This thread is going on for two years now?  Grow up! LOL.  I'm a goldbug but also a fan of bitcoin! :-)

I'm not a chartist, but if I was, you would see Bitcoin's chart looks ugly, a steady decline from the high with no sign of an uptrend.  Just stating the obvious...

TonyT

Yes, you are correct.  Apparently the comment I quoted was from an earlier version of Armory I just found out some minutes ago.  Just to show my ignorance, or lack thereof, I think the way Armory currently works is as follows ('deterministic wallet'):  you can generate an infinite number of bitcoin addresses with Armory.  Should you lose your private keys, if you know your Armory "root" key, which you can print out on a piece of paper when you first install Armory, you can then reconstruct all your private keys, now and forever more (infinitely many), and, then using the 50 GB+ blockchain, figure out how much bitcoin is associated with each private key (if non-zero), and then reconstruct your balance in your wallet.  It might take a few hours or days of computing power, depending on how many keys/transactions you've done, but it can be done.  At least that's what I understood, reading between the lines for the last few hours.  Please correct me if I'm wrong.

TonyT

What?! What?  There is an automatic network fee?  Oh, you mean when a miner solves some puzzle, they get a fee, aka mining bitcoins?  I know this part, but you imply something else.  But I can still send 0.0000001 BTC, no?  You mean bitcoin nodes in the network will refuse to process this transaction?  How?  That would break some sort of bitcoin unwritten or written rule, no?  How would it be enforced?  This is all very strange and seems contrary to the spirit of bitcoin?

TonyT

[Update:  I saw how this works:  if you specify a small fee to be paid to the network, your transaction is verified faster, otherwise, it will drop to the end of the queue and there's no telling when your transaction will be verified.  The default transaction fee amount can be set in your wallet, like Armory that I use.]

Ah, thanks, this is very informative and actually relates to a question I was going to ask in another thread but I might as well ask it here:  a private key is often associated with money, like a ordered pair in a dictionary, yes?  Meaning, you have a private key in your bitcoin digital wallet, known only to you, with an amount in bitcoin next to it:  private key <---> value in bitcoin.  So if you lose your private keys, you lose your money, because each private key has a bitcoin value associated with it (the value could be zero if the key has not been used in a transaction I suppose).  That's why you should backup your wallet (unless you use a 'deterministic' wallet, where if you know the root key it will automatically generate all the other keys, then you can use the 'blockchain' to construct how much value each private key has, I think somewhat that's correct)?

Is this somewhat correct?

TonyT

OK thanks!  I am downloading the 50 GB blockchain (I think that's what it is) on Armory and as soon as I am done, I can receive and/or send bitcoin and will publish a bitcoin address. 

What is 'faucet'? Oh, I see...it was a free bitcoin offering by one of the founders of bitcoin.

TonyT

Thanks to OnkelPaul for the replies.

Here is a good article that's not too technical that explains how not reusing bitcoin addresses would make bitcoin virtually anonymous.  But when businesses reuse addresses, they become easy to spot. see:

http://www.bitcoinnotbombs.com/innovations-that-enhance-bitcoin-anonymity/

I guess a simple example of this might be:  if anonymous buyers, "A", "B", "C" buy something from a seller "S" who does not change their bitcoin address, and the seller S then uses the money from A,B,C to buy from a supplier SS, who also don't change their bitcoin address, and S and SS constantly deal with each other you might get a diagram like: A, B, C <--> (single link from each buyer to S) to S, which then has multiple links to SS and back to S in the blockchain (and SS never deals with anybody but S).  You can conclude that A, B, C are random retail customers of S, S is the middleman, and SS is the sub-contractor or supplier to S.  At least that's the way I think of it.

