Attack of the 50 Foot Blockchain: Bitcoin, Blockchain, Ethereum & Smart Contracts

Attackofthe50Foot

Blockchain

Attackofthe50Foot

Blockchain

BitcoinBlockchainEthereumandSmartContracts

DavidGerard

Copyrightcopy2017DavidGerardAllrightsreservedNopartofthisbookmaybereproducedortransmittedinanyformorbyanymeanselectronicormechanicalincludingphotocopyingrecordingorbyanyinformationstorageandretrievalsystemwithoutthewrittenpermissionoftheauthorexceptwherepermittedbylawABitcoinFAQcopy2013ChristianWagnerusedwithpermission(ThissectionisalsoavailableforreuseunderCreativeCommonsAttribution-NonCommercial-ShareAlike30Unported[cc-by-nc-sa])ldquoStagesinaBubblerdquocopy2008Jean-PaulRodriguereleasedbytheauthorforanyreusewithattributionSkunkHousephotographcopy2016KarenBoydusedwithpermissionMrBitcoinphotographcopy2014BenGutzlerusedwithpermissionMiningrigphotographofunknownoriginifthisisyourspleasegetintouchFirsteditionJuly2017BooksitewwwdavidgerardcoukblockchainContacttheauthordgerardgmailcomCoverartanddesignAlliKirkhamwwwpunkpunscomauthor

ContentsABitcoinFAQIntroductionChapter1WhatisabitcoinWhyBitcoinWhatyouhavewhenyouhaveldquoabitcoinrdquoTheblockchainSecuredbywasteProofofWork

Chapter2TheBitcoinideologyLibertarianismandcyberlibertarianismPre-BitcoinanonymouspaymentchannelsTheprehistoryofcryptocurrenciesTheconspiracytheoryeconomicsofBitcoinAustrianeconomics

Chapter3TheincrediblepromisesofBitcoinDecentralisedSecuredbymathAnonymousInstantNofeesNochargebacksBeyourownbankBetterthanVisaPayPalorWesternUnionRemittancesBanktheunbankedEconomicequalityThesupplyislimitedThepricecanonlygoupButBitcoinsavedVenezuelaWhentheeconomycollapsesBitcoinwillsaveyouYoucanuseBitcointobuydrugsontheInternet

Chapter4EarlyBitcointherisetothefirstbubbleThetulipbulbera

TheartofthestealPirateat40BitcoinSavingsampTrustBitcoinexchangeskeepyourmoneyinasockundersomeoneelsersquosbedTheriseandfallofMtGoxDrugsandtheDarknetTheSilkRoad

Chapter5HowBitcoinminingcentralisedThefiretraperaAbusingyourhashpowerforfunandprofit

Chapter6WhoisSatoshiNakamotoSearchingforSatoshiDorianNakamotoProfessorDrDrCraigWrightNakamotoDundeeThatrsquosnotasignature

Chapter7Spendingbitcoinsin2017BitcoinisfullthetransactionclogBitcoinfordrugswelcometothedarknetRansomwareNon-illegalgoodsandservicesCasestudyIndividualPubs

Chapter8Tradingbitcoinsin2017thesecondcryptobubbleHowtogetbitcoinsFromthefirstbubbletothesecondBitfinexthehackthebankblockandthesecondbubble

Chapter9AltcoinsLitecoinDogecoinEthereumButerinrsquosquantumquestICOsmagicbeansandbubblemachines

Chapter10SmartcontractsstupidhumansDrStrangelovebutontheblockchainSowhowantssmartcontractsanywayLegalcodeisnotcomputercodeTheoracleproblemgarbageingarbageout

ImmutabilitymakeyourmistakesunfixableImmutabilitytheenemyofgoodsoftwareengineeringEthereumsmartcontractsinpracticeTheDAOthesteadfastironwillofunstoppablecode

Chapter11BusinessbafflegabbutontheBlockchainWhatcanBlockchaindoformeButallthesecompaniesareusingBlockchainnowBlockchainswonrsquotcleanupyourdataforyouSixquestionstoaskyourblockchainsalesmanSecuritythreatmodelsPermissionedblockchainsBeneficiariesofbusinessBlockchainNon-beneficiariesofbusinessBlockchainldquoBlockchainrdquoproductsyoucanbuyUKGovernmentOfficeforScienceldquoDistributedLedgerTechnologybeyondblockchainrdquo

Chapter12CasestudyWhyyoucanrsquotputthemusicindustryonablockchainTherightsmanagementquagmireGettingpaidforyoursongTherecordindustryrsquoslossofcontrolandthestreamingapocalypseBerkleeRethinkandblockchaindreamsImogenHeapldquoTinyHumanrdquoTotalsales$13320WhyblockchainsareabadfitformusicAttemptstomakesenseofthehypeOthermusicalblockchaininitiativesSingularDTVSummary

ConclusionFurtherreadingGlossaryAcknowledgementsAbouttheauthorIndex

Notes

ABitcoinFAQ

copyChristianWagnerhttpbrokenlibrarianorgbitcoin

ShortVersion1)ShouldIbuyBitcoinsNo

2)But I keep seeing all this stuff in the news about them and how No Techjournalismisuniformlyterriblealwaysrememberthis3)HowdoesthisworkItdoesnrsquotmakeanysense

No it really doesnrsquot Itrsquos impossible to accurately explain Bitcoin inanything less thanmind-numbingly boring technical terms so you shouldprobablyjustnotworryaboutitGodosomethingusefulinstead

Introduction

AbstractA purely peer-to-peer version of electronic cash would allowonlinepaymentstobesentdirectlyfromonepartytoanotherwithoutgoingthroughafinancialinstitution

ndashSatoshiNakamotoBitcoinAPeer-to-PeerElectronicCashSystem20081

AnexperimentalnewInternet-basedformofmoney iscreated thatanyonecangenerateathomePeoplebuildfrighteningfiretrapcomputersfullofvideocardsputting out somuchheat that one operator is hospitalisedwith heatstroke andbraindamageSomeone known only as ldquoPirateat40rdquo starts a ldquohigh yield investment

programrdquoJustbeforeitscollapseasaPonzischemeitholds7ofallbitcoinsat the timeAggrieved investorseventuallymanage toconvince theauthoritiesnotonlythattheseInternettokensareworthanythingbutthattheygavethemtosomeguyonanInternetforumcallinghimselfldquoPiraterdquobecausehesaidhewoulddoubletheirmoneyAyoungphysicsstudentstartsarevolutionarynewmarketplacebasedonthe

nonaggressionprincipleimmunetoStatecoercionHeendsuporderinghitsonpeople because theymight threaten his great experiment and is jailed for lifewithoutparoleA legalcryptographerproposes fullyautomatedcontractual systems that run

withminimalhumaninterferencesothatbusinessandthelawwillworkbetterand bemore trusted The contracts people actuallywrite are automated PonzischemesthoughtheylaterprogresstounregulatedpennystockofferingswhosefineprintliterallystatesthatyouarebuyingnothingofanyvalueThebiggestcrowdfundinginhistoryattracts$150milliononthepromisethat

itwillembodyldquothesteadfastironwillofunstoppablecoderdquoUponreleaseit isimmediatelyhackedand$50millionisstolenBitcoinrsquosgoodnamehavingbeensomewhat stainedbydrugsandcriminals

itsadvocatestrytosellthetechnologytobusinessasldquoBlockchainrdquo$15billion

ofventurecapitalgetsbacksofarzeroThemainvisibleproductisconsultanthoursandpressreleasesHowdidwegethere

Digitalcashwithouthavingtocheckinwithacentralauthorityisobviouslyauseful idea It turned out in practice to be amagnet for enthusiastic amateurswithstars in theireyesandconartists topreyupon themwithoutcomesbothhilariousandhorrifyingBitcoin and blockchains are not a technology story but a psychology story

bubbleeconomythinkingandtheartofthestealDespitethecreatorsrsquogoodintentionsthecryptocurrencyfieldisrepletewith

scamsandscammersThe technology isusedasanexcuse tomakeoutlandishnear-magicalclaimsWhenphrases likeldquoawholenewformofmoneyrdquoorldquotheoldrulesdonrsquotapplyanymorerdquostartgoingaroundpeoplegetgullibleandtheethically-challengedgetcreativeYoucanmakemoneyfromBitcoinButitisvastlymorelikelythatyouwillbe

theonethatothersmaketheirmoneyfromRememberifitsoundstoogoodtobetrueitalmostcertainlyis

InthisbookIcover theoriginsandhistoryofBitcointothepresentdaywithsome of the important stories the other cryptocurrencies it spawned ndashparticularly Ethereum ndash and smart contracts and the attempts to applyblockchains tobusinessTherersquosalsoacasestudyonblockchains in themusicindustryIgointotechnicaldetailwhereitrsquosrelevantthoughwhatrsquosmoreimportantare

the implications There are also extensive footnotes with links in the digitaleditiontothesourcesforfurtherreadingandaglossary

Chapter1Whatisabitcoin

WhyBitcoin

Paper notes andmetal coins are annoying and inconvenient andwe have theInternetnowSodigitalmoneysoundslikeausefulideaThesolutionthedevelopedworldhasmostlycometoisjustusingourbanksndash

youhaveanaccountandyoucanmovemoneytootherpeoplersquosaccountsviadebit card credit card PayPal or whatever The central authority means itrsquossensiblyregulatederrorsandtheftscanbereversedandsoonItrsquosalsoasmoothtransitionfrompapermoneyndashthesamethingbutyoucandonewthingswithitBut this isnrsquotacompletesolutionashoprsquoscard readercouldbedownyour

paymentgatewaymightchargefeesyoumaywanttosendmoneytosomeonenotonthesamebankingnetworkyouvalueyourprivacycheckinginwithyourbankeverytimegetsannoyingSoaformofdigitalcashwouldbenicetooBitcoinisacryptocurrencya thingon theInternetwhich letsyouexchange

uniquedigitalobjectsTheobjectswouldtakeapproximatelyforevertofakesoifweassigntheobjectsavaluewecanexchangetheminamannersomethinglikewedomoneyItrsquosdecentralisedsoyoucansendmoneywithouthavingtogothroughacentralclearinghouseBitcoinrsquostransactionledgertheblockchainistoutedasimmutablenobody

canalteritwithoutitbeingobviousthatitwastamperedwithTheideaisthattherersquosnocentralcontrolanyonecanrunaBitcoinnodeandbepartofthenetworknobodycanblockorreverseyourtransactionsandyoudonrsquothavetotakeanyonersquoswordforthestateofthesystem

