Bitcoin upgrade aims for smoother e-commerce

Jeremy Kirk, IDG News Service

• Aug 7, 2013 8:25 PM
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There's a broad belief that bitcoin might just be the virtual currency that takes off in a big way. To do that, it will need to become a lot easier to use.

But developers within the Bitcoin community are close to finishing a new layer of code for bitcoin software clients that makes using it more practical for shoppers and merchants.

"This payment protocol represents a major advance in security and usability," said Jeff Garzik, senior software engineer at BitPay, an Atlanta-based company that builds Bitcoin software tools.

The protocol will be open source, and it will be up to other developers to implement it in Bitcoin wallets, or software clients used to hold and spend the virtual currency.

A bitcoin is essentially a secret number that is transferred from one software client to another using a 32-character alpha-numeric address. Although many entrepreneurs are developing merchant tools and software for bitcoin, overall, the system can be clunky and lack a seamless grace.

For example, merchants can't describe what an invoice payable in bitcoin is for. People also can't give merchants a bitcoin address for refunds. The payment protocol allows for a user-friendly description of a payment request as well as where refunds should be sent.

Shoppers also need to know the payment request is legitimate. For example, a hacker executing a man-in-the-middle attack could intervene in a transaction, swapping the company's legitimate bitcoin address with his own and irreversibly taking a person's bitcoins.

To solve that problem, payment requests will use digital certificates, the same kind of security technology indicated by a padlock in a web browser. Specifically, the payment requests will use X.509 certificates, which underpin SSL (Secure Sockets Layer), which encrypts data traffic between two parties.

While there are many weaknesses in SSL, "it's better than nothing," said Gavin Andresen, chief scientist for The Bitcoin Foundation and lead developer for the Bitcoin-QT client. If a better public key encryption scheme comes along, it can be swapped out in the payment protocol, he said.

"With Bitcoin, we are trying to get things right from the beginning so the payment process is as simple as it possibly can be and still completely secure," Andresen said.

The communication between a customer and company will be performed over SSL and will not be part of the so-called "blockchain," the public ledger that shows bitcoin transactions, Andresen said. The payment protocol will not touch the core code that drives Bitcoin's network.

Andresen and other developers are working on a payment protocol implementation for the forthcoming 0.9 version of Bitcoin-QT, the first Bitcoin software client.

Future development efforts will rely on the foundation set by the protocol, said Mike Hearn, a software developer who has worked on it. "The real potential will start to become apparent as we add features to it," he said.

The protocol could eventually be developed to support payment scenarios such as recurring subscriptions, tipping for services-related transactions and authorization and hold situations, used by hotels and rental car companies to verify funds are available.

"It's really the keystone for many future efforts," Hearn said

bitcoin now illegal in Thailand

Deeming bitcoin illegal in Thailand will turn it into a bitcoin black market

Published On August 4, 2013 at 10:50 BST | By Daniel Cawrey | Exchanges, News, Regulation

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On the surface, everyone knew that it would happen. Some country seeking to control capital would undoubtedly ban or rule illegal a decentralized currency like bitcoin. Now it has happened, but from an unexpected place.

A baffling decision by Thailand

If you would have made a guess a week ago about the first country to ban bitcoin, would Thailand even have been in the top five? The top ten? There are a number of autocratic countries in the world that many could have seen doing something like this, butThailand’s decision came seemingly out of nowhere.

One of the tenets that Satoshi Nakamoto set in his seminal paper on the Bitcoin network was the abolition of third parties being required for payments. The concept of bitcoin is to avoid third parties, “allowing any two willing parties to transact directly with each other without the need for a trusted third party”. This third party, in effect, is a financial institution.

The shuttered website of the Bitcoin Co. Ltd. exchange. The price at the time of closing was 3,088 Thai Baht, or $98.68 USD. Source: bitcoin.co.th

In Thailand’s case, they did not want Bitcoin Co. Ltd. to circumvent that third party of control. In Thailand, that is the Bank of Thailand. The Bitcoin Co. Ltd. exchange had been trying to get the approval of the Bank of Thailand for some time. But, when they finally understood they would get looped out as the third party, that was enough to hear.

Could corruption play a part?

The CIA World Factbook states that the Thai economy has “a well-developed infrastructure, a free-enterprise economy [and] generally pro-investment policies”. Yet in 2012, Thailand had one of the highest prime lending rates in the world, at 7.1%. The prime lending rate is what central bankers use to set interest rates for loans and guide an economy.

While unemployment figures are very low in Thailand, that interest rate number seems high. This is especially true for a country that suffered a devastating flood in 2011 that left a trail of economic disruption – traditionally banks would provide stimuli to encourage growth. But it may be because corruption is a normal and public fixture in Thailand. This may explain the central banks’ lending policies.

The world corruption index ranks Thailand 88, which is middle of the pack but fairly low for a country that is well-developed and has a thriving services industry that makes up half of the economy. Those factors are commonly associated with a fairly advanced nation.

Thailand ranks as one of the most corrupt countries in Asia. Image Source: Wikipedia

Stopping bitcoin

Think about this: one of the few bitcoin exchanges in Thailand is now closed because the buying and selling of bitcoins is deemed illegal. Does anyone really think that is going to stop Thai citizens from buying and selling them?