Another example might be if a unique Bitcoin amount that is very distinctive like the sum of 789.12345678987654321 bitcoins is passed around, but each time it is passed between parties then 10 bitcoins are subtracted from the sum, and everybody except S and SS in the above example uses new bitcoin addresses, and say S and SS are known drug dealers, and reuse their bitcoin addresses, and the 'word on the street' is that a large cache of meth is circulating, being passed from party to party, then it follows that everybody who processed the bitcoin sum of 789.12345678987654321 (minus 10 every transaction) is a drug dealer who is trafficking this meth, and taking 10 bitcoins for their trouble (sorry it's kind of stupid but it's the best example I could think of at the moment).  

TonyT

OK time for a concrete example on bitcoin security or lack thereof.

Examine this URL: https://www.biteasy.com/blockchain/addresses/1P62VZZ9kL97dzzcWhG7JZDssaW2MDgn82

Note the person(s) using this bitcoin address are not using a different bitcoin address for every transaction, but instead are receiving and sending a lot from this address (it seems to me, unless I am misreading the data).

1) Why don't people use a unique bitcoin address every time they receive money?  is it convenience, or maybe they advertise the bitcoin address and cannot change it easily (such as: 'please donate to my charity at this bitcoin address: 1P62...etc"?) ** UPDATE:  I see that Armory, a decent bitcoin wallet, will only generate 100 unique addresses before you need a new copy, see here: http://bitcoin.stackexchange.com/questions/9828/do-i-need-to-backup-a-wallet-every-time-i-generate-a-new-address   ("Please note that by default, Armory only generates 100 addresses. This means that when you use more than 100 and you lose your wallet, after you restore the back-up, the client will at first only see the first 100 addresses. You will have to specifically tell Armory to look for more addresses." so I supposed people don't want to go through extra effort in creating addresses is one reason, but apparently Armory can generate, if you let it, an infinite number of addresses, see: https://en.bitcoin.it/wiki/Deterministic_Wallet   So I supposed laziness / indifference is the main reason people use the same address over and over again?  ***

2) Where is the IP address associated with the address above?  Where is it buried in the blockchain?  I cannot find it.

TonyT

I am experimenting with Armory (I know, I know), and I wish somebody to send me 0.00000001 BTC (apparently the smallest unit).  What information do you need from me?  I promise to send it back to you if you want me to.

Thanks,

TonyT

You seem knowledgeable.  So please answer this:  if I change the Bitcoin address every time I send money to somebody using my heavy Armory client, isn't that 100% anonymous?  Or is ISP/internet address recorded in the XYZ Gibabit 'blockchain' in every transaction, regardless of whether or not you change the Bitcoin address?  Assume also I've received money at my Armory client, using a Bitcoin address, but assume that every time I receive money, I always change the Bitcoin address.

TonyT

Off-topic: a thought just occurred to me if my understanding of bitcoin above is correct:  it would make sense for the US FBI to try and get records of who the real persons using particular bitcoins are, and put this information in a database, so that they can trace the blockchain at some later point when these bitcoins are used at illegal places of business like the former Silk Road.  I bet they may be populating a database now, since bitcoin transactions are more or less public information, not to mention not covered by privacy laws (which in the USA are weak anyway).

Also if my theory in the quoted block is correct, a bitcoin mixing service only makes the trail harder to follow, but it does not eliminate the trail.  It obfuscates but does not eliminate the trail in the bitcoin blockchain.

TonyT

Wow, a hero poster, thanks for posting! :-)  I think the idea of addresses is the key, as you imply.  If possible, and this is a bit off-topic, can anybody make sense of the Forbes article (http://www.forbes.com/sites/andygreenberg/2013/09/05/follow-the-bitcoins-how-we-got-busted-buying-drugs-on-silk-roads-black-market/)?  How was anonymity compromised?  From what I can tell (I'm hardly an expert, just speculating based on a few hours worth of knowledge of how bitcoin works):  merchants on Silk Road (btw I'm not going to buy drugs or do anything nominally criminal in the USA using bitcoins) sometimes improperly 'reuse' the same address as the 'payment address' (Bitcoin address) when selling drugs.  These 'reused' addresses are known to law enforcement investigators.  These investigators who are investigating buyers of Silk Road, then use the bitcoin blockchain (it's not clear to me how they get the bitcoin blockchain--can I get the transaction history of any bitcoin, even if I don't own it?  That's a good question in my mind), together with a database they have of these reused or 'dirty' addresses, to tell if bitcoins they have were sent by you to these 'reused' Silk Road addresses to buy drugs at Silk Road.  From what I can speculate, that's what is going on.  So perhaps a bitcoin mixer would put a stop to this.