Whatyouhavewhenyouhaveldquoabitcoinrdquo

YouknowwhatfeelslikeldquomoneyrdquotoyouYoucanearnityoucanspenditonallmannerofthingsyoucansaveitforthefutureyoucaninvestitItmightbeinabankaccountwithacardornotesandcoinsinyourpocketndash itstill feelslikeapoundoradollartoyouInpracticebitcoinsareabitlikemoneyinabankaccountwithadebitcard

exceptwithoutanysortofsafetynetndashitrsquosallunregulatedanduninsuredtherersquosnowaytoreverseatransactionandtherersquosnocustomerserviceIf you ldquohaverdquo bitcoins you donrsquot actually have them as things on your

computerWhatyoursquovegot is aBitcoinaddress (like abankaccountnumber)andthekeytothataddress(anothernumberwhichworkslikethePINtothefirstnumber)2TheBitcoin address ismentioned in transactionson theblockchainthekeyistheuniquethingyouhavethatmakesyourbitcoinsyoursTosendbitcoinsfromyouraddresstoanotheraddress(abitlikesending

moneyoverPayPal)yougenerateatransactionthatissentoutintothenetworkandaddedtothenextblockoftransactionsOnceitrsquosinablockthattransactionispubliclyvisibleontheblockchainforeverAwalletiswhereyoukeepyourkeysUsuallyitrsquosaprogramwhichgenerates

andmanagesaddressesandpresentsyouwiththebalancesYoucangenerateanewaddressanditsmatchingkeyanytimeyoulikeYoucankeepyourbitcoinsrsquokeysinahotwallet(likeacurrentaccount)

runningonacomputerattachedtotheInternetorinacoldwallet(likekeepingmoneyinasockunderyourbed)whichmightbeonacomputernotattachedtotheInternetorcouldjustbethekeysthemselvesstoredonaUSBstickorevenprintedoutonpaperIfyoulosethekeyyourbitcoinsarelostforeverIfsomeoneelsegetsthekey

theycantakeyourbitcoinsIfyousendbitcoinstoanonexistentaddresstheyrsquorelostforeverIfyousendbitcoinstothewrongaddressyoucanrsquotreverseitBitcoinsecuritycanbeverytechnicaldifficultandunforgivingmostpeoplejustkeeptheirbitcoinsonanexchangeThesehavetheirownproblemsaswersquollseelater

Theblockchain

Bitcoin transactions are grouped into blocks Each block has a cryptographichashanumberwhichisquicklycalculatedandservesasacheckvaluendashlikethelastdigitofabookrsquosISBNorthelastdigitofyourcreditcardbutlongerndashtoverifythatachunkofdataisthechunkyouthinkitisThehashwillbecompletelydifferentiftherersquoseventheslightestchangeinthe

dataassuchtwothingswiththesamehashareroutinelyassumedtobeidenticalAdvocatesdescribeBitcoinasldquosecuredbymathrdquoThisisbecause

cryptographyworksonarithmeticthatisfastgoingforwardandimpossiblyslow

toreversendashtomakeanotherdatachunkwiththesamehashyouwouldhavetogothroughastupendousnumberofpossiblevalues(Bitcoinminingreliesonthisndashseebelow)Eachblockisalsohashedwiththechainofpreviousblockssotheentire

chainofblocksistamper-evidentThisiscalledaMerkletreeinventedin1979andwidelyusedsince3WhatBitcoindoesismakepossibleatamper-evidentpublicledgeroftransactionswithoutanycentralauthoritydeclaringwhoseledgeristheofficialoneTheBitcoinblockchaincontainseveryconfirmedtransactionbacktoJanuary

2009InJune2017itpassed120gigabytesandisgrowingat4GBamonth

SecuredbywasteProofofWork

So how do you decide who gets to write to the ledger The answer iscompetitiveProofofWorkwhereyouwastecomputingpower todemonstrateyourcommitment4

Anewblockoftransactionsiscreatedeverytenminutesorsowith125bitcoins(BTC5)rewardattachedasincentiveplusanyfeesonthetransactionsBitcoinminers(analogoustogoldminers)applyasmuchbrute-forcecomputingpowerastheycantotaketheprizeinthisblockrsquoscryptographiclottery(Theminingrewardhalveseveryfouryearsndashitstartedat50BTCwentto

25BTCin2012and125BTCin2016ndashandwillstopentirelyin2140Therewillonlyeverbe21millionbitcoins)SatoshiNakamotoBitcoinrsquoscreatorneededataskthatpeoplecouldcompete

towastecomputingpoweronthatwouldgiveonewinnereverytenminutesThedifficultywouldneedtoautomaticallyadjustascomputingpowerjoinedandlefttokeepblockcreationsteadyataboutoneeverytenminutesWhathecameupwithwasUnprocessedtransactionsarebroadcastacrossthe

BitcoinnetworkAminercollectstogetherablockoftransactionsandthehashofthelastknownblockTheyaddanarbitraryldquononcerdquovaluethencalculatethehashoftheresultingblockIfthathashsatisfiesthecurrentdifficultycriteriontheyhaveminedablockThissuccessfulblockisthenbroadcasttothenetworkwhocanquicklyverifytheblockisvalidTheminergets125BTCplusthetransactionfeesIftheyfailedtheypickanothernoncevalueandtryagain6

SinceitrsquosallbutimpossibletopickwhatdatawillhaveaparticularhashguessingwhatvaluewillgiveavalidblocktakesmanycalculationsndashasofJune2017theBitcoinnetworkwasrunning5500000000000000000(55times1018or

55quintillion)hashespersecondor33times1021(33sextillion)pertenminutesThe33sextillioncalculationsarethrownawaybecausetheonlypointofall

thistechnicalrigmaroleistoshowthatyoucanwasteelectricityfasterthaneveryoneelseObviouslythecompetitiongetsviciouslyDarwinianveryquicklyMining

rapidlyconvergeson1BTCcosting1BTCtogenerateTheensuingevolutionaryarmsraceasminersdesperatelytryforenoughofanedgetoturnaprofitissuchthatBitcoinrsquospowerusageisontheorderoftheentirepowerconsumptionofIreland7

Thiselectricity is literallywasted for thesakeofdecentralisation thepowercosttoconfirmthetransactionsandaddthemtotheblockchainisaround$10-20pertransactionThatrsquosnotimaginarymoneyndashthoseareactualdollarsorthesedaysmostlyChineseyuancomingfrompeoplebuyingthenewcoinsandgoingto pay for the electricity An ordinary centralised database could calculate anequallytamper-evidentblockoftransactionsona2007smartphonerunningoffUSBpowerEvenifBitcoincouldreplaceconventionalcurrenciesitwouldbeanecologicaldisasterSowhybotherwith all of this Ideology Fromday oneBitcoinwas about

pushingpolitics

Chapter2TheBitcoinideology

AtfirstalmosteveryonewhogotinvolveddidsoforphilosophicalreasonsWesawbitcoinasagreatideaasawaytoseparatemoneyfromthestate

ndashRogerVer8

TheBitcoinideologypropagatedthroughtwopropositionsifyouwanttogetrichforfreetakeonthisweirdideologydonrsquotworryifyoudonrsquotunderstandtheideologyyetjustkeepdoingthethingsandyoursquollgetrichforfree

The promise of getting rich for free is enough to get people to take on theideasthattheyrsquoretoldmakesitallworkBitcoinwentheavilypoliticalveryfastandBitcoinpartisanspromotedanarcho-capitalism(yesthosetwowordscaninfactgotogether)withoddnotionsofhoweconomicsworksorhumansbehavefromthestartThe roots of the Bitcoin ideology go back through libertarianism anarcho-

capitalism and Austrian economics to the ldquoend the Fedrdquo and ldquoestablishmentelitesrdquoconspiracytheoriesof theJohnBirchSocietyandEustaceMullinsThedesignofBitcoinandthepoliticaltoneofitsearlycommunitymakesenseonlyinthecontextoftheextremistideasancestraltothecyberlibertariansubcultureitarosefrom9MostofBitcoinrsquosproblemsasmoneyarebecauseitrsquosbuiltoncrankassumptions

Libertarianismandcyberlibertarianism

Libertarianism is a simple idea freedom is good and government is bad Theword ldquolibertarianrdquo originallymeant communist and anarchist activists in 19th-centuryFranceTheAmerican right-wingvariant startsat fairlynormalpeoplewho want less bureaucracy and regulation and consider lower taxes moreimportantthansocialspendingTheseriouslyideologicalonesgoratherfurtherndasheganarcho-capitalismthebeliefinthesupremacyofpropertyrightsandthecompleteeliminationofthestate

American-stylelibertariansaboundontheInternetComputerprogrammersarehighlysusceptibletothejustworldfallacy(thattheireconomicgoodfortuneistheproductofvirtueratherthancircumstance)andthefallacyoftransferableexpertise(thatbeingcompetentinonefieldmeanstheyrsquorecompetentinothers)SiliconValleyhasalwaysbeenacrossofthehippiecountercultureandAynRand-basedlibertarianism(thiscrossbeingtermedtheldquoCalifornianideologyrdquo)ldquoCyberlibertarianismrdquoistheacademictermfortheearlyInternetstrainofthis

ideology Technological expertise is presumed to trump all other forms ofexpertise eg economics or finance let alone softer sciences ldquoI donrsquotunderstanditbutitmustbesimplerdquoistheorderofthedayTheimplicitpromiseofcyberlibertarianismwasthedot-comerapromisethat

you couldmake it big from a startup companyrsquos Initial PublicOffering buildsomething new and useful suddenly get rich from it The explicit promise ofBitcoin is that you can get in early and get rich ndash without even building anenterprisethatrsquosusefultosomeone

Pre-Bitcoinanonymouspaymentchannels

Peer-to-peer electronic payment services existed before Bitcoin PayPal wasexplicitlyintendedtobeananonymousregulation-dodgingmoneytransmissionchannel with an anti-state ideology in a 1999 motivational speech toemployees Peter Thiel rants how ldquoit will be nearly impossible for corruptgovernments to steal wealth from their people through their old meansrdquo10 ndashthoughtheyquicklyrealisedthatbeingpartofthesystemmadeforamuchmoreviablebusinesse-Gold was a digital currency backed by gold founded in 1996 It was

perceived as anonymous but was actually pseudonymous and the companymade their records available to law enforcement It was quite popular beforebeingshutdownin2009fornothavingobtainedamoneytransmitterrsquoslicenseinthepreviousseveralyearsLibertyReserve inCostaRicaoperated from2006 to2013 Itwasall about

the anonymous money transmission and founder Arthur Budovsky (who hadpreviouslybeenconvictedfor runningasimilaroperation in theUS)endedupjailed for 20 years for money laundering Some Bitcoiners regarded LibertyReserve as apredecessor toBitcoin andworried at thepossibleprecedent thismightset11

Theprehistoryofcryptocurrencies

Cryptographic money was first mooted by David Chaum in his 1982 paperldquoBlind Signatures for Untraceable Paymentsrdquo12 and his 1985 paper ldquoSecuritywithout Identification Transaction Systems toMake Big Brother Obsoleterdquo13ChaumfoundedDigiCashin1990toputhisideasintopracticeItfailedinthemarkethoweverandclosedin1998MostconceptslaterusedinBitcoinoriginatedontheCypherpunksmailinglist

in the early 1990s The ideology was libertarian right-wing anarchism oftenexplicitly labeled anarcho-capitalism they considered government interferencethegravestpossiblethreatandhopedtofightitoffusingthenewcryptographictechniques invented in the 1970s and 1980s They also tied into the SiliconValley and Bay Area Extropiantranshumanist subculture TimMayrsquos ldquoCryptoAnarchistManifestordquoapopulardocumentonthelistisallaboutthepromiseofmoney and commercewith no government oversight and anticipatesmany ofthefuturepromisesandaspirationsofcryptocurrency14

