitcoin wallet, is a way of discreetly backing up your wallet.
One Bitcoin address collecting these funds put into weak “brain wallets” is at
370 millyBits has been collected so far.
A recent transaction from the “brain wallet” using the password: “password” was taken in about 1 second since the Bitcoin transactions are easily monitored:
-By Milly Bitcoin – November 2, 2013.
Recently the US Federal Bureau of investigations (FBI) seized bitcoins from the alleged Silk Road operator. There is also discussion that the FBI has a wallet file that is encrypted. Around the same time there has been speculation that the US National Security Agency (NSA) worked with the US National Institute of Standards and Technology (NIST) to recommend weak cryptography methods that could be broken. Some recent articles and commenters have confused these concepts.
Breaking Encryption - A Bitcoin wallet is a collection of Bitcoin addresses and their associated private keys. The private key is the “password” that allows the coins to be spent. Anyone who has this private key can spend the funds so for security it is encrypted while it is stored on your hard drive. That way, even if someone gets the wallet file they cannot read the private keys without knowing the password needed to decrypt the wallet file. This password has nothing to do with the public Bitcoin address in the wallet and the FBI needs a copy of the wallet file if they wish to try to break the encryption. Usually a wallet will contain multiple Bitcoin addresses and multiple private keys. The Bitcoin protocol itself does not use encryption, it uses cryptography. Encryption is something used to secure the private keys.
Breaking Cryptography - In order to create a Bitcoin address a private key is generated and then a Bitcoin address is calculated using a 9-step process. There is no known way to go backwards from a public address to the private key other than to try to go through all possible keys and there are just too many. There has been speculation that the NSA has some sort of back door to find the private key from the public Bitcoin address. This is pure speculation at this point and there is no evidence this is the case. If this were true then the private address could be determined from the public Bitcoin address. The wallet file would not be needed and it would not matter if the wallet file was encrypted. All funds could be taken from the information contained in the Bitcoin blockchain ledger.
How to create Bitcoin Address: https://en.bitcoin.it/wiki/Technical_background_of_version_1_Bitcoin_addresses
Click this image for a discussion of brute forcing addresses:
-By Milly Bitcoin – October 28, 2013.
A new abbreviation for Bitcoin is starting to come into use, “XBT.” Up to this time “BTC” has been the generally accepted notation for Bitcoin. Since Bitcoin is decentralized there is no standard or anyone to dictate what it should be. The XBT comes from an International Standards Organization (ISO) that keeps a list of currencies. If a currency is not associated with a country then it starts with an “X.” US Dollar is USD and Gold is XAU. A more detailed discussion of the standard is discussed by the Bitcoin Foundation Director Jon Matonis:
Bitcoin exchanges have begum to start using the XBT notation but many merchants still use BTC. It remains to be seen how it will be used in the long term.
There are also other discussions over what fractional terms will be used since 1 Bitcoin is close to $200 in value at this time. 0.001 Bitcoin is one milliBitcoin (expressed as mBitcoin, MillyBits, BitMills, Millies, etc.) which is worth 20 cents when Bitcoin is worth $200. At this time many sites are still using decimals but this often leads to confusion and errors even by experienced Bitcoin users.
There is also discussion over the standard for the Bitcoin symbol which is similar to the Bhat currency in Thailand:.
Some common uses got Bitcoin are:
-By Milly Bitcoin – October 27, 2013.
The Bitcoin “Blockchain” is the database of Bitcoin transactions. It is basically a ledger and all Bitcoin balances can be obtained from it. A section is added to the database about every 10 minutes on average. Each block on the end depends on all the blocks before it so you cannot just insert a new or changed block in the middle. If there is a conflict somewhere on the network, the longest chain with the most work will always “win.”
It is the chain with the most work rather than the number of blocks. As Bitcoin has grown the “difficulty” in finding the blocks increases. The “length” of the chain is measured by how much work it took to find each individual block. In the early days it was easy to find a block and people did it with laptops. A blockchain full of the low-work blocks would not replace the current blockchain even it had more blocks because the total work would be less.
One common scenario is that 2 miners solve a block at almost the same time. Let’s ay it is block number “5.” We now have block “5-A” from one miner and “5-B” from another miner in a different part of the world. There are now 2 different Blockchains floating around the network, both of height 5 and this causes a conflict.