TonyT

Nice!  But your activity is low on this forum.  Do you have a thread like this one:  https://bitcointalk.org/index.php?topic=237164.360   ?   

If so, I might use you as your rates of 1% + Bitstamp is better than theirs.

TonyT

Thanks.  I know Tor, and am a bit of a geek, but it's too slow and I will not use it.  I like your bitcoin mixing service Bitcoinfog, you recommend them?  For various reasons my internet address is not really a concern, as I pay in cash here and records are poor, but I like the obfuscation of a mixing service.  But I'm hesitant to use one unless: (1) I keep my volume low, so no big incentive to steal say $100 in bitcoins (I would not trust $10k with them however), and, (2) I get a recommendation from at least one person, like yourself, who is a power user on this forum (which is becoming a very powerful way of checking bitcoin company integrity btw).

TonyT

Thanks for the reply torusJKL. 

Re. #1--I plan to buy bitcoins using this escrow service: Bitcoin-Brokers, see this thread, https://bitcointalk.org/index.php?topic=237164.360 , and they seem legit (going through the thread now).

Re. #2 - I am using a 'heavy' client Armory, which needs to download about 20 GB of blockchain (taking forever as my internet connection is a bit slow) but it's OK as I am a bit of a geek

Re. #3 - I love this idea, but if anybody can pick a Mixing Service they have used or heard is OK, from this list, please do: https://en.bitcoin.it/wiki/Category:Mixing_Services

Re. #4 - OK!  Sounds good.  But, as pointed out by others, bitcoin is not anonymous.  Forbes magazine has an article on this, Google: Forbes Follow The Bitcoins: How We Got Busted Buying Drugs.  (BTW I don't plan to buy drugs using bitcoin, or do anything criminal).  I think what happens is that people reuse addresses when getting paid, and this creates a 'black list' of places accepting bitcoin that can be used to trace where your money went (I think, but am not sure, as the Forbes article, written for non-geeks, is vague).

TonyT

I found an answer to my question 2)(a):  Coinbase is actually an online wallet, but you can send bitcoins to somebody else, see:  https://support.coinbase.com/customer/portal/articles/971437-how-do-i-send-bitcoin-to-somebody-else-

In my scenario, I would send bitcoins to myself, to a PC online wallet, then from my PC online wallet I would pay the web host provider.

It still does not answer the other questions however.

TonyT

Here is my plan to make an anonymous purchase and stay anonymous.  I ask you guys to see if this plan makes sense.  I am a technical person and I know from experience almost no idea in first draft stage, as is this one, turns out to be 100% true hence my reaching out to you, more experienced reader!

Background:   I wish to set up a forum with WordPress that deals with political corruption in developing countries, so I wish to be anonymous in case I get sued for defamation, as is common in this area. I found a US-based webhost that accepts bitcoin.  I plan to pay them from an online wallet, and use a fake name, but first I need to buy some bitcoin.  Here is what I will do (tell me if I'm right or wrong about this plan, does it preserve my anonymity?):

1)  I will log into a US-based bitcoin exchange, like say Coinbase, and buy bitcoin using US dollars.  I will become 'verified' so they really know who I am (I think this is a requirement now pretty much world-wide, but, if not, does anybody know if there's a "truly anonymous" exchange where you can buy bitcoin 100% anonymously, without verification?  I probably will NOT do this however, because of the below steps which I *think* will protect my anonymity.  However, if my plan below is not sound, I might have to do this, so if possible please answer this question too).