Chaumrsquos DigiCash was not acceptable to the Cypherpunks as a singlecompany confirmed everyparticipantrsquos signatureTheywanted something thatdidnrsquotrelyonacentralauthorityinanywayAdamBackproposedHashcashtothelistin1997moneycreatedbyguessing

the reversalofacryptographichashNickSzaboput forwardBitgold andWeiDai b-money in 1998 These were all bare proposals without workingimplementationsldquoCypherpunkrdquowas a pun on ldquocyberpunkrdquoCyberpunk science fiction of the

1980s never gotmuch into pure bank-free cryptographic currencies itmostlytreatedtheideaoftransmittingmoneydigitallyatallasbeinginterestingenoughforstorypurposes(IfWilliamGibsonhadthoughtofBitcoinforhiscyber-heistshort ldquoBurning Chromerdquo it could have been set in the present day) TheCypherpunks got very excited about Neal Stephensonrsquos 1999 novelCryptonomicon one plot thread of which involves a fictional sultanatepromoting a cryptographic digital currency even though the book example isissuedbyagovernmentandbackedbygoldAnanonymouspersoncallinghimselfldquoSatoshiNakamotordquostartedworkingon

Bitcoinin200715asacompletelytrustlessimplementationoftheb-moneyandBitgoldproposals16(thoughNakamotowasnrsquotawareofSzaborsquosworkuntilquitelate in theprocess)17 In2008heemailedAdamBackwith someofhis ideasandsixweekslaterannouncedtheBitcoinwhitepaperontheCryptographyand

CryptographyPolicymailinglistasuccessortotheCypherpunkslistItwasatlastaproposalwithaplausibledecentralisationmechanismsoonfollowedbyactual working code that people could try Nakamoto and list contributor HalFinney tested the software inNovember andDecember 2008 andBitcoin 01wasreleasedinJanuary2009

TheconspiracytheoryeconomicsofBitcoin

Thegold standard ndash an economywith a finitemoney supply ndashwas acceptedmainstreammonetarypolicyup to theearly20thcenturywhenthedebtsfromWorldWarImadeitinfeasibleEventhewinnersinWorldWarItriedtobackallthepaper(thattheeconomyhadactuallyrunonsincethelate1600s)withgolduntilthe1930sButtheysufferedmanicboomsanddevastatingbustsoverandoverbecausetherewastoomucheconomicactivityforthegoldonhandIttookuntiltheGreatDepressionforgovernmentstoacceptthatmanagingthe

moneysupplyndash injectingmoneyeverynowand thenmanaging interest ratesrequiringbankstobebackedndashwasnotoptionalandthattheyjustcouldnrsquotdothatongoldCountriesrecoveredfromtheGreatDepressionprettymuchastheylefttherigidgoldstandardbehindbecausemanagingyourmoneysupplyworksmuchbetterandismuchmorestableAversionofthegoldstandardlingeredintheformoftheBrettonWoodssystemuntil1971butrigidbackingofcurrencywithgoldhadbeendeliveredthefatalblowbyWorldWarIandthentheGreatDepressionButastandardmodeofpseudoscienceistoadoptandferventlydefenda

discardedideaandldquogoldbugsrdquowerenoexceptionardentlypushingtheversionofthegoldstandardthathadjustbeendemonstratedutterlyinadequatetoafunctioningeconomy(Goldbugs are franklybizarreThere are lots of rarermetals thangold but

you never hear about ldquorhodium bugsrdquo or ldquoscandium bugsrdquo or even ldquoplatinumbugsrdquo)TheJohnBirch Society is anAmerican far-right fringe group that has long

claimedthatinflationcomesfromcentralbankincreaseofthemoneysupplyndashinfact they try to redefine ldquoinflationrdquo tomean thisndash for thepurposeof stealingldquovaluerdquo from thepeople and that this iswhy thegold standardwas abolishedand the Federal Reserve founded18 Eustace Mullins furthered these ideasamongstconspiracytheoristswiththe1993reprintofhis1952bookSecretsoftheFederalReserveinwhichheblamestheFedrsquoscreationonldquotheRothschild-

controlledBankofEnglandrdquo (Mullinswas also famous forhis anti-Semitismevery time Mullins said ldquobankerrdquo he meant ldquoJewrdquo but this mostly isnrsquotconsciously the case amongst Bitcoiners who only occasionally rant aboutZionists)These ideashadalsobeenpropagated in themainstreambyRonPaul in the

wakeofthe2008creditcrunchandthequantitativeeasing(justprintingmoneytokick-starttheeconomy)thatfollowedThoughPaulisnrsquotafanofBitcoinndashhewantsareturntoactualgoldafterheabolishestheFed19

Old ideologies come back when they fill a present desire and therersquos anopening for them So these claims somewhere between incorrect andnonsensical showed up full-blown in Bitcoin discussion proponents straight-facedly repeating earlier conspiracy theories as if this was all actually propereconomicsBecauseifitisthenmaybetheyrsquollgetrichforfreeIn thiscontext andparticularly inBitcoindiscourseyoursquoll seemanywords

that look like English but are actually specialised conspiracy theory jargonldquoLibertyrdquo means only freedom from government ldquotyrannyrdquo means onlygovernmentldquoforcerdquoandldquoviolencerdquomeanonlygovernmentforceandviolenceldquoopensocietiesrdquoisacodewordforldquofreemarketwithoutregulationsrdquoldquofreedomrdquomeansldquofreemarketwithoutregulationsrdquoandonlythatPurecommoditiesndashgoldandsilverndashhavenrsquotdonethejobofmoneywellfora

fewhundredyearsandBitcoinwantstobemoneybutwassetuptoworklikeacommodityNakamotoputastrictlimitonthesupplyofbitcoinstherewillonlyeverbe21millionBTCSoadvocatesclaimBitcoinisthussomehowsufficientlysimilartogoldtoserveasaldquostoreofvaluerdquointhedesiredmannerevenldquoanInternetoftruevaluerdquo(whateverldquotruerdquomeansthere)ThisisdespiteitsextremevolatilitymakingitalmostuselessasastoreofvalueanddespiteitbeingwayhardertouseasmoneythananycurrencyshouldbeevenforitsfewusecasesBitcoin ideologybought into theentireFederalReserveconspiracypackage

TheFedisaplottouseinflationtostealvaluefromthepeopleandhandittoashadowy cabal of elites who also control the government the worldwideeconomy is in danger of collapse at any moment due to central banking andfractional reservebanking goldndash sorryBitcoinndashhas intrinsic value thatwillprotectyoufromthiscollapseAdvocates repackageandpropagate these ideasalmostverbatimevenwhentheyalmostcertainlydonrsquotknowwhoorwheretheytracebacktoConventional economics views inflation ndash a decline in moneyrsquos purchasing

power ndash as a phenomenon of consumer prices consumer confidence

productivity commodity and asset prices etc which a central bank thenrespondstowithmonetarypolicyPrintingmoremoneycancauseinflationbutitrsquosnottheusualcauseTheconspiracytheoristviewisthatitrsquosthecentralbankinterventioncausing the inflationBitcoin ideology assumes that inflation is apurelymonetaryphenomenonthatcanonlybecausedbyprintingmoremoneyand that Bitcoin is immune due to its strictly limited supply This wasdemonstratedtriviallyfalsewhenthepriceofabitcoindroppedfrom$1000inlate2013to$200inearly2015ndash400inflationndashwhilesupplyonlywentup10Nakamotorsquos 2008 white paper alluded to these ideas but the 2009 release

announcementforBitcoin01statesthemoutright20

Therootproblemwithconventionalcurrencyisallthetrustthatrsquosrequiredto make it work The central bank must be trusted not to debase thecurrencybut thehistoryof fiatcurrencies is fullofbreachesof that trustBanksmustbetrustedtoholdourmoneyandtransferitelectronicallybuttheylenditoutinwavesofcreditbubbleswithbarelyafractioninreserveWehavetotrustthemwithourprivacytrustthemnottoletidentitythievesdrain our accounts Their massive overhead costs make micropaymentsimpossible

Bitcoin failed at every one of Nakamotorsquos aspirations here The price isridiculously volatile and has hadmultiple bubbles the unregulated exchanges(with no central bank backing) front-run their customers paint the tape tomanipulate the price and are hacked or just steal their usersrsquo funds andtransaction fees and the unreliability of transactions make micropaymentscompletely unfeasible Because all of this is based in crank ideas that donrsquotworkA week after Bitcoin 01 was released Jonathan Thornburg wrote on the

CryptographyandCryptographyPolicymailinglistldquoTomethismeansthatnomajorgovernmentis likelytoallowBitcoininitspresentformtooperateonalargescalerdquo21Inpracticegovernmentstotallydidandtreatedit likeanyotherfinancialinnovationgiveitroomtorunmakeitveryclearthatregulationstillapplies give it a bit more room to run repeat The advocatesrsquo ideas of howgovernmentsworkwerealreadyatoddswithcompletelypredictablereality(Irsquomstillbaffledatthenotionthatthegovernmentsoffirst-worldcountriesare

somehowfundamentallyagainsttheideaofpeopledoingwellwithinnovationsinfinance)

Austrianeconomics

The acceptable face of this conspiracy cluster isAustrian economics first puttogether in its present formbyLudwig vonMises (hence ldquoAustrianrdquo) Its keytechnique is praxeology in which economic predictions are made entirely byextrapolating from fundamental axioms It explicitly repudiates any sort ofempiricaltestingofpredictionsandholdsthatyoucanrsquotpredictfuturebehaviourfrompastbehavioureveninprinciplesotestingyourclaimsismeaningless22

ThesubjectmatterofallhistoricalsciencesisthepastTheycannotteachusanythingwhichwouldbevalidforallhumanactionsthatisforthefuturetoohellipNo laboratory experiments can be performed with regard to human

actionWe are never in a position to observe the change in one elementonly all other conditions of the event remaining unchanged Historicalexperience as an experience of complex phenomena does not provide uswith facts in the sense inwhich the natural sciences employ this term tosignifyisolatedeventstestedinexperimentsTheinformationconveyedbyhistorical experience cannot be used as building material for theconstructionoftheoriesandthepredictionoffutureeventshellip[Praxeologyrsquos] statements and propositions are not derived from

experienceTheyarelikethoseoflogicandmathematicsaprioriTheyarenotsubject toverificationorfalsificationon thegroundofexperienceandfacts

Despite this proponents keepmaking predictions and claims and insistingtheyaresomehowstillworthlisteningtoandapplyingtotheworldAustrianeconomicswasheavilypromotedbyheterodox23economistMurray

RothbardfounderoftheLudwigvonMisesInstituteRothbardinventedthetermanarcho-capitalismforhisideologythatacompleteabsenceofgovernmentisessentialandthatpropertyrightswhichareparamountwillsomehowstillfunctionwithoutitAnoffenceagainstonersquospropertyisequivalenttoanoffenceagainsttheselfsotheldquoNon-AggressionPrinciplerdquoholdsthattrespassingisaggressionbuttheownershootingyoufortrespassingsomehowisnrsquotPolicewillbereplacedwithprivatesecurityservicesandcourtswitharbitrationservicesReallyextremeAustrianslikeHans-HermanHoppeadmitthatallthiswouldleaddirectlytofunctionalfeudalismWhichbecomesneoreactionandthealt-rightbutPhilSandiferalreadywrotethatbook2425