Blockchain-A: Block1 – Block2 – Block3 -Block4-Block5A
Blockchain-B: Block1 – Block2 – Block3 -Block4-Block5B
Now the race begins for Block6 which is how the conflict gets resolved. Some Bitcoin miners will mine Block6 “on top of” Blockchain-A. Others will mine “on top of” Blockchain-B. The first miner to find Block6 resolved the conflict because they will have the longest chain. If they happen to have been mining on Blockchain-B then Block-5A is now “orphaned” and is no longer valid. The miner who found Block-5A will not get the block reward or transaction fees and the transactions will go back into the pool of transactions to be mined.
This system brings up a number of complex issues. For instance, a large miner could try to intentionally “orphan” blocks to get a large transaction fee or to push a smaller mining pool out of business.
A “51% attack” is where one entity creates a longer chain than the rest of the network. This can be used to either create a complex “double spend” in order to steal funds or to simply stall the network to prevent transactions from being processed. There are some estimates of how much a “51% attack” would cost
but these costs are often exaggerated as they depend on retail prices of Bitcoin miners. In reality an attacker would most likely develop their own equipment rather than purchase through retail vendors.
By Milly Bitcoin – September 9, 2013
There have been many claims that Bitcoin is “anonymous.” Others call Bitcoin “pseudononymous” because transactions are not linked to an identity. If a Bitcoin address is linked to an identity then all the transactions can be seen by anyone. In some cases users want transactions to be public for accountability purposes. Recent reports have implied that nearly all transactions can be linked back to an owner. The truth is somewhere in between but it takes a little understanding of how Bitcoin transactions work.
One thing that is often confused in the discussion is the difference between a Bitcoin address and a Bitcoin wallet. A Bitcoin address is a single address while a wallet is a collection of Bitcoin addresses. The public Bitcoin database, the “blockchain,” contains the balances of all Bitcoin addresses but has no information about Bitcoin wallets. A Bitcoin wallet is software that runs on your computer and compiles the balance of all your Bitcoin addresses. (Note that online wallets may be handled differently and this discussion is for software wallets you run on your computer).
The next thing to understand is how Bitcoin transactions work. Transactions have “inputs” and “outputs.” The simple rule is that the total of all the inputs must equal the outputs. That means if you have 10 Bitcoins in an address and you send 1 Bitcoin to someone there is another transaction that sends 9 Bitcoins back to yourself. In Bitcoin terminology this is called “change” and the 9 Bitcoins goes to a “change address.” These “change addresses” are created automatically and many new users don’t realize they exist since your wallet totals the balance of all the addresses
There are 2 main ways anonymity is lost. The first way is aggregating balance to a single address. If somewhere along the line one of those addresses was linked to your identity they are now all linked together due to the aggregation. The first step here is to never purposely aggregate the funds. Many are of the belief that aggregation is somehow necessary . There is no reason to do that because the wallet program adds up the balances for you.
The second problem is unintentional mixing of addresses. The standard Bitcoin client (Bitcoin-QT) does not have tools that allows users to easily control which address in the wallet are used to send funds. Since most users don’t realize all these addresses exist in their wallet unintentional mixing can occur.
To avoid this problem a wallet such as Bitcoin Armory can be used which has many advanced features. One feature is that multiple wallets can be used to completely segregate funds. That way you can have wallets with addresses linked to your identity while maintaining other wallets not linked to your identity and they never mix. Another feature of Bitcoin Armory is “Coin Control.” This feature allows you to control which address is used to send funds so you can prevent mixing.
Note how a donation address on a web page (see below) can link a payment to an identity and transactions after the donation may be traced. Future tipping and wallet proposals use systems where a new Bitcoin address is created each time a donation is made for both accounting and privacy purposes.
Like this article? Donate a milliBitcoin to Milly Bitcoin!
By Milly Bitcoin – June 9, 2013
There are currently several alternate uses of the Bitcoin blockchain. these proposals include using the Blockchain as a notary service (for instance, proof of existence splits a hash into 2 pieces and creates unspendable output. Bitcoin Time Stamp does something similar but transforms the hash into valid transactions). Other proposals such as micropayments and “colored coins” also cause concerns about adding things to the Bitcoin blockchain.
One solution is to create other blockchains. If the blockchain was completely separate from Bitcoin an entirely new hashing network would have to be created. However, using “merged mining” proposed by Satoshi Nakamoto and recently discussed by developer Mike Hearn on Let’s Talk Bitcoin could allow multiple blockchains to be mined at once by the same network.
