Monthly Archives: June 2015

A 17-year-old Virginia teenfaces up to 15 years in prison for blog and Twitter posts about encryption and Bitcoin that were geared at assisting ISIL, which the US has designated as a terror organization.

The teen, Ali Shukri Amin, who contributed to the Coin Brief news site, pleaded guilty(PDF) Thursday to a federal charge of providing material support to the Islamic State in Iraq and the Levant.

According to the defendant's signed "Admission of Facts" filed Thursday,Amin started the @amreekiwitness Twitter handle last June and acquired some 4,000 followers and tweeted about 7,000 times. (The Twitter handle has been suspended.)Last July, the teentweeted a link on how jihadists could use Bitcoin "to fund their efforts."

According to Amin'scourt admission(PDF):

The article explained what Bitcoins were, how the Bitcoin system worked and suggested using Dark Wallet, a new Bitcoin wallet, which keeps the user of Bitcoins anonymous. The article included statements on how to set up an anonymous donations system to send money, using Bitcoin, to the mujahedeen.

In August, the youth tweeted that the KhilafahIslam's political system and messengerneeded an official website "ASAP" and that ISIL should stop releasing propaganda "in the wild" and instead should consider using JustPaste.it.

"Through various tweets, the defendant provided information on how to prevent the website from being taken down, by adding security defenses, and he solicited others via Twitter to assist on the development of the website," according to his signed admission.

On his blog, the boy "authored a series of highly technical articles targeted at aspiring jihadists and ISIL supporters detailing the use of security measures in online communications to include the use of encryption and anonymity software, tools and techniques, as well as the use of the virtual currency Bitcoin as a means to anonymously fund ISIL."

Sentencing for the honor student at Osbourn Park High School of Manassas is scheduled for August 28. The boy remains jailed.

Amin's lawyer, Joseph Flood, said his client's motivation was religion and distaste for the Syrian government."Sometimes people feel frustrated in their inability to effect change against a government committing atrocities," Flood said. "He was blogging on the Internet. It's as simple as that."

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Sometimes it's hard to tell whether Bitcoin is more like Ponzi scheme or a pyramid scheme.

Whatever it is, though, it isn't a currency. It's a tech stock. Each Bitcoin is really a share in a systemthat seems to make it cheaper to transfer things onlinemoney, stocks, bonds, even the deed to your houseby cutting out the middleman. Well, kind of. Bitcoin doesn't remove the middleman so much as replace himwith middlemen who don't make you pay much, but make society as a whole do so instead. Is this progress?

It's supposed to be. Ever since the early days of the Internet, people have been trying to figure out how to transfer money online without having to go through the financial system. The problem, though, is if Isend youmoney, how do you know I haven't already spent it or sent it to somebody else? You don't. So the only solution has been to have a trusted third-party, like a bank, sit in between us. I send the money to the bank, it verifies that I actually have this money to send, and then it sends it on to you, all for a 2 percent fee, of course.

Bitcoin's breakthrough is to have a decentralized network of "miners" sit in between us instead. Now, remember, these miners are trying to win new Bitcoins by solving computationally-taxing math problems. The clever part, though, is that in the process of doing so, they also create a public ledger of every single Bitcoin transaction, what's called the blockchain. That includes every Bitcoin that's ever been won, every Bitcoin that's ever been used, and every Bitcoin that's ever been transferred. So now we don't need a bank to know that I have the money I'm sending to you, and that I'm only sending it to you. The miners confirm all this. And the best part is that instead of having to pay the bank myself to do this, the system pays the miners in new Bitcoins.

The question, though, is howyou get people to mineBitcoin to begin with. Sure, you can tell them that Bitcoin is digital money they can use to buy things online, but they already have money they can already use to buy things online. And while merchants would be more than happy to save the 2.5 percent they pay in credit card transaction fees, customers are a lot more more blas since they don't pay them directly.The answer, then, was to do what makes anything popular: make it exclusive. Specifically, Bitcoin limits the total number of coins that will ever be created to 21 million.Now, for Bitcoin's first year and a half, as Nathaniel Popper documents in hispage-turning history Digital Gold, there were still only a handful of people, if that, mining it. But that began to change when libertarians, who were convinced, just convinced, that the Federal Reserve's money-printing would mean the doom of the dollar, discovered Bitcoin and its non-inflatable money supply. A boom was born.

