Bitcoin Forum

Hey All,

Erik wrote a fantastic post which came out of our need to have a 'Bitcoin business primer' to educate our partners and associates.

It's a nice read, feel free to comment and make suggestions for additions.


http://blog.bitinstant.com/blog/2012/7/5/a-business-primer-on-the-bitcoin-ecosystem-erik-voorhees.html

EDIT (Updated): Direct link: https://dl.dropbox.com/u/14454595/Bitcoin%20Business%20Primer%20-%20Erik%20Voorhees.pdf

-Charlie

quick clarification: HTML is not a protocol, HTTP is (may not matter for non-techies)


good read overall

Non-techies probably wouldn't catch it, but non-techies often do find actual techies to help them understand things and form opinions.

I think it's better to be accurate. I would replace 'HTML' with 'HTTP' and maybe just add in parenthesis "what largely powers the Internet".

typo

PayPay, by contrast, only works in certain countries

Okay, while we're all picking Erik's post apart (sorry, Erik, if our writing was as publicly in demand as yours we'd have to endure the same ;) ) I would definitely capitalize "internet" as a proper noun.

Other than that, yet another fantastically coherent, educational post from Mr. Voorhees!

I particularly think this line should be blurbed out to news outlets:

All money is essentially digital in today's modern world, yet still it requires tremendous delay and burden for many functions. There is no reason that a digital payment of US dollars from one country to another should take a matter of days, when a digital email is sent and received in a second. Bitcoin makes money as efficient as email.

A good introduction for business people.

There are a couple of acronyms (AML, KYC) that would I think benefit from a quick (anti-money laundering) and (know your customer) after their first use.


I know the doc has a business focus, but it might be worth adding that the majority of bitcoin software is open source and hence is available for businesses to reuse / customise for their own purposes for absolutely no money at all. There are no licences for any technologies or patents or anything.

Really? This is the second time Mr. Voorhees doesn't have his facts right. (http://www.reddit.com/r/Bitcoin/comments/s8uhs/best_bitcoin_article_ive_read_yet/c4c55yy)

A Bitcoin payment can be reversed?? Might want to let the devs know.

Fixed, thanks.



Fixed, thanks.


Fixed, thanks.


Fixed, thanks.

Yes, using the 51% attack.

Dude, come on.

Reading through the other thread, I doubt mcorlett understands the requirements, and limitations, of the 51% attack.

I'm sure he does, he's just being obtuse and Luke-Jr-ish.

LOL mcorlett... that's like saying physical cash payments are "reversible" because after you accept the cash thieves could break into your store later that night and steal the cash.

Either way, good job Erik... that article is about the purest distillation of Bitcoin I've come across yet.

LOL.  care to give us some examples?

Obtain 51%
Roll back the tx log.

What he is saying is correct, but like evoorhees said above, it's like saying that cash is reversible because thieves could break in and steal it. Obtuse.

i meant examples of it actually happening so we can become scared.

If you think I am at fault, please feel free to point out specifically what you're referring to. It's hard to respond when you don't know what someone is talking about.

There is something about that word that brings back memories of The Shawshank Redemption.

I believe it's been done on the testnet and on some alternate chains, where it is not economically difficult.

No. It's not. The equivalent to what you describe would be the thieves breaking into your store and stealing the private keys.

This is overall very solid and especially informative for non-tech folks.

My favorite quote: "Bitcoin makes money as efficient as email."

My least favorite quote: "... this was thought to be impossible until Bitcoin accomplished it"

I wouldn't say "thought to be impossible," because surely many cryptographers probably thought it was possible (somehow). I studied digital currency in grad school and recall papers (sorry, no references) discussing just such topics, although I cannot say for certain if they provided any workable solutions. Bitcoin certainly solves the problem in a brilliantly elegant way. Pedagogical arguments aside, the statement just doesn't sit well with me.

Please don't get me wrong - I don't mean to dwell on the negative. This is a great resource, and I would recommend it highly to anyone.