2) once I buy bitcoins on say Coinbase, using dollars from my US bank account, I will hopefully, be able to withdraw these bitcoins from the exchange into my digital bitcoin wallet that lives on my PC. 
     
     2(a):  question and first potential problem:  does Coinbase allow you to withdraw bitcoin into a digital bitcoin wallet that's on your PC?  Or, do they insist you keep all bitcoins with them?  What about other bitcoin exchanges?  It would not surprise me if some of these exchanges, so they maintain a nice 'pool' of bitcoins, mandate that you keep all your bitcoin with them, and forbid you from withdrawing bitcoin.  True?

3) If I can withdraw bitcoin from say Coinbase into my online wallet, I will then pay the US-based web host provider in bitcoin and set up my Wordpress forum using a fake name and address. 

     3(a) : what is a good digital wallet?  Here is a list I rely on for 'recommended' bitcoin services, please pick one from this list if possible:  http://coinindex.org/

4) OK, so far so good.   Coinbase and/or some other bitcoin exchange knows I withdrew some bitcoin, and knows what my real name is.  But they don't know where I spent this bitcoin, or am I wrong?  Can the blockchain be traced from the internet web host provider, back to my MAC address of my PC (the PC that holds the online bitcoin digital wallet), and then back to Coinbase?  I don't think so but I could well be wrong.  Something I recall I read tells me I'm wrong actually.  So a question here would be let's say I withdraw $200 in bitcoin from Coinbase, but only spend $100 at the web host provider, does that make it harder to trace back to Coinbase?  I suspect not.

5) Let's say that some Papua New Guinea (PNG) official accused of corruption on the US-based WordPress forum I set up decides to sue me for defamation (this is actually a very common tactic to silence critics in political cases.  Nowadays only crude and unsophisticated and/or mafia types use physical force; it's much easier to just sue somebody and force them to spend money defending themselves).  Can they find out my real identity?  I posit no.  Here would be the hypothetical scenario:  the PNG official allegedly defamed finds out who is the US-based web host provider of the WordPress forum, they write a complaining letter, threaten legal action, the provider to save themselves (as is common) caves in and says 'this user paid in bitcoin, and here is their name and address', and after investigation by the PNG official it is discovered this name and address are fake.  Then is the PNG official is at a dead end in finding out my real identity?  Or, do they hire a computer geek, who then traces the blockchain all the way back to Coinbase?  Coinbase then gets a subpoena, and gives away my real identity, and I get sued?  Very very unlikely this will result in anything bad, even if true, since they have to sue me in the USA which is much more friendly to free speech than other places, but I want to know if it's hypothetically possible.

I think I have spelled out my concerns fairly well.  I appreciate any and all responses. 

Thanks,

TonyT

Great minds think alike! 

TonyT

Should we regulate Bitcoin?

by Tyler Cowen on April 11, 2014 at 9:16 am in Economics, Law, Web/Tech | Permalink

There is a new paper by Jerry Brito, Houman Shadab, and Andrea Castillo, the abstract is here:

    The next major wave of Bitcoin regulation will likely be aimed at financial instruments, including securities and derivatives, as well as prediction markets and even gambling. While there are many easily regulated intermediaries when it comes to traditional securities and derivatives, emerging bitcoin-denominated instruments rely much less on traditional intermediaries. Additionally, the block chain technology that Bitcoin introduced for the first time makes completely decentralized markets and exchanges possible, thus eliminating the need for intermediaries in complex financial transactions.

    In this article we survey the type of financial instruments and transactions that will most likely be of interest to regulators, including traditional securities and derivatives, new bitcoin-denominated instruments, and completely decentralized markets and exchanges. We find that bitcoin derivatives would likely not be subject to the full scope of regulation under the Commodities and Exchange Act because such derivatives would likely involve physical delivery (as opposed to cash settlement) and would not be capable of being centrally cleared. We also find that some laws, including those aimed at online gambling, do not contemplate a payment method like Bitcoin, thus placing many transactions in a legal gray area.