Austrianeconomicshasproducedvastquantitiesofdetailedtheorytosupport

theclaimthatagoldstandardistheonlysensiblewaytorunaneconomyndashratherthanthemoreconventionalviewthatazero-sumeconomyquicklyseizesupbothintheoryandpractice26ndashandthatcentralbanksandfractionalreservebankingwillinexorablyleadtoacollapseDisasterisimminentandyouneedtobehoardinggoldSadlyforBitcoinmostAustrianeconomistsarenrsquotfansndashevenasBitcoiners

remainhugefansofAustrianeconomics27YouwillfindAustrianjargonincommonuseinthecryptocurrencyworldProponents of Austrian economics include the fringe economics blog Zero

HedgewhichhasconfidentlypredictedtwohundredofthelasttworecessionsZeroHedgecoversBitcoinextensivelyandBitcoinersarefansinturn

Chapter3TheincrediblepromisesofBitcoin

Nobodybuysatoothbrushonthebasisthatthetoothbrushmarketwillgotothemoon(Therehasnrsquotsofarbeenatoothbrushassetbubble)Thisishoweverthestandard selling point for cryptocurrenciesAs is claiming the selling point isanythingotherthanhopethatitwillgotothemoonAdvocatesclaimallmannerofpracticalusecasesforBitcoinAlotofthe

claimscontradicteachotherandindeedtheactualsoftwareothersmerelyrunagroundonrealityTheymixuphypotheticalideas(mostofit)andwhatisrobusttechnologythatactuallyexists(almostnone)withboguseconomicstobootJustaslongastheycangetyoutobuyBitcoinAfterthefirstBitcoinbubblepoppedmanyoftheseclaimswerecarried

forwardunalteredintocontemporarybusinessldquoBlockchainrdquohypeTheBitcoinWikianswersmanycommonobjectionsonaldquoMythsrdquopage28The

answersareofvaryingpersuasiveness

DecentralisedSecuredbymath

BitcoinersholdthatimmunitytocentralcontrolissooverwhelminglyimportantthatitrsquoscompletelyworthallthatelectricitywastedonminingAndthemathsisunbreakableInpracticeminingnaturallyrecentralisesduetoeconomiesofscalesoafew

largeminingpoolsnowcontroltransactionprocessingndashandeventhoughthecryptographyismathematicallyrobusttherestofthesystemisapproximatewithattacksbeingamatterofhowmucheconomicpoweryoucanbringtobearPoolswithalargepercentageoftheminingpowercanattackthesysteminvariouswaysandhavebeencaughtdoingsointhepast(SeeChapter5HowBitcoinminingcentralised)Andthatrsquosbeforeevenconsideringbadusersecurityorexchangeswrittenin

dodgyPHPBitcoinrsquoscryptographyissolidbutitrsquosabitlikeputtingasixinchthicksteelvaultdoorinacardboardframe

Anonymous

BitcoinwaswidelytoutedearlyonasanonymousndashontheblockchainnobodyknowsyoursquoreadogOfcoursewitheveryconfirmedtransactionloggedintheblockchainforeveritrsquospseudonymousatbestasthecaseofRossUlbrichtandthe Silk Road showed (see Chapter 4) law enforcement will happily do thetediouslegworkoftracingyourtransactionsifyoumotivatethemsufficientlyTherearewaystoincreaseyouranonymitysuchasmixersndashsendcoinstoan

addresstheyshufflethemwithotherpeoplersquoscoinsandyougetthembacklaterminusapercentage(Assumingthemixerisnrsquotascamthatjusttakesyourcoins)Thereisalsothetrickofbuyingachainofothercryptocurrenciesinsuccessiontocloudyourtrailovermultiplechainsthoughexchangesareincreasinglywisetothisoneandtendtokicksuchtradersoffforobviousmoneylaundering

InstantNofees

Nakamotorsquosoriginal2008whitepapernotesthatBitcoinwillnaturallyprogressto a transaction fee-based economy to pay theminers ldquoNo feesrdquo was still aperennial claim for many years until mid-2015 when it became glaringlyobviousthatthissimplydidnrsquotholdanymoreBlocksintheblockchainwerelimitedto1megabyteearlyonButtheblocks

arenowfullndashBitcoinhasreachedcapacityThismeansatransactionmayfailorbedelayedforhoursordays(ifitisnrsquotjustdropped)unlesstheusercorrectlyguessesalargeenoughfeetogettheirtransactionintotheblockTheBitcoincommunityisunabletoagreeonhowtofixthisThefeesanddelaysmeanthatNakamotorsquos2009dreamofBitcoinasa

channelformicropaymentsbecomesimpossible(evenasthatdreamcontradictsthe2008whitepaper)

Nochargebacks

Transactionsare irreversibleandnohumancan intervene to fixmistakesYoumight think this is obviously bad but the white paper claims this as anadvantageoftheBitcoinsystemBitcoinadvocatesferventlybelievethattheonethingmerchantsfearmostiscreditcardchargebacksandthatldquonochargebacksrdquoisthebesthookBitcoincouldhave

BitcoinWikirsquosldquoMythsrdquopagesaysldquoAllowingchargebacksimpliesthatitispossibleforanotherentitytotakeyourmoneyfromyouYoucanhaveeithertotalownershiprightsofyourmoneyorfraudprotectionbutnotbothrdquoInpracticeconsumersbusinessesandbanksoverwhelminglyexpecterrorsor

theftstobereversibleThereisnegligibledemandforasystemwherehumaninterventiontoreverseanerrorisimpossibleEvenmerchantsasmuchastheydislikechargebacksturnouttopreferconsumerconfidenceandpaymentmethodspeoplewillactuallyuseWhenminingrigmanufacturerButterflyLabsfailedtodeliverrigsontime

creditcardandPayPalpurchaserscoulddo(anddid)chargebacksthosewhoboughtusingbitcoinswereoutofluck(ButterflyLabsalsoboughtsatiricalsitebuttcoinorgtoreplaceadetailed

takedownofoneoftheirterribleminingofferingswithanadvertisingpage29themainproductofthiseffortwastheFederalTradeCommissionsayingldquobuttcoinrdquo30)

Beyourownbank

ldquoSecuredbymathrdquomeansthecryptographyisstrongndashbutitsaysnothingabouteverythingelseyouneedtousebitcoinssafelyinpracticeldquoBeyourownbankrdquomeansyoutakeonthejobofprovidingallthesecurityandtechnicalknowledgethataregulatedprofessionalinstitutionnormallywouldTheBitcoinWikioffersapagewithstep-by-stepinstructionsonhowtosecure

yourpersonalBitcoinwallet thatwoulddismayevena typical ITprofessionallet alone a casual computer user31 You will need a security specialistrsquosunderstanding of the possiblemodes of attack on amodern operating systemhowtoencryptalldatasecurelyandyetaccessiblypasswordstrengthbackupprocedureshowtosecurelyeraseadiskthequirksofwhateverBitcoinwalletsoftwareyoursquoreusinghellipThisiswhythevastmajorityofusersstoretheirbitcoinsonanexchangelike

itrsquos an unregulated and uninsured savings bank even though the exchangesrsquosecurityandreliability record isdismal (Keepingyourmoney inasockundersomeoneelsersquosbed)

BetterthanVisaPayPalorWesternUnion

There is noway on earth thatBitcoin could possibly scale to being a generalutilityAt1megabyteperblock theblockchaincanonlydoamaximumof7transactionspersecondworldwidetotalTypicalthroughputinearly2017was2to4TPSComparewiththesystemsBitcoinclaimsitcanreplacePayPalwhichran

about115TPSbylate201432Visawhose2015capacitywas56000TPS33evenWesternUnionaloneaveraged29TPSin201334

Variousoff-chainworkaroundshavebeenproposed(sidechainsLightningNetwork)advocatestalkabouttheseasiftheyalreadyexistratherthanbeingstuckindevelopmenthellAdvocatessometimesexcusetheelectricitywastedonminingbyclaimingthat

itrsquosnothingcomparedtotheenergyusedbytheconventionalbankingsystemthisissimplyfalsewithBitcoinminingtakingthousandsoftimestheenergypertransaction35

Remittances

BitcoinisputforwardastheobviousreplacementforWesternUnionforpeopleworking in richcountries to sendmoneyback to their families inpooronesndashevenforthepresent-daycasewhereyouneedtoconverttoandfrombitcoinsateachendThebitwhereyoutransmitmoneybetweencountriesisnotexpensiveatallndash

youpayWesternUniontomaintainservicescashonhandandsoonfortheldquolastmilerdquoofthejourneyWithBitcointheconversionfeesateachendusuallyadduptomorethanthebankingnetworkwouldchargetheten-minutetransmissiontime(if itrsquos thatfast) turnsoutnot tomakeupfor thedelaysinpurchasingthecoins for the sender or selling them for the receiver the price volatility isextremeenoughtoaffecttheamounttransmittedTheremittancecasecouldonlyworkifBitcoinwerealreadyagenerallyacceptedinternationalcurrencyRebitph is making a serious attempt at Bitcoin-based remittances to the

PhilippinesbuthasfounderedonthevolatilityofBitcoinpricesanddifficultiesinexchangingthebitcoinsforpesosatthefarendTheyeventuallyhadtosetupaBitcoinexchangejusttohavesufficientconventionalcurrencyonhand36

Banktheunbanked

There are over two billion people in theworldwho have no bank account oraccess to even basic financial services ldquobanking the unbankedrdquo is muchdiscussedininternationaldevelopmentcirclesAround2013BitcoinadvocatesstartedclaimingthatBitcoincouldhelpwiththisproblemUnfortunately

Theactualproblems that leavepeopleunbankedare thebankbeingtoo farawayorbureaucraticbarriers tosettingupanaccountwhenyougetthereUnless theyuseanexchange (whichwould functionallybeabank)theyrsquodneedanexpensivecomputerandareliableInternetconnectiontoholdandupdate120gigabytesofblockchainBitcoiniswaytoovolatiletobeareliablestoreofvalueHowdotheyconvertitintolocalmoneytheycanspend7 transactions per second worldwide total means Bitcoin couldnrsquotcopewithjustthebankedletalonetheunbankedaswellA centralised service similar to M-Pesa (a very popular Kenyanmoney transfer and finance service formobilephones)mightworkbutM-PesaexistsworksandistrustedbyitsusersndashandgoesalongwaytowardsolvingtheproblemswithaccesstobankingthatBitcoinclaimsto

AdvocateswillneverthelesssayldquobutwhatabouttheunbankedrdquoasifBitcoinis an obvious slam-dunk answer to the problem and nothing else needs to besaidButnoviablemechanismtoachievethishaseverbeenputforward

Economicequality

BitcoinofferedldquoequalityrdquointhatanyonecouldmineitButinpracticeBitcoinwas substantiallyminedearlyonndashearly adoptershavemostof thecoinsThedesignwassuchthatearlyuserswouldgetvastlybetterrewardsthanlaterusersforthesameeffortCashingintheseearlycoinsinvolvespumpingupthepriceandthensellingto

lateradoptersparticularlyduringthebubblesThusBitcoinwasnotaPonziorpyramidschemebutapump-and-dumpAnyonewhoboughtinaftertheearliestdaysisfunctionallythesuckerintherelationshipldquoWhyshouldIspendmoneytomaketheseguysrichrdquoissuchacommon

objectionthattheBitcoinWikianswereditldquoEarlyadoptersarerewardedfortakingthehigherriskwiththeirtimeandmoneyrdquoItisentirelyunclearwhatthe

ldquoriskrdquoinvolvedwasorhowthiswouldconvinceanyonewhodidnrsquotalreadyagreeIneconomicstheGinicoefficientisthestandardmeasureofhowinequitable

asocietyisThisistrickytodetermineforBitcoinasitrsquosnotquitealdquosocietyrdquointheGinisenseonepersonmayhavemultipleaddressesandmanyaddresseshavebeenusedonlyonceorafewtimes(Thecommonly-citedfigureof088isbasedononesmallexchangein201137)HoweveraCitigroupanalysisfromearly2014notesldquo47individualsholdabout30percentanother900holdafurther20percentthenext10000about25andanothermillionabout20rdquoandthedistributionldquolooksmuchlikethedistributionofwealthinNorthKoreaandmakesChinarsquosandeventheUSrsquowealthdistributionlooklikethatofaworkersrsquoparadiserdquo38