Under the section titled "Exchanges", one of the URLs is wrong. Bitstamp.com doesnt resolve. Their correct address is Bitstamp.net

Excellent work.

I wasn't sure on the amount for the claim of "Fraud from the theft of credit card information and personal identities is in the hundreds of billions of dollars per year".  Sounded a little high (a lot high, actually).

Without researching it properly, I just Googled a little and got this:
 - http://www.forbes.com/sites/haydnshaughnessy/2011/03/24/solving-the-190-billion-annual-fraud-scam-more-on-jumio/

The number is from a study from Lexis-Nexis and the abstract simply says "over $100 billion".

I don't know that study, but another one I had read on chargeback fraud had grossly inflated numbers.  The actual cost of fraud incurred to the typical merchant was a relatively tiny fraction of the reported number.  

What those studies never seem to do is exclude purchases that wouldn't have occurred if there wasn't fraud.

Take a VirWoX for example.  They might see a third of their order volume include fraudulent attempts to buy SLLs (that number is one I just made up).  But that doesn't mean that if fraud was eliminated that any of those attempts would still be made using legitimate payments.   So while there might have been a million dollars worth of fraudulent attempts to purchase SLLs, VirWoX did not in any way lose a million dollars to fraud.  Those purchase attempts just would not have happened.

On the other hand, if you as a merchant aren't worried about a fraudulent chargeback, there are certain efficiencies that can occur as a result.  Just think of all the software written to do address verification for orders, for example.

With bitcoin:

 - If the customer wants to have the bill-to be in one country but ship-to another?  Go ahead, let them!
 - The customer wants to ship the package to a residential address (where it just gets left at the doorway)?  Go ahead, let them!
 - Customer wants to purchase but doesn't have their ID on them?  Go ahead, sell to them!
 - Need a DVR system and camera above each cashier lane so that you have photo evidence to help pursue fraudsters abusing the vulnerable credit card charge system?   Forget it, those cameras won't be necessary.

It is the costs of all these that add to Bitcoin's advantage over a reversible payment system.  

nice work Erik.  much better written than the last one.

one note of concern.  you advertised your own site Feedzebirds within the document which i wouldn't have done in general.  but if you're going to do that you should at least put in a disclaimer.

This sentence was kind of awkward.


Could it be revised to be more readable?

[Update: If this were given a Creative Commons license and then added to the wiki I think it would get revised into an even better piece.]

Giving you the benefit of the doubt, and assuming you're truly concerned about the possibility of a 51% attack resulting in someone's ability to take back a specific transaction, please read through this thread:

https://bitcointalk.org/index.php?topic=52388.0

tl;dr: The cost of a 51% attack for a single transaction is prohibitive.

So we should completely disregard this when introducing new merchants and users to Bitcoin, rather than state that it is currently extremely difficult and improbable?

Sure, put an asterisk on "not reversible" with an explanation for the sake of technical accuracy and completeness.

Edit: but at the same time Bitcoin is also technically experimental software, which is not the kind of software businesses use as a general rule... Do we prominently advertise that? We do want people to use Bitcoin. I guess it depends on your point of view.

The technically inclined can accurately evaluate risks associated with using Bitcoin, but that's the minority.

Yes! For example, here's Firefox's "Technical Details" section when viewing an SSL certificate:

Maybe I'm nitpicking a bit but:


I'd change this to:

These Users do not necessarily "use" Bitcoin for anything beyond merely taking possession of bitcoins and storing them for some period of time

to makes it clear what 'it' refers to. You can't take possesssion of Bitcoin and store it..

A merchant doesn't have to worry about a double spend occurring as the result of a 51% attack (should that ever successfully occur), unless the attacker is specifically targeting that particular merchant with a large double-spend.

People, particularly those in business who manage money, know to weigh risk.