But what made people mine Bitcoins is what has kept from spending Bitcoins. Think about it like this. Bitcoin's finite supply means that its price should go up, and keep going up. So if you have dollars that are losing a little value to inflation every year and Bitcoins that are gaining it, which one are you going to use to buy things with? The question answers itself, and it raises another. Why would this ever change? Unless you can't buy something online with dollarslike drugsyou'd always want to use your dollars instead. Buying things with Bitcoin would be like cashing out your Apple stock in 1978 to go grocery shopping even though you have plenty of actual cash lying around.

The catch-22is people buy Bitcoins because they think the price will go to infinity and beyond once everybody uses them, but they don't spendtheir own Bitcoins because they think the price will go to infinity and beyond once everybody else uses them. And so nobody uses them. But if nobody uses them, then the price will stay stuck at something a lot less than infinity let alone beyond. So the Bitcoin faithful have tried to not only convert people, but also convince them to martyr themselves, financially-speaking, for the crypto cause. It goes something like this. Hey, do you want to hear about the future? It's a digital currency called Bitcoin that lets you spend or move your money online without paying any fees. Sounds great. How does it do that? Well, Bitcoin saves you money by making transactions irreversible. So ... if I get scammed, I got scammed? There's nothing I can do about it? Yes. Okay, but is it at least easy to use? The thing is, I don't actually use it. I just hoard it. I'm waiting for some greater fools to push up the price by using theirs. Oh. Yeah. So you should buy some Bitcoins and use yours. I'll get back to you on that.

But Bitcoin is good for something other than redistributing wealth from one libertarian to another. That's transferring money, or anything else for that matter, online. "The design supports a tremendous variety of possible transaction types," Bitcoin's shadowy inventor Satoshi Nakamoto wrote back in 2010, including"escrow transactions, bonded contracts, third party arbitration, multi-party signature, etc." So anytime you needto send any kind of financial asset or agreement to somebody else, you can send it along with a Bitcoinand, through the beauty of the blockchain, avoid having to pay a lot of fees. That's why Wall Street banks are looking into whether they can build their own blockchains to cut costs before their competitors do. And while sending money is cheap within the U.S., it's not not across international bordersthe average transfer fee, according to the World Bank, is 7.5 percent. It's not hard to imagine, in other words, that Bitcoin could claim a big chunk of the $500 billion remittance market, although the difficulty of actually getting the physical cash to people in developing countries is still a significant hurdle.

Wait a minute, though. How does the blockchain cut costs again? Remember, instead of you paying the bank a fee to process a transaction, the Bitcoin system pays miners new coins to do so. Then these transactions get added to the list of all others in the public ledger, the blockchain. Butanytime it seems like you're getting something for nothing the costs are probably just being hidden. What are those costs? Well, Bitcoin mining is a pretty expensive business. Even the most specialized computers, which mine Bitcoins and only mine Bitcoins, require a lot of energy. So much so that Bitcoin miners have set up shop in far-flung places like Iceland where geothermal energy is cheap and Arctic air is cheaper stillfreefor them to run and cool off their machines at the lowest possible price.

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Bitcoin isn't the future of money it's either a Ponzi ...

Silk Road kingpin Ross Ulbrichts recent conviction and life sentence was more than simply a crackdown on a massive online black market for illegal drugs. It was a nail in the coffin of the radical new cryptocurrency Bitcoin, as Bitcoin was the glue that held Silk Road together.

Or was it? How significant the rise and fall of Silk Road was for Bitcoin is a matter of some debate, as is the purpose of Bitcoin itself. Controversy, however, is nothing new for Bitcoin. In fact, it seems the story of this digital currency consists of nothing but controversy.

In fact, perhaps the greatest challenge for Bitcoin is divining the technologys true purpose. Early innovators often espoused radical Libertarian goals for revolutionizing the banking system and with it, the world economy. By disintermediating third parties, Bitcoin promised to usher in a new world order of free market commerce.

Only the Bitcoin story didnt work out that way. Bitcoin soon became a haven for criminals not just Silk Road, but any number of money launderers and other shady types who gravitated toward an anonymous, relatively safe method for conducting financial transactions, in particular across national borders.

Because of its openness, Bitcoin will continue to be used by shady actors, explains Nathaniel Popper, New York Times reporter and author of Digital Gold: Bitcoin and the Inside Story of the Misfits and Millionaires Trying to Reinvent Money. In some ways, the good comparison is cash. Bitcoiners love saying the main medium for illicit transactions is still probably $100 bills because it can be an anonymous form of transacting thats untraceable, and Bitcoin still has that quality as well.