A block is mined by taking transaction data, a hash from the previous block, and a “nonce” is constantly changed until a hash is found with a certain number of zero’s at the beginning. A simple example:
Take a cryptographic hash using the SHA256 hashing algorithm of the term “message” (without quotes) and you get:
Now start adding stuff until you get a hash that starts with “0”:
After going through the numbers sequentially 51 was the first one that worked. As long as ”51″ is sent along with the message the receiver can quickly verify it meets the requirements by performing the hash. The added portion, in this case”51,” is called a “nonce.” The important part here is the nonce can be anything.
Suppose you are mining Acoin and Bcoin at the same time. Now you have block data from Acoin, block data from Bcoin, and a “mater nonce” that you keep changing until you find a block. Once you find a block it is a valid block for both chains (assuming the same difficulty). For example:
Hash this data together: [Acoin block data | Bcoin block data | master nonce]
When a block is found:
Broadcast block for Acoin >> [Acoin block data] + nonce [= Bcoin block data + mater nonce]
Broadcast block for Bcoin >> [Bcoin block data] + nonce [ = Acoin block data + mater nonce]
This can be done for as many chains as you like. Slush’s pool has already been merge mining Bitcoin and Namecoin since 2011.
The actual specification is a little more complicated and the difficulties do not have to be the same but this is the basic idea. The full spec is at
By Milly Bitcoin – June 2, 2013
Atlantic City Bitcoin has requested an administrative ruling for Bitcoin mining. The US Treasury, Financial Crimes Enforcement Network (FinCEN) issued guidance on virtual currencies a few months ago. FinCEN also recently seized bank accounts of a company owned by Mt. Gox, the largest Bitcoin exchange.
Previously FinCEN responded to e-mail questions with a description of the administrative process:
The problem with Bitcoin mining comes in with the FinCEN guidance that claims:
But the rules that govern FinCEN state:
Since the coins were created during mining it is not possible to have accepted them from another person.
Buying a Bitcoin Miner – The Long Journey is Almost Over
Below is the full request. Note that if you are starting a business or are involved in a situation where clarifications could involve large sums of money an attorney should file a much more detailed legal argument than this. Normally they would review the previous clarification responses and court decision and provide a detailed legal argument.
Request for administrative ruling pursuant to 31 CFR Part 1010, Subpart G:
(1) A complete description of the situation for which the ruling is requested,
I operate a company, Atlantic City Bitcoin, LLC. Bitcoin mining machines were purchased and are now operating “mining” Bitcoins. I am seeking clarification to determine if these activities are exempt from registration as a Money Services Business (MSB)
These activities are further described at:
(2) A complete statement of all material facts related to the subject transaction:
Bitcoins have been mined by Atlantic City Bitcoin, LLC but not yet used or transferred. They may be used to purchase goods and services, used to convert to US Dollars, or transferred to an individual owning the business.
Bitcoin mining involve creating but Bitcoin miners do not have the ability to redeem (to withdraw from circulation) bitcoins.
Is Atlantic City Bitcoin required to register as an MSB as a result of the mining activities described above:
-If the mined Bitcoins are used to purchase goods or services?
-If the mined Bitcoins are converted to US dollars and spent on goods, services?
-If the mined Bitcoins are transferred to the owner of the business?
(Note that converting to US Dollars means transferring to a Bitcoin exchange that is a registered MSB, having the bitcoins converted to US Dollars, and having those funds transferred to a bank account)
(4) A statement certifying, to the best of the requestor’s knowledge and belief, that the question to be answered is not applicable to any ongoing state or Federal investigation, litigation, grand jury proceeding, or proceeding before any other governmental body involving either the requestor, any other party to the subject transaction, or any other party with whom the requestor has an agency relationship,
I certify, to the best of my knowledge and belief, that the question to be answered is not applicable to any ongoing state or Federal investigation, litigation, grand jury proceeding, or proceeding before any other governmental body involving either the requestor, any other party to the subject transaction, or any other party with whom the requestor has an agency relationship.
(5) A statement identifying any information in the request that the requestor considers to be exempt from disclosure under the Freedom of Information Act, 5 U.S.C. 552, and the reason therefor,
(6) If the subject situation is hypothetical, a statement justifying why the particular situation described warrants the issuance of a ruling,
The issue of disposing of the Bitcoins is hypothetical at this point. However, since Bitcoins have already been mined they will be disposed of in one or more the methods described. Clarification is needed to ensure compliance with the various rules.
(7) The signature of the person making the request, or
(8) If an agent makes the request, the signature of the agent and a statement certifying the authority under which the request is made.
(8)(b) A request filed by a corporation shall be signed by a corporate officer and a request filed by a partnership shall be signed by a partner.
Requestor is the owner of the business. Signature below.
(8)(c) A request may advocate a particular proposed interpretation and may set forth the legal and factual basis for that interpretation.