The existence of Bitcoin Co. Ltd. is enough to show that there are a number of people in Thailand holding bitcoins. It’s entirely possible that Thailand would be a place that if it was legal, a bitcoin economy would flourish. Just because the baht-based exchange is now shuttered does not mean that bitcoins exchanged there are worthless.

The restrictions on bitcoin in Thailand as told to bitcoin.co.th by the regulators there. Note there is no restriction on bitcoin mining. Source: bitcoin.co.th

The actions of Bitcoin Co. Ltd. to meet with regulators shows a desire to be a part of the financial system. In fact, no matter what the authorities do, it already is. Yet the recent history of the people of Thailand staging uprisings in 2008, 2009 and 2010 has probably made the government wary.

Controlling capital

With what Thailand is trying to do, consider what exchanges in other countries that want to control capital are now thinking. Prior to the meeting with that bank’s officials, Thai officials had signaled to bitcoin.co.th that BTC did not need to be regulated, as it was not part of a money transmission business. It’s clear now that they did not fully understand what bitcoin really was.

In the United States, many previously suspected that federal authorities would crack down on bitcoin. Surprisingly, that did not happen: in fact, the government decided to instead issue guidelines. Financial technology like bitcoin, they concluded, was not something that they could control. But they could regulate and monitor it.

The six-month performance of BTC versus the Thai baht. Source: bitcoin.co.th

Thailand and its banking regulators should think about doing the same. It’s clear that they did not expect the amount of media attention that such a decision would cause. But it seems, given the fact that bitcoin was deemed illegal in the space of one day, perhaps a rash decision might have been made by officials there.

The bitcoin black market

Thailand is known for its underground economy and loose legal regulations. If anything, they haven’t killed bitcoin. Actually they’ve made it the number one spot for a bitcoin black market. Jon Matonis, Executive Director of the Bitcoin Foundation, recently wrote in an article for American Banker that trying to make bitcoin go away doesn’t really work. “A throttled and neutered bitcoin in the ‘official’ economy would ultimately enhance its overall effectiveness via increased anonymizing measures and more robust decentralization”.

The Bank of Thailand’s Governor, Prasan Trairatworakun, has said that it cannot approve Bitcoin Co. Ltd’s business because it’s based on an exchange rate but bitcoin is not a physical currency (and therefore the company is not an actual currency exchange). What they have not realized or accepted is that bitcoin is a currency, just a digital rather than physical one.

So congratulations, Thailand. You’ve created for yourself a new underground facet of your economy. In your effort to remain in control of your financial system, you’ve created the first bitcoin haven. This to the detriment of everyone working to legitimize and maintain the current state of the bitcoin network.

Anyone who wants to avoid any sort of regulation that may eventually be placed upon bitcoin, anyone who disagrees with the efforts of the Bitcoin Foundation will just go to Thailand to do their bitcoin business. Because, as in what has happened in this instance, if you don’t understand bitcoin enough or take the time to consider it, how do you plan on stopping it?

Do you agree with the decision by Thailand to attempt to boot bitcoin from its financial system? What do you think about the concept of a bitcoin black market, a place where regulation isn’t even possible?

Posted In Bitcoin companies > Bitcoin exchange news

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Bitcoin clamp down

Bitcoin Clampdown Continues As Federal

 Judge Says It’s A Currency

ROMAIN DILLET

posted yesterday

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Wikipedia calls Bitcoin a cryptocurrency (a currency that relies on cryptography), but now it’s official. A federal judge in Texas has declared that Bitcoin is a currency and should therefore be regulated just like U.S. dollars or gold. The ruling represents yet another attempt to regulate Bitcoin transactions, threatening the original purpose of the currency.

While it looks like a recognition that Bitcoins are worth something, the decision threatens once again Bitcoin’s utopian concept. As a reminder, the Department of Homeland Security recently issued a seizure warrant on Bitcoin exchange service Mt. Gox because it didn’t comply to money transfer regulations.

Today’s decision goes in the same direction. BTCST, a Bitcoin-based hedge fund, claimed that “the BTCST investments are not securities because Bitcoin is not money, and is not part of anything regulated by the United States,” wrote Judge Amos Mazzant. She then stated the exact opposite of BTCST’s defense:

First, the Court must determine whether the BTCST investments constitute an investment of money. It is clear that Bitcoin can be used as money. It can be used to purchase goods or services, and as Shavers stated, used to pay for individual living expenses. The only limitation of Bitcoin is that it is limited to those places that accept it as currency. However, it can also be exchanged for conventional currencies, such as the U.S. dollar, Euro, Yen, and Yuan. Therefore, Bitcoin is a currency or form of money, and investors wishing to invest in BTCST provided an investment of money.

Bitcoin was born on the idea that nobody could regulate it. Instead of having a central bank, Bitcoins are just a chain of characters defined by algorithmic rules. Anybody can try to find new Bitcoins and anybody can verify if it is indeed a real Bitcoin or not. All of this is handled by opensource Bitcoin applications and a few proprietary variants.

The Bitcoin network is a peer-to-peer payment network, and nobody can intefere with it. The only real value of a Bitcoin comes from its users. Because Bitcoin owners are treating it as a currency, it becomes one. That’s what makes it beautiful and scary at the same time. Yet, Bitcoin creatorSatoshi Nakamoto probably didn’t think that even the U.S. government would treat it as a currency and try to regulate it.