In fact, just this week news came to light that an Australian company paid hackers a ransom in Bitcoin. Clearly, Bitcoin is the extortionists currency of choice, as it combines the anonymity of cash with the global convenience of traditional wire transfers.

If Bitcoins true purpose is to facilitate criminal activity, then perhaps Bitcoin itself is or should be illegal. However, the US Government for its part pointed out that Bitcoin in and of itself wasnt illegal, but clearly required regulation. Theres no way the good attributes of Bitcoin will succeed without a strict regulatory regime, points out Clay Nelson, until recently the Director of Business Development for Bitcoin startup BitPay.

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Bitcoin: Bitcoin: In Search Of Purpose - Forbes

New York has become the first state in the US to lay down regulations and rules for the trade of virtual currency including Bitcoin.

The New York Department of Financial Services (DFS) released the new rules on Wednesday. Outlined by Benjamin M. Lawsky, Superintendent of Financial Services, the new regulations will affect traders which accept, sell or buy virtual currency.

The rules have been formed after a two-year long investigation into cryptocurrency. The "BitLicense" regulations (.PDF) contain consumer protection, anti-money laundering compliance and cybersecurity rules tailored for companies using virtual currency, including Bitcoin.

At the BITS Emerging Payments Forum in Washington, DC on Wednesday, Lawsky said digital currency highlights the dynamic nature of financial markets and technology, and the pace of change is only doing to accelerate in the years to come. As a result, "regulators need to be ready to meet that challenge."

"We have a responsibility to regulate new financial products in order to help protect consumers and root out illicit activity. That is the bread and butter job of a financial regulator," Lawsky said.

"However, by the same token, we should not react so harshly that we doom promising new technologies before they get out of the cradle."

Lawsky noted that attempts to ban Bitcoin would likely fail, as banning computer code is nigh-on impossible. Instead, the financial regulator said the key is balancing the protection of consumers, the reduction of fraud and still permitting innovation breathing space.

If companies use virtual currency and are holding on to customer funds, they need to apply for a license. However, app developers who are developing software do not need to -- as the department will not need to act as a financial intermediary. Lawsky commented:

In addition, companies will need the approval of the financial regulator if they make substantial changes to their business models or products, as well as the inclusion of new controlling investors. However, they will not need permission before seeking funding through investment rounds or small software updates.

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New York finalizes Bitcoin trading rules | ZDNet

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The National Security Agency knows Edward Snowden disclosed many of its innermost secrets when he revealed how aggressive its surveillance tactics are. What it doesnt know is just how much information the whistleblower took with him when he left.

For all of its ability to track our telecommunications, the NSA seemingly has little clueexactly what documents, or even how many documents, Snowden gave to the media.Like most large organizations, the NSA had tools in place to track who accessed what data and when. But Snowden, a system administrator, apparently was able to cover his tracks by deleting or modifying the log files that tracked that access.

An Estonian company called Guardtimesays it has a solution to that: using the same ideas that underpin the digital currency Bitcoin, the company says it can ensure no one can alter digital files, not even an organizationsmost senior executives or IT managers. The idea is to stop the next Snowden in his tracks by making it impossible to tamper with data, such as the NSA log files, in secret.

To prevent people from spending a single bitcoin twice, all transactions are recorded in a global, distributed ledger called the blockchain. All copies of the bitcoin client software include a copy of the blockchain, and falsifying the ledger would require controlling at least half of all the copies in existence.

Guardtimes Black Lantern uses the same idea applied to any chunk of data, such as an access log file or the data gathered by Internet of Things sensors. The blockchain could then be distributed to every executive, or even every employee, to ensure no one person can alter it. It doesnt encrypt the data, but it can let you know if someone has tampered with it.

Had the NSA been using Black Lantern, the agency would have been able to detect Snowdens activities early on, or at least would have much better idea of what Snowden took, says Guardtime CTO Matt Johnson, a former agent with the Air Force Office of Special Investigations agent and defense contractor.

It keeps honest people honest, he says. It makes it impossible for them to lie.

Theres irony in a former federal law enforcement officerpitching a bitcoin-style decentralized cryptography system as a way ofsecuring the NSAs data. Bitcoin proponents praise the blockchain as a way for citizens to hide their online tracks from the government; but Guardtime shows how the same technology could be used as a tool for surveillance.

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How the Tech Behind Bitcoin Could Stop the Next Snowden