    Following the approach to Bitcoin taken by FinCEN, we conclude that other financial regulators should consider exempting or excluding certain financial transactions denominated in Bitcoin from the full scope of the regulations, much like private securities offerings and forward contracts are treated. We also suggest that to the extent that regulation and enforcement becomes more costly than its benefits, policymakers should consider and pursue strategies consistent with that new reality, such as efforts to encourage resilience and adaptation.

Along related lines, you might consider Adam Thierer’s excellent new book Permissionless Innovation: The Continuing Case for Comprehensive Technological Freedom.
- See more at: http://marginalrevolution.com/#sthash.g3xPJrde.dpuf

uh oh...bitcoins are not fungible after all... and taxable as capital gains says the IRS.

Trouble in paradise.

TonyT

The IRS ruled that Bitcoin and other virtual currencies are property, not currency.  This means that they are subject to capital gains taxation.  And that means that Bitcoins are not fungible.  The price at which a particular Bitcoin was acquired (and this is traceable) determines the capital gains on that particular Bitcoin when spent.  If I spend Bitcoin A, which I bought at $10, but is now worth $400, I’ve got a very different tax treatment than if I spend Bitcoin B, which I bought at $390. (Poor Satoshi–he’s got a lot more capital gains than most…)  This means Bitcoins are not fungible, and that makes it unworkable as a currency.  If I have to figure out which particular Bitcoin in my wallet I want to spend and what the tax treatment will be, Bitcoin just doesn’t work as a commercial medium of exchange.  Bitcoin still works as a speculative medium, but Bitcoin’s claim has always been to being more than the latest iteration of the trading sardines–it aspired to be a commercial medium.  I don’t see that happening now.

- See more at: http://marginalrevolution.com/#sthash.G16rvTlQ.dpuf

And what about this statement by the member BurtW here?  In view of the above?  Clearly it's panic time for bitcoin lovers!:

"Bitcoin must have unqualified fungibility to survive as a form of money.  We must support all efforts that protect and improve the fungible nature of Bitcoin and stand firmly against anyone or anything which threatens this essential property."

Trouble in bitcoin paradise...deflation will have to result in a more 'centralized' "governance structure" (see the complete article in the link below).


TonyT

http://www.technologyreview.com/news/525676/academics-spy-weaknesses-in-bitcoins-foundations/

Yet signs are emerging of more subtle flaws in the vision of Satoshi Nakamoto (which may or may not be a pseudonym), with analysis suggesting the rules governing how Bitcoin operates as a currency may be far from perfect. Some researchers claim that these rules leave room for cheats to destabilize Bitcoin. Others have concluded that major changes to the currency’s rules will be needed as the number of bitcoins in circulation increases.

The only solution Kroll sees is to rewrite the rules of the currency. “It would need some kind of governance structure that agreed to have a kind of tax on transactions or not to limit the number of bitcoins created,” he says. “We expect both mechanisms to come into play.”

Oh yes it is! Read the below on the death of Bitcoin--if it does not elect a monarchy to govern it ("governance structure").

There's trouble in paradise...

TonyT

http://www.technologyreview.com/news/525676/academics-spy-weaknesses-in-bitcoins-foundations/

Yet signs are emerging of more subtle flaws in the vision of Satoshi Nakamoto (which may or may not be a pseudonym), with analysis suggesting the rules governing how Bitcoin operates as a currency may be far from perfect. Some researchers claim that these rules leave room for cheats to destabilize Bitcoin. Others have concluded that major changes to the currency’s rules will be needed as the number of bitcoins in circulation increases.

The only solution Kroll sees is to rewrite the rules of the currency. “It would need some kind of governance structure that agreed to have a kind of tax on transactions or not to limit the number of bitcoins created,” he says. “We expect both mechanisms to come into play.”