DoritRonandAdiShamirfoundina2012studythatonly22ofthen-existingbitcoinswereincirculationatalltherewereatotalof75activeusersorbusinesseswithanykindofvolumeone(unidentified)userownedaquarterofallbitcoinsinexistenceandonelargeownerwastryingtohidetheirpilebymovingitaroundinthousandsofsmallertransactions39

(ShamirisoneofthemostrenownedcryptographersintheworldandtheldquoSrdquoinldquoRSAencryptionrdquoofcourseBitcoinersattemptedtodisparagehiscredentialsandabilities)TheusualexcuseistosaythatitrsquosstillearlydaysforBitcoinHoweverthere

arenoforcesthatwouldcorrecttheimbalance

ThesupplyislimitedThepricecanonlygoup

Bitcoin is an imitation of the gold standard the supply is strictly limitedAdvocatestoutthisasanadvantageasacurrencyHalFinneysaidin200940

Asanamusingthoughtexperiment imagine thatBitcoin issuccessfulandbecomes thedominantpaymentsysteminuse throughout theworldThenthetotalvalueof thecurrencyshouldbeequal tothetotalvalueofall thewealthintheworld

Bitcoin advocates then adopted this idle musing as something that wouldobviouslyhappenTheproblemisthatBitcoinisdeflationaryLetrsquosassumeforamomentthat

BitcoineconomictheoriesworkAseconomicvaluetradedinBitcoinsincreasesthelimitedsupplymeanstheeconomicvalueperbitcoingoesupwhichmeansthatthepriceofthingsinbitcoinsgoesdownThismeansthedollarvalueofone

bitcoinindeedgoesupHoweveritalsomeanstherersquosabsolutelynoincentivetospendyourbitcoinsiftheyrsquollalwaysbeworthmoretomorrowThismeanseconomicactivitygoesdownandiftherearealternativesndashothercryptocurrenciesorjustusingexistingpaymentsystemsndashBitcoinlosesusersandinterestInpracticethepriceofBitcoingoesupwhenthereisdemandforitasa

speculativecommoditydropswhendemanddropsandishugelyvolatilebecausetradingissothinButitrsquosimportanttonotethatthisideawouldnrsquotworkeveninhypotheticalBitcoineconomics

ButBitcoinsavedVenezuela

Periodically there will be a rash of news stories claiming that Bitcoin hasbecome popular in some country suffering economic problems such asVenezuela IndiaorArgentinandashbecause theword ldquoBitcoinrdquomakes a headlinecatchy even if therersquos nothing to the story This transmutes into claims thatBitcoin will definitely take over the world any day now Or advocates willrespondtoscepticismldquobutVenezuelardquoTheseclaimsalwaysfallapartoncloserexaminationVenezuelaisatypical

exampleallthecoveragetracesbacktoastoryinLibertarianmagazineReasonfiercelyadvocatingBitcoinasawaytoavertthespectresofsocialismandregulation41OneoftheirintervieweeshadbeenarrestedforstealingelectricitytominebitcoinswhichtheauthordescribesasaldquogovernmentcrackdownrdquoonldquofreedomrdquobecauseldquobitcoinminingisarguablythebestpossibleuseofelectricityinVenezuelardquoAstoryinTheGuardianinthewakeoftheReasonstoryappearstobewhere

therestofthepresspickeditupItspeaksofsomeVenezuelansrelyingonBitcoinforldquobasicnecessitiesrdquoandwasbasedoninterviewswithaBitcoinexchangeowneroneofhisemployeesandtwoofhiscustomers42TheauthorhadpreviouslywrittenofArgentinaandbitcoin43

Thesetwoquestionably-foundedstorieswereechoedandelaborateduponbytherestofthepressincludingndashamongmanyothersndashtheWashingtonPostclaimingthatBitcoinminingisldquobigbusinessrdquoinVenezuela44theNewYorkTimesthatBitcoinhasldquogainedprominencerdquobecauseofVenezuela45orBBCNewsrepeatingclaimsfromaBitcoinboosterismblog46ndashallofthisbeingfactoidsrepeatedinamediagameofldquotelephonerdquoTheVenezuelanvolumeonLocalBitcoins(asiteforarrangingperson-to-

personBitcointrades)atthetimewasontheorderof200-300BTCperweek47whichisnrsquotnothingbutisnegligibleinthecontextofawholecountryandhastrackedfairlycloselywithLocalBitcoinsusageinothercountries

WhentheeconomycollapsesBitcoinwillsaveyou

NoreallythereareBitcoinadvocateswhoseriouslylookforwardtoeconomiccollapseasanopportunityforBitcoinndashcontinuedavailabilityofhighpoweredcomputing machinery mining chip foundries fast Internet and electricitypresumablybeingabsolutelyassuredinthegrimmeathookMadMaxpetrolpunkfuture(AndwecanusecolloidalLitecoinforantibiotics48)Even lessercrisesget themallexcitedNickSzabowroteuphow to fix the

Greekfinancialcrisisof2015withBitcoin49SomeonerespondedtotheCyprusfinancialcrisisof2013(whichdidincludethemuch-fearedgovernmenthaircutofbankaccountdepositsovertheinsuredeuro100000)withahousemusicanthemaboutldquotheblockchainrdquo50

YoucanuseBitcointobuydrugsontheInternet

This one is completely true and accurate butBitcoin advocates donrsquot seem tolikementioningitforsomereason

Chapter4EarlyBitcointherisetothefirstbubble

Thetulipbulbera

Assetbubblesfollowastandardprogression1 StealthphaseThepriceofanassetisgoingup2 AwarenessphaseSomeinvestorsbecomeconfidententhusedbythe

rise3 Mania phase Popular buzz media coverage The public see these

first investors and buy because others are buyingwith the implicitassumption that therewill always beGreater Fools to sell it on toThis is what makes a bubble investing to sell to other investorsSomeonewillsaythattheoldrulesdonrsquotapplyanymore

4 BlowoffphaseTheoldrulesturnouttostillapplyThebubblerunsoutofGreaterFoolspricescollapse

The asset neednot be a commodityeg theBeanieBaby craze of the late1990sinwhichtheassetwasvariousinstancesofamanufacturedproductlinecontrolledbyasinglecompany(Thoughafterthatcrashatleastyouhadanicecuddlytoy)ThekeypointistheldquomaniaphaserdquoCharlesMackayrsquos superlativeMemoirs of Extraordinary Popular Delusions

and theMadnessofCrowds first published in1841 remains an excellent andaccessible introduction to economic bubbles and the thinking behind themstarting with the Tulip Mania of 1637 and the South Sea Bubble of 172051Bitcoinisacompletelystandardexample

ldquoStagesinabubblerdquobyJean-PaulRodrigue200852

BitcoinpricesJanuary2012toJanuary2015TotallynoresemblancetotheaboveDatacoindeskcom

The first bitcoin was mined in January 2009 but for the first year the

enthusiasts just exchanged them amongst themselves for fun The first knownconversion to conventional currency was by Martti Malmi ardent anarcho-capitalistandBitcoincorecoderldquoIsold5050BTCfor$502on2009-10-12rdquo53Thefirstexchangesitewasbitcoinmarketcomwhichopened6February2010Thefamousfirstcommercialtransaction(twopizzascost$30includingtipfor10000BTC54)wasafewmonthslateron22May201055

Fromtherethepricerosesteadilyto1cinJuly2010Bitcoinversion03wasmentionedon11JulybytechnewssiteSlashdotgainingitsomenoticeinthetechnology world and inspiring the founding of the Mt Gox exchange InNovember2010WikiLeaks released theUS diplomatic cables dump the sitewascutofffromVisaMastercardandPayPalshortlyafterat thebehestof theUS government but could still receive donations in Bitcoin The price of abitcoinhit$1byFebruary2011InApril2011anarcho-capitalistandbusinessmanRogerVerwhohadmade

his fortune with computer parts business Memory Dealers heard a segmentaboutBitcoinon the libertarianpodcastFreeTalkLiveVer promptlywent toMt Gox the Bitcoin exchange mentioned on the show and bought $25000worth of Bitcoins single-handedly pushing the price up from $189 to $330over the next few days He would spend the next few years buying andadvocatingBitcoinbrandinghimselfldquoBitcoinJesusrdquoTheearliestminorbubblegrewandpoppedinJune2011afteranarticleon

the Silk Road darknet market mentioning Bitcoin in Gawker 1 BTCmomentarilypeakedat$30beforedroppingto$15afterMtGoxwashackedinJune and slowly declining to $2 byDecember By a year later in December2012 ithadrisen to$13 (Withminorwobblessuchas theAugust2012crashwhenthePirateat40Ponzischemecollapsed)In thiseraBitcoinwas largelyevangelisedbyadvocatesfor itshypothetical

usecasesandpoliticalpossibilitiesTheactualusecasewasbuyingdrugsontheSilk Road the first notable darknet market which started in January 2011MiningathomecouldstillbeprofitableatthistimeThebubble reallygotgoing in early2013ByMarch thepricehadhit$50

andTheEconomistwarnedthatthiswasreallyobviouslyabubblenotinghowclosely the price trackedGoogle searches for ldquobitcoinrdquo56 It hit $266 in Aprilafter amonth of going up 5-10daily crashed to $130 inMay and $100 inJune and rose steadily through the rest of the year ndashwith occasional hiccupswhenMtGoxbynowthelargestBitcoinexchangehandling70ofallBitcointransactions had unexpected delays in allowing customers to cash out in USdollarsTheSilkRoadwasbustedinearlyOctoberandBitcoinplummetedfrom$145

to $110 But it rose again with increased interest from China with highlyefficientmining operations starting upwith custom-madeASICmining chipsand local exchanges gaining great popularity57 The price startedNovember at$350andpeakedat$1250ndashoratleastthatwasthespotpriceonMtGoxanduserswereonceagainreportingproblemswithdrawingdollars InDecember itstarted at $500 jumped to $1000 and fell back to $650ndash the standard bubblepeakhadpassedMt Gox stumbled along for a few months then finally collapsed taking

everyonersquosdepositswithititlatercameoutthattheyhadbeeninsolventsinceatleast2012Thepricedeclinedthroughtherestof2014bottomingoutjustbelow$200inearly2015AsacurrencyBitcoindidsomewhatworsein2014thantheRussianroubleandtheUkrainianhryvniaItisimportanttonotethatBitcoinadvocatesbelievedthelate2013peakwas

notabubblebutthenaturalupwardprogressionofthepriceasBitcoinincreaseditsshareoftheeconomyegRickFalkvingersquosMarch2013pieceldquoTheTargetValueforBitcoinIsNotSome$50or$100Itis$100000to$1000000rdquo58ThecollapsecameasacompleteshocktomanywhenMtGoxwentdownRedditrbitcoinpostedandpinnedsuicidehotlinenumbers