31 CFR § 1010.100(ff)(5)(i)(A) states in part:
… The term “money transmission services” means the acceptance of currency, funds, or other value that substitutes for currency from one person and the transmission of currency, funds, or other value that substitutes for currency to another location or person by any means. …
However FIN-2013-G001 states:
By contrast, a person that creates units of convertible virtual currency and sells those units to another person for real currency or its equivalent is engaged in transmission to another location and is a money transmitter.
The FIN-2013-G001 is incorrect because when bitcoins are mined (created) and then transferred to an exchange bitcoins are not accepted from one person and transmitted to another location or person [emphasis added]. Since the coins were created during mining it is not possible to have accepted them from another person.
Further, Bitcoin miners are not defined as “administrators” in FIN-2013-G001 since Bitcoin miners do not have the ability to remove bitcoins from circulation, only to add bitcoins. Since Bitcoin miners are not Administrators or Exchangers the only other possible definition left is “User.” Therefore, Bitcoin miners are exempt from registering as an MSB.
By Milly Bitcoin – May 26, 2013 – Updated Regularly with New Data
There is quite a bit of hype about Bitcoin mining and the profitability. This post will track the profitability of ordering Avalon ASICs Bitcoin Miners. Keep in mind that the situation changes rapidly and ordering a Bitcoin miner has generally involved making a preorder and waiting months for delivery. Developing new hardware can de difficult and predicting the difficulty changes in the Bitcoin network is also difficult. This makes investing in Bitcoin miners more of a gamble than an investment.
Currently, there is a large amount of hype around Bitcoin miners and many are predicting losses if you order during the hype.
The one question that is remaining is how much profit is there? Atlantic City Bitcoin will open its book to provide an example.
Feb 2 – 2 units purchased (3 module, 65GigaHash/s per machine) 151.36 BTC USD value $3,000 with Bitcoin around $20)
Feb 3 – 1 unit (3 module, 65GigaHash/s) 75.49 BTC USD value $1500
March 25 – 2 units (4 module, 85GigaHash/s) 206.49 BTC USD value $15,000 (This is not a typo, it is due to the price increase in BTC to about $72)
Total spent 433.34 BTC which was $19,500 based on the exchange rates at the time of the purchases.
The first 2 units were delivered May 20, 2013 but were only partially operational until the next day when the Ethernet port bug was discovered.
Since then the units have been hashing mostly via Slush’s Pool. payments are sent when the balance goes above 1 BTC Here are the payouts:
Total Mined (Updated Real Time) BTC
To see the transactions: 1BvCSM6bzorihPrb8yCXvdsd7FpD7KfyvC
Some calculate “break even” based on dollar value while other just look at the total number of bitcoins.
Note that the “difficulty”, which is how difficult it is to solve the problem updates about every 2 weeks and it depends on how many other people are mining. The difficulty changes to ensure the average time between blocks is 10 minutes.
May 21 – 2.25 BTC – Partial day, received in afternoon. Estimate 20 kW-h used. Difficulty is 11,187,257.
May 26 – 4.81 BTC – 170 kW-h used.
2 Block 239,897 Found just before difficulty increase.
June 6 – 9.42 BTC – 98.75 BTC Total. 555 kWatt-hours used so far (plus more for running fans).
June 7 – 6.52 BTC – 105.27 BTC Total.
June 12 – 6.19 BTC
June 13 – 6.21 BTC. 141.65 BTC total. 32% of 433 BTC recovered.
June 15 – 4.75 BTC. 153.07 BTC total. BTC cost of Units 1 and 2 recovered. 35% of 433 BTC recovered.
June 16 – 4.13 BTC. Difficulty change +24% to 19,339,258.
June 24 – 6.83 BTC
June 25 – 9.73 BTC – Power supply stopped working. Upgrade from 650W -> 800W fixed it.
June 29 – 7.06 BTC. Difficulty increased +10% to 21335329.
June 30 – 7.64 BTC. 237.88 BTC Total. BTC cost for units 1, 2 and 3 recovered.
July 3 – 5.47 BTC
July 17 – 4.54 BTC
July 18 – 4.08 BTC
July 24 – 4.62 BTC. 346.41 BTC Total.
July 31 – 3.39 BTC. Difficulty increase 19.6% to 37,392,766
Electric charges to run an Avalon is about $1.25/day (plus room cooling if needed).
$750 – Installation of 3 240V Electrical lines with NEMA 6-20 receptacles:
$292.81 – Power Strip NEMA 6-20:
$35.25 – Fan
$106.99 – Power Supply.