A merchant starting out using bitcoin might have 2% or 0.005% or whatever of its sales come from bitcoin transactions.  Thus, no -- the low risk  possibility of a 51% attack (i.e., has never happened in bitcoin's history) is not material to that merchant. (i.e., coherently weighing the risk, the rational merchant wouldn't change her mind after being informed of the risks associated with the 51% attack.)  

And please, ... let's consider how things work in the real world.  Merchants don't do business anonymously.  They know who their customer is.  Any transaction that is large enough to harm the company if there is a payment problem will probably have been been reviewed at multiple levels.  

When bitcoin starts to become a bigger percent of the business' income, that is when they might wish to weigh the risk that you describe.   This might include per-account caps, a pre-payment requirement.   Or simply, if there is any significant risk perceived they can simply choose to not accept bitcoins for the transaction.

But for a document that explains Bitcoin to someone who sells widgets online, ... no caution about a 51% attack would need to be raised, I wouldn't think.

Should such an attack ever happen, I would think the attacker would try to recoup as much of their investment as possible by attacking as many merchants as possible, rather than targeting one specific merchant.

"...so let's not include it in this business primer, not even in the section titled 'Risks'"?

1) Risk has nothing to do with precedent.
2) "Oh, they won't change their mind anyway, so let's skip this little detail right here and insert this little factually incorrect statement over there..."

"Even if it happens, it'll be a small transaction, so they won't lose that much money. Let's not mention the possibility of it happening."

The standard recommendations for all bitcoin users includes waiting for 6 confirmations, before spending your coins.  This is why a transaction appears as "unconfirmed" in the original Satoshi client until such time.

One presumes a merchant will follow the standard recommendations, unless they have a specific reason to increase their risk by accepting fewer confirmations.

The chance of a 51% attack reversing your confirmed transactions is astronomically low.

... and neither is VoIP.

See also http://evoorhees.blogspot.ca/2012/04/bitcoin-libertarian-introduction.html:


I'd much rather see true statements than comfortable ones when having to chose between the two.

Quick note as I've gotten some PM's on this:  I wrote this Primer so that it could be used, referenced, republished, edited, etc in any way for any purpose. No permission is needed by me to copy/edit/redistribute.  I'd like to be credited if it's used somewhere, but even if that doesn't occur it's no biggie.

It is published under Erik's "Do What You Wish License" :)

Yep, this was pointed out, but Mr. Vorhees' response was that most users probably wouldn't reach more than 100 transactions (https://bitcointalk.org/index.php?topic=76565.msg855244#msg855244)(!). Other editorial mistakes were pointed out and fixed in a matter of hours.

I'm yet again very disappointed. You would expect an accurate and fair representation of the topic, not some pro-Bitcoin propaganda ad.

I agree, the above needs changing.

The size of the pool of reserved keys -- the keypool -- is 100.  By default, you absolutely must backup every 100 transactions, or risk opening a window in your backups where keys may be missing.  A wise person backs up much more frequently than that, say every 25 transactions or so.

However, it is standard practice to increase the keypool size to 1,000 or 10,000 ("-keypool=10000").  Merchants would definitely want to do this.

The article talked about

"Because the currency units themselves are stored on a physical device (whether one's home computer, phone, or on a cloud-based webservice), the security of that physical device must be ensured."


This is an upcoming problem, now that mobile devices are gaining in popularity. Plus, that tablet company (What is their name?) in China that is installing BTC software on all their devices is going to give a lot of publicity to BTC in an area of the world where money is regulated heavily. I would not put it past the Chinese government to try and put a stop to BTC.

Plus:


Firefox and Telefoníca have gotten together to make "Boot2Gecko".

Its a mobile browser that is purely open source that I think will give other mobile operating systems a run for their money. But... it is not going to be secure for quite a while.


Link:

http://techcrunch.com/2012/07/02/mozillas-boot-to-gecko-becomes-firefox-os-scores-support-from-sprint-deutsche-telekom-zte-and-more/


Boot2Gecko is renamed:

http://www.wired.com/gadgetlab/2012/07/mozilla-dumps-boot2gecko-name-firefox-os-tktktk/

The comparison to email and VOIP was priceless.  That should help a lot of people understand the technological breakthrough that is happening. It might even help convince some of the "gold bug" types that think it isn't worth anything if you can't hold it in your hand.