Theartofthesteal

AsafinancialinstrumentbornwithoutregulationBitcoinquicklyturnedintoaniterative exploration of precisely why each financial regulation exists AldquotrustlessrdquosystemattractsthesortofpeoplewhojustcanrsquotbetrustedMany crypto scams are quite complex some are simpler than you might

expectManyareeverydaydodgyinvestmentopportunitiesbutwithBitcoinItcanbedifficulttodistinguishmalicefromincompetenceThegeneralproblemisthat you donrsquot know who or where these people are and they routinely justdisappearwitheveryonersquosmoneyScamscommontothecryptocurrencyworldinclude59

Ponzischemes inwhichearly investorsarepaidusingmoney fromlateronesThesearesoattractivetocryptofansthatwhenEthereumtookblockchainsandaddedldquosmartcontractsrdquo(programsthatrunonthe blockchain) the first thing people did was write automaticldquohonestrdquoPonzisHigh-yield investment programmes a variety ofPonzi schemeYoumight think it obvious that no investment scheme could pay 6interest perweek sustainably particularlywhen it claims a ldquosecretrdquoinvestment strategy but what worked on Bernie Madoffrsquos victimsworksonBitcoinersCoin doublers send it a small amount of bitcoins and yoursquoll getdoubleback(Noreasonisgivenwhyanyonewouldjustdoubleyourmoney)SendalargeramountstraightafterandhellipyouwonrsquotYoursquodthinkpeoplewould catchon but years later thesekeeppoppingupandfindingsuckers(Therersquosanotherlayerofscamintheretheldquodoublerrdquoneversendsback coins But itrsquos publicised with a ldquowarningrdquo about the scamOthersthinkldquoholdonifIonlysendcoinsonceitrsquollneverseemeasarepeatuserrdquoTheysendinasmallamountofcoinswhichofcourseisnotdoubledItrsquosascamwhichreliesonthesuckerthinkingtheyrsquore

thescammer60AsimilarscamraninthegameRuneScape61)Miningsoftwareifyouarenrsquotdesigningyourownminingchipsandrunning them off super-cheap power you wonrsquot have been able tobreakevenminingBitcoinsincelate2013Butpeoplekeepclaimingyou can still mine on your PC The software frequently includesmalwareMininghardware there are real sellersofmininghardware (thoughyouareunlikelytocomeoutaheadofcosts)ThescamistorunitformonthsldquotestingrdquoitcustomerspayforhardwareyouusetheirmoneytobuilditandyouminewithitforthefewmonthsitrsquosviablebeforeyousendittothemButterflyLabswasthemostnotoriousculprit62butfarfromtheonlyone(Butterflyrsquosco-founderturnedouttohaveaconviction for mail fraud63 Bitcoin scammers are often serialscammers)Cloud mining you invest in remote mining hardware Many suchschemesappear indistinguishable fromPonzis there isgenerallynoevidencethemoney-printingmachineyoursquorerentingevenexistsScamwalletssitesofferinggreatertransactionanonymitybutwhichjusttakeeveryonersquosbitcoinsafterawhileBiased ldquo provably fairrdquo gambling ldquoProvably fairrdquo gambling sitesgenerate their random numbers in advance then send you acryptographic hashof the sequenceof numbers soyoudonrsquot knowthenumbersaheadof timebutyoucanverify thehashafterwards64Somesitesifyoudonrsquotgrabthehashthenuseabiasedsequenceofnumbersinstead65

Scam versions of normal services exchanges bitcoin mixersshoppingdealsitesandsoonYouhavenoideawhothesepeopleareandeverynowandthentheyrsquolljusttakeyourbitcoinsorlinkyoutophishingorotherscamsitespossiblyincludingthegiftofmalware

Fortunately Bitcointalkorg deals harshly with scammers it may add aldquoscammerrdquotagtosomeonersquosforumnameorlisttheirsiteintheldquoListofBitcoinScamSitesrdquothreadMany Bitcoin advocates consider the scammers worth it to be free of

government regulation Anarcho-capitalist Jeffrey Tucker wrote an amazingapologia ldquoATheoryOf The Scamrdquo66 in which he admits Bitcoin is suffusedwith fraud but posits that ldquoscam artists are the evil cousins of genuineentrepreneursrdquo and are actually a sign of health for an area ndash so since good

thingshadscamsthisscam-riddledthingmustthereforebegood(Withallthishorse poop therersquos gotta be a pony in here) No doubt subprime-mortgage-backed collateral debt obligations Business Consulting International andBernard LMadoff Investment Securities LLCwere just severely underpricedinvestmentopportunities

Pirateat40BitcoinSavingsampTrust

NowthatPirateat40closeddownhisoperatationsthankstoallthefudthatwasgoingonandgrowingontheforumIexpecteveryonethatspreadsthisfud accused and insulted Pirate and the people that supported him toapologizeNotonlydidPiratebroughtusagreatopportunityforinvestors(onceinalifetimeactually)hedidhelpstabiliseandgrowsteadilybitcoinpricevolumeexchangeandthuscontributedtothesuccessofbitcoinForthatPirateIwanttothankyouYoursquovedoneawonderfulworkandIhopeyoursquorestayaroundhere

ndashRaphaelNicollefounderoftheBitfinexexchangejustafterBitcoinSavingsampTrustcollapsed67

By 2012 as the Bitcoin subculture was heating up high-yield investmentprogrammesndashiePonzischemesndashhadbegunmanifestinginthebitcointalkorgldquoLendingrdquo section One user even literally called high-yield investmentprogrammesaldquoBitcoinKillerApprdquo68

ThemostfamousofthesewasBitcoinSavingsampTrustopenedinlate2011byTrendonShaversaka Bitcointalk forum user Pirateat40 (named after thesong ldquoA Pirate Looks at Fortyrdquo by Jimmy Buffett) It offered interest of 7weeklyndashorabout3300annuallyndashon investmentsover25000BTCHandsupanyonewhocanseeaproblemherehellipInvestmentwas strictly limited and accountsweremuch-coveted Pirateat40

wasaVIPDonor(50BTC)toBitcointalkhebuiltupastrongforumreputationandgototherhighly-ratedpeople to resellhis investmentprogrammeofferingldquoPiratePass-ThroughrdquobondsThosewhopointedoutthatthishadallthereallyobvious signs of being a Ponzi scheme had much lower forum reputationsespeciallyaftersayingthisPirateat40 claimed to be making his money from Bitcoin market arbitrage

including selling bitcoins in person or in large quantities Others were not

reassuredhehadsomanybitcoinsinhisschemethatothersworriedattheeffectonBitcoinitselfwhentheschemecollapsed69

On17August 2012 basic arithmetic reasserted itself Pirateat40 announcedtheclosureofBitcoinSavingsampTrustHesaidhehad500000BTC(about$56million) in the fund as of its closure and that he would be returning it toinvestors70Apartfromsomerefundstofriendsandlong-timeinvestorsthisofcoursedidnrsquothappenOn 17 September Pirateat40 announced on IRC that ldquothe earliest estimated

timethatcoinscanbeginmovingisFridayOct12thrdquo(notthatanycoinsactuallymovedon12October)HealsodeclaredthatldquoThoselookingtofileasuitagainstme or BTCST will not be eligible for repaymentrdquo and ldquoThreats are takenseriouslybymyselfandmyattorneyAfewofyouwill findouthowseriousImeanrdquo71

BurntinvestorstrackedhimdownTheyfoundhisnametheyfoundwherehelived they even found his business that had closed at the same time Theyinitiallyhadsometroubleconvincingtheauthoritiesnotonlythatthiswasreallymoney but that they had given it to some guy on an Internet forum calledldquoPiraterdquo on the strength of him saying ldquosure Irsquoll double your bitcoins noworriesrdquoThe SEC started investigations and depositions in late 2012 It turned out

Shavers didnrsquot have a lawyer after all and spilled the beans on his entireoperationindepositionincludingadmittingtodestroyingevidence(serverlogs)thathadspecificallybeensubpoenaed72Hedidfinallyfindalawyerwhosetupa Bitcoin donation address to fund the case since Shaversrsquo assets had beenfrozen73

TheSECfiledacivilenforcementactionagainstShavers inJuly201374AswellasrunningtheschemeasaPonzihehadtakenabout150000BTCtodaytradeonBitcoinicaandMtGoxfromwhichhetookabout$150000tospendpersonally His lawyerrsquos entire defense was that bitcoins were not ldquomoneyrdquounderUS lawbecause theywerenot legal tender the judgedidnrsquotbuy it andShaverswas required inSeptember 2014 to pay back $407million75HewasalsoprosecutedforcriminalsecuritiesfraudforthePonziinNovember201476pledguiltyinSeptember2015andwassentencedtooneandahalfyearsinjail77ThelawyerlatermaintainedthattheSEConlywentafterShaversbecausetheywere upset they hadnrsquot caught BernieMadoff in time and not at all becauseShaversstolemillionsofdollarsfrompeople78

The astounding thing is how successful such an obvious Ponzi had beenPirateat40 held about 7 of all bitcoins in circulation at the time Some

BitcoinersofferedinsuranceagainstBitcoinSavingsampTrustfailingthenputtheinsurancepremiumsintotheschemeorjustdidnrsquotpayupwhenitwentdownOthers offered investment schemes that were pass-throughs to Pirateat40rsquosschemewhileswearingupanddowntheywerenrsquot

Bitcoinexchangeskeepyourmoneyinasockundersomeoneelsersquosbed

ldquoBeyourownbankrdquoisactuallyveryhardndashparticularlywithldquonochargebacksrdquomeaningthatintheeventofatheftorevenamistakeyoursquorecompletelyoutofluck ndash so almost everyonewho uses cryptocurrencies keeps their coins on anexchange Exchanges also let you trade between different cryptocurrenciescryptoassetsandconventionalcurrenciesandsomeevenoffershort-sellingandothermargintradingwhichareenormouslypopularBitcoinexchangeswerestartedbyamateurenthusiastsMostwerecomputer

programmerswhoseapproachtoanythingoutsidetheirfieldwasldquoIknowPHPhowhardcouldrunninganexchangeberdquoAsDunningandKrugerpointedoutin199979thisapproachtendsnottoworkoutsowellInrealsecurities tradingyoucanpresumetheexchangesthemselvesarenot

going to mess you around and indeed that theyrsquore basically competent Youcanrsquot assume eitherwith crypto exchangesThe gateways to theworld of realmoney are stringently regulated ndash yoursquoll need to give amazing quantities ofgovernment ID to these people you know nothing about ndash but inside theexchangesitrsquostheWildWestHacks supposed hacks and exchanges just disappearing with all their

customersrsquomoneyremaindismallyregularoccurrencesAsofMarch2015afullthirdofallBitcoinexchangesupto thenhadbeenhackedandnearlyhalfhadclosed80SincetheexchangesarelargelyuninsuredunregulatedandnotrequiredtokeepreservesdepositorsrsquomoneygoesupinsmokeItrsquosnotjustscamminessonthepartoftheproprietorsbutsheerjawdropping

incompetenceBitomat then the third-largest exchange were keeping the wholesitersquoswalletfileonanAmazonWebServicesEC2serverinthecloudthatdidnrsquothaveseparatebackupsandwassettoldquoephemeralrdquoieitwould disappear if you restarted it Guess what happened in July2011Whoops81