Electric Bill – winter Rates/Summer rates (June-September) :
Distribution Charge: $0.032558/0.042658
Excess Depreciation Reserve Credit -0.002344
Cost of Electricity: 8.19 (October – May) | 9.20 (June-September) cents per kWatt-Hour
Electricity costs of an Avalon is about $1.20/day winter | $1.33/day Summer.
For more information about Bitcoin mining see:
Buying a Bitcoin Miner – The Long Journey is Almost Over
By Milly Bitcoin – May 16, 2013
The Electronic Frontier Foundation (EFF) released a statement today about Bitcoin. It states in the footnote “the network doesn’t actively conceal the IP addresses from which transactions were initiated.” This article explains how IP addresses are handled on the Bitcoin network.
If you use a web wallet or a service that connects to a centralized wallet then this does not apply. Only those services that you connect to have your IP address. They broadcast the transactions so if there is to be an IP address collected on the Bitcoin network then it is their IP address.
Many people have visited Blockchain.info. When you click on any transaction you see a “Relayed by IP.” What they do is run a program that tries to connect to as many Bitcoin nodes as possible. They are connected to many more nodes than most users but not all of them. The first IP address they happen to see is what they report as the “Relayed by IP”.
IP addresses are recorded in the “debug.log” files of the connected nodes. It collects lists of other connected nodes and that is how the peer-to-peer connections are propagated.
A node only knows about IP addresses of placed it is connected to. So Blockchain.info displays the IP address that is saved in their logs. There is no IP address broadcast or saved in the blockchain. You can see the data that is saved by going to http://blockexplorer.com/, click on any block number, and click on “Raw Block.
If you do wish to run a full a node and broadcast transactions it is easy to avoid a node that is collecting and displaying IP addresses. Simply place a list of nodes you want to connect to and Bitcoin won’t connect to any other nodes:
Below is an example Bitcoin configuration file that you can find at https://en.bitcoin.it/wiki/Running_Bitcoin.
UPDATE 5/18: A review of the EFF announcement references the paper An Analysis of Anonymity in the Bitcoin System. The paper references the “pay to IP address” feature in Bitcoin that was used for the defunct Bitcoin Faucet that sent free bitcoins to new users. That feature is rarely used and most people don’t realize it exists.
The paper also quotes Dan Kamisky:
As explained above, this claim is not true as it is not possible to “absolutely” associate an IP with a transaction over any amount of time.
A quick check of Blockchain.info shows they have attributed large number of transactions to one of the nodes I operate. This includes numerous bets from Satoshi Dice.
Atlantic City, NJ (May 16, 2013) – HELP.org, a new web site, provides free assistance for accepting Bitcoin donations. Bitcoin is a decentralized Internet currency with no central authority. It works by users sharing a transaction database via peer-2-peer connections. Due to the decentralized nature of the system there are no restrictions like a bank or traditional payment system impose. The traditional systems are often expensive, impractical or impossible to use in some parts of the world. Bitcoins can be sent to anyone, anywhere in world with very low fees at any time of day or night.
According to HELP.org’s mascot, Milly Bitcoin, there has been too much focus on investment issues and illegal activities related to Bitcoin. This often causes one of the primary uses of Bitcoin to be overlooked. “Bitcoin is ideal for small donations and payments with its low fees, lack of restrictions, and no disputes or ‘chargebacks’ that can cost the seller $35 or more for each incident. When someone makes a small donation or low cost purchase they are often unconcerned with filing disputes so those costs are eliminated.”
“Anyone, anywhere in the world can set up a Bitcoin address and start accepting payments in a matter of minutes without the need for a bank. This could be a lifesaver for someone cut off from the international banking system.”
HELP.org, from Atlantic City Bitcoin, offers free support for Bitcoin users from a certified computer security professional (CISSP). New Bitcoin users have expressed a need for short, concise videos and explanations designed to get them up and running fast. Many don’t want to watch a 40-minute lecture on economics and technical details just to pay for a 99 cent song. Short 1-2 minute videos are produced that focus on specific tasks. As inquiries are answered, solutions are also placed in a knowledge base so other users have access to the information.
HELP.org covers Bitcoin donations support. MillyBitcoin.com offers the “Ask Milly Bitcoin” service covering all aspects of the new currency. CointText.com – Information for the Bitcoin Age has longer articles. Atlantic City Bitcoin also operates the Bitcoin Information Center at http://Bitcoins.info offering news, blogs, videos, media contacts, and references.
All services are 100% free and do not require a registration.