Enter constructive criticism.  From the primer:


The "wallet" name rears its ugly head again, although in a roundabout way.  Aren't we talking about the "keys" needed to access a user's balance here?  The currency units are actually stored in the blockchain.  I know this is a small difference, and no doubt many believe it is better for general users to just "black-box it," but I think an accurate explanation will help even novice users. 

Example:  If they think they are storing the actual bitcoins on their computer or phone, users are less likely to grasp the value of backing up their wallet file (you can't backup a real wallet or physical currency).  If it is conveyed that their bitcoins are on the internet, and only their keys/passwords are local, they they might more readily take to the backup concept, and end up with a better overall grasp of bitcoin too!

It looks like you misunderstood the intent of this writing.
The article wants to "sell" the Bitcoin idea to business people.

Nitpicking on technical details won't help with that goal -- this is a typical geek's mistake.

For example: does the article even mention mining?
No (and IMHO it was a tactically clever decision to leave that out)
 -- so what would be the point of explaining a 51% attac??

+1

Yes sir exactly (thanks for pointing this out)

We created this primer as a short introduction explaining the business aspects within Bitcoin.

This is being read by people who run major companies that want to work with us, or us work with them.

Don't forget, most people don't understand Bitcoin beyond the news articles they read.

Charlie

No, it doesn't mention mining, and nor does it fabricate a lie regarding it. But when you tread on the topic on reversibility, and state that "Bitcoin payments cannot be reversed", that's a big fat lie. Would replacing that with "Bitcoin payments are astronomically difficult to reverse" (which would be the truth) really add that much weight to the article?

I agree with you on the point that it tries to "sell" the Bitcoin idea, but blatantly lying in order to do so is a big no-no in my view.

+100

I also didn't mention what kind of hash algorithms are used, or how the P2P network operates, or even what a block is. Adding a caveat to the (true) statement that Bitcoin transactions can't be reversed, due to an extremely unlikely 51% attack (which to my knowledge has never been successfully carried out on the Bitcoin network) would be silly.

No, I think you bring up a good point that could be addressed by Erik's otherwise very thorough and accurate paper.

When a traditional bank signs up a merchant, the merchant account is not immune to identity theft and phishing attacks that will set her back financially. At best, the merchant can wait for the bank to reimburse her if the bank's responsibility is proven.

In a 51% attack , a temporary financial setback occurs also for the merchant accepting bitcoins but legit transactions are eventually confirmed once the attack stops.
A successful, continued 51% attack by an unidentified attacker is much less likely than a bank identity theft with a bank subsequently refusing to reimburse.

Wow 2 1/2 pages debating whether or not to describe the technical details and likelihood behind a 51% attack to a non-technical businessman. Congratulations mcorlett.

I did not suggest that. Replacing "Bitcoin payments cannot be reversed" with "Bitcoin payments are astronomically difficult to reverse" would be more than enough, but I think you can tell by Mr. Voorhees' stubbornness to change details that might portray Bitcoin in a worse light that such a thing will not be happening, and nor will the lies about wallet backups or every other thing I pointed out about his earlier article (http://www.reddit.com/r/Bitcoin/comments/s8uhs/best_bitcoin_article_ive_read_yet/c4c55yy).

Thank you nonetheless!

Wow mcorlett this is really bothering you, huh?

I cannot simply replace the phrase with "Bitcoin payments are astronomically difficult to reverse" because... what does that mean? I cannot write a statement like that, unless I explain it, which means an inevitable devolution into technical details describing in what extremely remote way a transaction could -possibly- be interfered with. I'm not going to go into those details in a Primer. After all, it's a Primer. P is for Primer.