Bitcoinicawasitssixteen-year-oldcreatorrsquosfirstseriousPHPprojectHereaduponPHPRubyonRailspersonalfinanceandstartupsandwroteanexchange82ItcollapsedinMay2012ldquoNodatabasebackupshellipEveryonehadrootrdquo83Theexchangersquos remaining fundswere lostinfurtherhacksafter theadministrators turnedout tobeusingtheir(leaked)MtGoxpasswordastheirLastPasspassword84

BitPayclaimedtobefullyinsuredItsufferedaldquophishingrdquoattackinDecember 2014 when an attacker broke into an outside partnerrsquoscomputer and sent an email posing as the CFO to the CEO andchairmantellingthemtosend5000BTCtotheattackerTheinsurerrefusedtocompensatethecompanypointingouttheyhadtakenoutapolicy that only covered BitPay computers and physical cash onBitPayrsquospremisesandbitcoinsdidnrsquotcountasphysicalcash85

AllCrypt ran their exchange off a MySQL database hellip and wererunningWordPress on the same database and theirWordPress gothackedsuchastoallowaccesstotheexchangedata86ThesamethinghappenedtoBitcoinlendingstartupLoanbase87

Cryptsy appeared to collapse from a ldquohackrdquo in January 2016 withmuch apology from the proprietor the court-appointed receiverrsquosreport details how the proprietor ran off with all the bitcoins andmovedtoChinatostartanewexchange88

KrakenpubliclyblamedwebcontentdistributionnetworkCloudflarefor its website problems89 Cloudflarersquos CEO went so far as topublicly tweet thatKrakenhadnrsquotpaid itsbill inmonths ldquoLetrsquosgetthefactsstraightCreditcardprovidedforpaymentexpiredAfter3warningsyouweredowngradedtoafreeaccountrdquo90

TobefairconventionalbankssayldquoYesMrSmithIrsquomsorrybutitseemswemisplaced all your money irretrievably Yes yours in particular Itrsquos goneForeverNoIrsquomsorrybutwearenrsquotliableHaveanicedayrdquoallthetimeNowait they donrsquot do anything of the sort Not since regulation insurance andcentralbankbackingwereputintoplace

TheriseandfallofMtGox

IrsquomRogerVer long timeBitcoinadvocateand investorToday Irsquomat theMtGoxworld headquarters in Tokyo Japan I had a nice chatwithMtGox CEO Mark Karpelegraves about their current situation He showed me

multiple bank statements as well as letters from banks and lawyers Irsquomsurethatall thecurrentwithdrawalproblemsatMtGoxarebeingcausedbythetraditionalbankingsystemnotbecauseofalackofliquidityatMtGoxThetraditionalbankingpartnersthatMtGoxneedstoworkwitharenotabletokeepupwiththedemandsofthegrowingBitcoineconomyThedozens of people that make up the Mt Gox team are hard at workestablishingadditionalbankingpartners thateventuallywillmakedealingwithMtGox easier for all their customers around theworld For now IhopethateveryonewillcontinueworkingonBitcoinprojectsthatwillhelpmaketheworldabetterplace

ndashRogerVerJuly2013duringthefirstrumblingsatMtGox91(Helaterapologised92)

Bitcoingotitsfirstbigpublicitypushwiththeannouncementofversion03ontechnologynewssiteSlashdoton11July2010939495

At this time Jed McCaleb was a programmer at a loose end He hadpreviouslydeveloped eDonkey an early file sharing networkwhichwas shutdown in late 2005 after being sued by the Recording Industry Association ofAmericaHethenwentontodevelopagameTheFarWildsleavingthattoitscommunityin2009McCaleb saw the Slashdot post tried and failed to buy some bitcoins and

thoughtanexchangewouldbeagoodidea(EarlyBitcoincoredeveloperMarttiMalmihadanexchangesitebutitwasnrsquotveryusable96)HehadruntheldquoMagicTheGatheringOnlineExchangerdquoa tradingsite foranonlinecardgame forafew months in 2007 using the domain name mtgoxcom97 he quickly wrotesomeexchangesoftwareinPHPandreusedthenamebecausehisgirlfriendlikeditMcCalebannouncedthesiteon17Julyanditwasanimmediatehitbecause

people could buy and sell bitcoins via PayPal ndash using his personal accountFurthermoreuserscouldkeepbothdollarsandbitcoinsthereontheexchangetotrademorequicklyBy late2010McCalebwasdoingwell fromMtGoxeven though itwasa

completely amateur operation ndash he didnrsquot even talk to a lawyer about theregulatory implications of his business until December 2010 though it wastaking and holding peoplersquos actual money uninsured unregistered andunregulatedButhewasfindingitenoughworktobeannoyinghewastiringofattemptedhackerattacksPayPalkeptcuttinghimoffandheworriedaboutthe

amountsofmoneyhewaspersonallymovingaroundHe befriended Mark Karpelegraves a French web developer Karpelegraves was a

massive fan of Japanese animation ndash his online handle MagicalTux was areferencetotheanimeSailorMoonndashsohadmovedtoJapanin2009(HealsoleftFrancebeforea2010fraudtrialinwhichhewassentencedinabsentiatoayearrsquosjail98)McCalebfirstofferedtosellMtGoxtoKarpelegravesinJanuary2011andfinalisedthesaleinFebruaryannouncingittotheworldinMarchThe deal used a contract they worked out between them without either of

themusingalawyerItincludedtermssuchas99

theSellerisuncertainifmtgoxcomiscompliantornotwithanyapplicableUScodeorstatuteorlawofanycountryThebuyeragreestoindemnifySelleragainstanylegalactionthatistaken

against Buyer or Seller with regards to mtgoxcom or anything acquiredunderthisagreement

It was only in April after the handover that Karpelegraves realised that 80000bitcoins (then worth $62400) had already been missing when he boughtMtGoxMcCaleb told him ldquomaybe you donrsquot really need toworry about itrdquo andsuggested he buy up more BTC to cover the shortfall shuffle his internalaccountsaroundgetaninvestororjustminemorehimselfndashbutdidnrsquotofferanyexplanationofwherethecoinsmighthavegottoorhowKarpelegravestriedtofilltheholehimselfbutthepriceofbitcoinskeptgoingup

ByJunethemissingcoinswereworth$800000UnfortunatelyanondisclosureagreementwithMcCalebmeanthefelthecouldnrsquottellanyoneaboutthemassiveholeintheaccounts(HedidnrsquotevenrevealittoMtGoxrsquosownaccountantuntilshortlybeforethecompanywentbankruptinFebruary2014)On18and19June2011someonehackedintoMtGoxTheattackershuffled

hundredsofthousandsofbitcoinsaroundndashonlyinsidetheexchangenotonthepublicblockchainthoughMtGoxwasthemaintradingvenuetosuchadegreethatthismomentarilydrovethepriceofoneBTCfrom$17downto1cent(TheusualsurmiseisthatthehackerwantedtogetasmanycoinsaspossibleoutpastMtGoxrsquos$1000daywithdrawallimit)Thepriceoscillatedbetween$1and$20fortherestofthedaythisseverevolatilityaffectedotherexchangesAround1915UTCon17Junesomeonepostedacompletelistof61016Mt

Gox usernames email addresses and password hashes to the Bitcoin forumsManyofthepasswordswereldquounsaltedrdquo100andsocouldbemoreeasilycrackedThe attacker appeared to have come in through McCalebrsquos administrativeaccountwhichwasstillactive

Karpelegraveswentintoapanic takingmuchoftheexchangersquosBitcoinstoreandputting it intoofflinecoldwalletsndashkeysprintedonpaperandstored insafetydepositboxesaroundTokyondashwhere it couldnrsquotbehackedSince thehackerrsquostrading was internal to Mt Gox Karpelegraves was able to roll back most of thetransactions eventual losses were a few thousand BTC which the companycouldcoverRogerVerwhowasalsolivinginJapanbythencameovertohelpMtGox

(stillaone-manoperationatthisstage)indealingwiththehackandgottoknowKarpelegraves ndash Ver realised that Mt Gox was critical at this time to BitcoinrsquoscontinuedgrowthIn the aftermath of the hack Karpelegravesrsquo paranoia overcame accounting

considerationsHe kept putting off reconciling the coldwalletswith customeraccounts even as his accountant begged him to as taking them out of coldstorage would risk them being hackable Thus Mt Gox was increasinglyrunningonvirtualpapermoneythatitwasnrsquotkeepingtrackofMtGoxcontinuedin thismanner through2012and2013Karpelegraves tookon

staff but remained chronically unable to manage or delegate to them Versometimes had to visit the Mt Gox offices to make sure his own importanttransactions went through The company was still by far the largest BitcoinexchangerunningontheincreasingpopularityoftheSilkRoadasitstruggledtokeepupwithdemandndash75000newusersjoinedinthefirsttendaysofApril2013On 14 May 2013 the US government seized $29 million from Mt Gox

shuttingdownthemainaccount itusedtopayUScustomersonthebasis thatMtGoxwastransmittingmoneywhilehavingclaimednot tobeinthemoneytransmission business In June the US seized another $21 million Mt GoxtemporarilysuspendedUSdollartransfersInJulyRogerVerrecordedhisvideoassurance that all Mt Goxrsquos problems were with the ldquotraditional bankingsystemrdquoTheexchangepartneredwithCoinLab to serve itsUScustomersbutthisarrangementbrokedownsoonafterMtGoxandCoinLabsuingeachotherBy late 2013 customerswere complaining of long delays inwithdrawingUSdollarsjustastheBitcoinbubblewasreachingitspeakOn7February2014MtGoxshutdownallwithdrawalsofbitcoinsaswell

as dollars According to a leaked ldquoCrisis Strategy Documentrdquo Mt Gox wasinsolvent after losing track of 744408 bitcoins ndash about $350 million at thetime101KarpelegraveshadalsobeentoppinguptheactiveonlinehotwalletwithcoinsmovedfromthepapercoldwalletsandhadnotproperlykepttrackThe bitcoin leak was attributed by Karpelegraves to what became known as the

transaction malleability bug Bitcoin transaction IDs are not fixed ndash you cansometimes intercept an unprocessed transaction modify the transaction ID(though not the amounts or the sender or receiver addresses) and send it onmeaningitrsquosaddedtotheblockchainwithadifferenttransactionIDtotheoneitwassentwithThiscanleadtosomeonethinkingatransactiontheyknewtheysentdidnrsquotgo throughwhenitdidandsendingtheamountagain102Once thiscameoutotherexchangeswerealsoattacked in thismannerThisnewsalonecrashed the bitcoin price from $700 to $600103 (Researchers later ascertainedfromexaminingtheblockchainthattherewasnowayallofMtGoxrsquosclaimed750000BTClosscouldhavebeenduetotransactionmalleabilityattacks104)Mt Gox had leaked bitcoins before this In October 2011 2609 BTC had

been lost toaprogrammingerror that sentbitcoins toanonexistentaddress105The exchange had been technically insolvent since about 2012 knowingly orunknowingly106 It remainsentirelyunclearhowmuch in totalwashackedandhowmuchwasjustlostOn 24 February Mt Gox finally closed down $400 million in customer

dollarsandbitcoinshadgoneupinsmokeKarpelegravesisstilldealingwiththeJapaneseauthoritiesincludingbeingarrested

forembezzlementinAugust2015andheldincustodyforseveralmonthswithhis trial starting in July 2017 (though he maintains his innocence) McCalebwentontodevelopthecryptocurrenciesRippleandStellarhisLinkedInpage107detailshiscareerbacktoeDonkeybutchoosestoomitMtGox