The comment on my prior article about the 100 Addresses issue is a valid one, and perhaps that should be changed (I'm unconvinced that it's appropriate for that discussion, but intelligent people can debate that point both ways). This case with the irreversible payments, on the other hand, is absurd to debate about.

A Bitcoin payment cannot be reversed. But you claim I'm "lying" so let's put some money on the table: You send me 10 BTC. I'll wait for 1 confirmation. If you can reverse the payment, I'll amend my article AND send you an additional 10 BTC for proving me wrong. Alternatively, if and when I hear about any significant "payment reversal" happening in bitcoin land, I'll amend the document.

Until either of the above, I will not change what I wrote. Again, ridiculous technical nuances are highly inappropriate for a business primer... but unfortunately the odds of a payment reversal are probably higher than the odds of you dropping your case, so whatev  ::)  

It is; I'm glad you noticed!

Wow, what a great point! You know, the next time I'm explaining Bitcoin to someone, I'll just tell them transactions are completely free. I mean, the reason why the cost of verifying a transaction depends not on the transaction amount but amount of inputs (among others) is a huge technicality, so let's bend the truth a little.

Yep, let's continue discussing this while some poor soul actually believes what you've written and ends up losing their bitcoin savings.

In order for that to make financial sense for me, I would have to screw over people whose permission I do not have, so I will abstain. I could if I had the proper funding and/or luck, though.

If you weren't prepared to tell the truth or explain the technical nuances behind your statements, perhaps you should've skipped the subject of reversibility in the first place? But it's just too convenient to move the goalposts, isn't it?

Can I get in on this bet?

mcorlett - After pondering some more on the topic, I think my former piece about the wallet backups ought to be edited, so I have now done so. It no longer says that only one backup is needed, and explicitly mentions the 100-address issue. You were right to request that change. So let's put that behind us, I was wrong.

But I'm not wrong on the issue of reversibility, and I see you have refused my bet.

Just so you understand how silly you're being, consider that some of our companies (FeedZeBirds, Coinapult, and Paysius) have together processed thousands of transactions from BTC payments. They accept payment at zero confirmations and not once has a payment ever been reversed. Paysius processes payments for BitcoinCommodities.com, and we've sold orders over $4k in value... again at zero confirmations, and with no issue.

You seem to think I'm "misleading" or "lying" to businesses by saying Bitcoin payments cannot be reversed... yet I've set my own companies to accept even without confirmations because I stand by what I'm claiming.

I will sell you anything if you pay in Bitcoin, because I know that a Bitcoin payment is good. It will not be reversed... and again if you'd like to accept the bet, then we can settle this silly matter. I'll even up the stakes. If you reverse a payment you've made to me after I wait just one confirmation, I'll send you 100 btc. Otherwise, please bow out respectfully, and admit you are wrong on this issue, just as I have admitted I was wrong on the former one.

Are we done here?

Edit:

Edit 2:
Here is Blockchain.info's list of recently double-spent transactions:
http://blockchain.info/double-spends

mcorlett - you're missing the point. I didn't refute the claim that in extremely weird, extremely uncommon situations a payment can be reversed within a tiny window.  I simply said that level of technical minutiae is not appropriate for a business primer. I stand by the statement, and you're welcome to win 100btc right now by proving me wrong with the bet I offered you. Prove that reversals are relevant by carrying one out against me. If this were PayPal, you'd be able to do it with ease... but with Bitcoin, you will not.

Nice article!

However, two links are broken:

• bitstamp.com should be bitstamp.net
• btcde.com should be bitcoin.de

I'll tell you what's even more interesting:

Especially the last part, «grandstands for principles he does not follow».

Classic. Don't you just love the forums  ;)

Anyways...Great article, Erik!   :)

For about half a million dollars in BFL's upcoming ASIC rigs (I hope I'm reading sipa's charts correctly, feel free to correct me), one could attack the Bitcoin network indefinitely. No "tiny window" to speak of! Mt.Gox alone clears over $500,000 in two days, and that's just USD.

I have already explained why this will not be happening.

Deflection!