DrugsandtheDarknetTheSilkRoad

BothAnneFrank andRossUlbricht created darkmarkets to help peoplehidefromviolentoppressorswhoweretryingtohurtpeacefulpeople

ndashRogerVer108

Anonymous or pseudonymous cryptocurrency has one obvious applicationpayingforthingsyoursquodrathernotbecaughtbuyingorsellingDruguserstaketonew communication channels as soon as theyrsquore invented the first known e-commercewas the saleofmarijuanabetweenStanford andMITstudentsoveremailin1971or1972109NakamotonotedinSeptember2010110

Bitcoin would be convenient for people who donrsquot have a credit card ordonrsquotwanttousethecardstheyhaveeitherdonrsquotwantthespousetoseeit

on thebill or donrsquot trust giving their number to ldquopornguysrdquo or afraidofrecurringbilling

RossUlbrichtgrewupinAustinTexasborntoawell-offfamilyHewasanEagleScoutfriendsandacquaintanceswerewidelyimpressedbywhatapolitehelpfulyoungmanhewasHestudiedphysicsandmaterialsscienceatcollegeAt Penn State he took up with the College Libertarians group and was anactivistinsupportofRonPaulrsquos2008presidentialbidHe left Penn State in 2010 and posted on his LinkedIn page that he was

movingfromphysicstoldquouseeconomictheoryasameanstoabolishtheuseofcoercion and aggression amongst mankind hellip I am creating an economicsimulationtogivepeopleafirst-handexperienceofwhatitwouldbeliketoliveinaworldwithoutthesystemicuseofforcerdquoTor is aprotocol andnetworkcreated in2002 to letyoubrowse theweb in

privacyheavilysponsoredbytheUSgovernmentbothfortheirownuseandtoaid dissidents in oppressive countries111 112 (And of course itrsquos popular withannoyingInternettrolls)YoucanalsosetupserversonlyavailablethroughtheTornetworkwhosereallocationcanrsquotbetraced113Ulbrichtrealisedin2010thatTorplusBitcoinmeantyoucouldbuildasecretmarketplacetodealinanythinglicitorillicitHeadoptedthenameldquoDreadPirateRobertsrdquo(fromthebookandmovieThePrincessBride)andlaunchedtheSilkRoadinJanuary2011The Silk Road was avowedly ideological Ulbricht was a huge fan of von

Mises Rothbard Austrian economics and anarcho-capitalism even hosting alibertarianbookclubontheSilkRoadforumsHeconsistentlyputforwardtheSilkRoadasbeingnotjustamarketbutanexperimenttoreshapetheworldThe sitewas a sort of eBay for illicit goodsThe first salewas psychedelic

mushroomsUlbrichthadgrownhimselfthoughhequicklymovedtojusttakingapercentageonothersrsquotransactionsAswellasalmostanydrugyoucouldbuysteroids forged government identification (but not private companyidentification) medical and lab supplies (build your drug lab without beingflagged) hacking tutorials or drug synthesis tutorials Sellers werepseudonymous but relied on building up good ratings from customers Eveninvestigating FBI and DHS agents found it was surprisingly reliable in bothdeliveryandquality114

One thing you couldnrsquot buy was child pornography ndash even crooks havestandards andUlbricht forbadechildpornographyasnotbeingvictimlessNoweaponsofmassdestructionnostolencreditcardnumbersTheSilkRoadwaspublicisedinMarch2011onlibertarianpodcastFreeTalk

Live(theepisodethatgotRogerVerintoBitcoin)ByMaythesiteastheoneplaceyoucouldactuallyuseBitcoinhaddriventhepriceof1BTCto$10whenthesitewentdowninmid-MayforupgradingthepriceofabitcoindroppedThesitegotamassiveboostinJunefromanarticleinGawkerdescribingitas

ananonymousandconvenientdrugmarketplaceprovidingalinktothesiteanddirectingpeopletoMtGoxiftheywantedtobuybitcoinstospendthere115JeffGarzik a Bitcoin core developer explained to Gawker that Bitcoin wasnrsquotldquoanonymousrdquo but pseudonymous at best given the blockchain had everytransaction ever conducted ldquoAttemptingmajor illicit transactionswithbitcoingiven existing statistical analysis techniques deployed in the field by lawenforcementisprettydamneddumbrdquoUlbricht emphasised the sitersquos ideologicalmission toGawker ldquoThe state is

theprimarysourceofviolenceoppressiontheftandallformsofcoercionStopfundingthestatewithyourtaxdollarsanddirectyourproductiveenergiesintotheblackmarketrdquoByNovember2011Ulbrichtwasmaking$30000amonthintransactionfees

Byearly2012itwasstilltheonlyfunctioningmarketplaceusingbitcoinsandforsometimeitremainedtheprimarydriveroftheBitcoineconomyUlbrichthadbigplansfortheSilkRoadasaldquobrandpeoplecancometotrust

andrelyonhellipSilkRoadchatSilkRoadexchangeSilkRoadcreditunionSilkRoadmarketSilkRoadeverythingrdquoAround the end of 2012 Ulbricht contracted the murder of a Silk Road

administratorwho had been arrested andwho he believed had stolen bitcoinsfrom him fearing he would talk to the police and endanger the Silk RoadprojectWhenhe receivedphotosof themurderedmanhewiredpayment forthe hit He would order fivemore hits over the next fewmonths the last ofwhichincludedkillingthetargetrsquosthreeroommatesaswell(Inrealitymostwerefakedbylawenforcementagentswhowereouttocatch

ldquoRobertsrdquoandonebyascammerwhosuccessfullybilkedUlbrichtof$500000HisnegotiationsandpaymentstoprocuremurdercameupinhiseventualtrialandarethesubjectofaseparateGrandJuryindictmentinMaryland)Ulbrichthadbeendoingall hisSilkRoadwork fromhismaindaily laptop

OneafternooninSeptember2013hewassittinginalibraryusingtheirwi-fitoadminister the site and talking to a friend in the sitersquos online chat Twoapparently-homeless people started arguing loudly behind him he turned tolookandtheslightyoungwomanusingthedeskoppositesnatchedhis laptopShewasagovernmentagentSowerethehomelesspeopleSowasthefriendhe

waschattingtoThe laptop contained the near-complete collection of smokinggun evidence

on theSilkRoadgift-wrappedwith a littlebowon top It included the list ofSilkRoadserversandthenamesUlbrichthadusedtorentthemtheSilkRoadaccountingspreadsheets(includingthepurchaseofthelaptop)on-sitechatlogsthePHPcodeforthesiteitselfphotoIDforotherSilkRoadadministratorsalltheencryptionkeysforthesite144000bitcoinshellipandlogtxtUlbrichtrsquosdailydiaryofhisSilkRoadactivitiesbuildingthesitedealingwithbusinessissuesorderinghitsonpeople116

ldquoI imagine that someday I may have a story written about my life and itwouldbegoodtohaveadetailedaccountofitrdquohewroteinJanuary2012TheDEAhadstartedinvestigatingtheSilkRoadinlate2011Theyhadfirst

started looking into Ulbricht himself in July 2013 when they intercepted apackageoffakepassportsanddriverrsquoslicenseshehadorderedonhisownsiteHehad askedquestionson aprogramming forumabout usingTorviaPHPasuserldquoAltoidrdquoahandlehehadusedtopromotetheSilkRoadwhenhehadjustlaunched it and had included his GMail address which the FBI obtained asearchwarrantonTheSilkRoadserverhadbeen tracedwhen its realaddressleakedtheyhadfoundthenameldquoFrostyrdquofortheapparentsystemadministratoranaliasUlbrichthadusedwithforumaccountslinkedtohisGMailaccountandinmanyotherplacesMultipleFBI agentshadbefriendedhimon the site andevenbecomeadministratorsEveryonehadassumedthatldquoDreadPirateRobertsrdquohadthemostpainstaking

operationalsecurityimaginableItturnedoutUlbrichtwasprotectedbynothingmore thanan impenetrable shieldofnarcissismandanapparentbelief thathewastoosmartandvirtuoustobecaughtAt trial on charges of money laundering computer hacking conspiracy to

traffic fraudulent identity documents and conspiracy to traffic narcoticsUlbrichtrsquos defense amounted to digital identity being ambiguous withunsubstantiatedclaimsthatsomeoneelsehadsethimupUnfortunatelyforUlbrichttheprosecutionhadapowerfulweapononitsside

overwhelmingevidenceNot just fromthe laptopbutalso fromtheSilkRoadserverseizedfromitshostingcompanyinIcelandTheyalsohadevidencefromtheBitcoinblockchainndashwhichofcoursecontainedatamper-proofedrecordofevery transaction ever conducted on it and which addresses were involved117WhichiswhyBitcoinisotherwiseknownasldquoprosecutionfuturesrdquo118

ThedefencethrewvariousHailMarypassesndashwhenyourclientrsquosbeenlive-

logginghiscriminalactivitiesinreal time therersquosa limit towhatsweetreasonandeventhemostsilvertonguecanachieveTheyadmittedUlbrichthadstartedtheSilkRoadndash then theyclaimedhe thensold it tosomeoneelsewhodupedhimintobuyingitbackjustastheFBIwasclosingin theyclaimedthatMarkKarpelegraveswastherealldquoDreadPirateRobertsrdquo(theDEAhadlookedintoKarpelegravesin2012butdecideditwasnrsquothim) theyattempted tocallsurprise last-secondexpertwitnesses (this being slappeddown innouncertain termsby the judgewho told them to stop playing silly buggers119) they claimed that all the chatlogsspreadsheetsandthedailydiarycouldhavesomehowbeenplantedonthelaptop via BitTorrent they claimed there was no way the real ldquoDread PirateRobertsrdquowouldbesostupidastohavekeptadiaryofcrimesonthelaptophedailyranthesitefromThechargesofprocuringmurderwerelineduptobedealtwithinMaryland

HoweverthenegotiationsandpaymentsforthehitswerebroughtintotheNewYorktrialasevidencefor theconspiracychargesandmentionedinsentencingconcerningUlbrichtrsquoscharacterhisfreedom-lovinganarcho-capitalistidealsandadherence to the non-aggression principle apparently being completelycompatible with murdering all the roommates of someone whorsquod trespasseduponhisbitcoinsInfairnesssomeofthecaseagainstUlbrichtwasnotflawlesslykosherThe

FBImaynothave touchedall legalbaseswhen tracing theSilkRoadserver120(though the defence failed to challenge the evidence despite the judgesuggestingittothemrepeatedly)andtwooftheagentsonthecaseCarlMarkForce IV and Shaun Bridges turned out to have been stealing bitcoins fromUlbricht and theSilkRoadandwere later jailed (They toowere substantiallybustedbyevidencestraightfromtheblockchain)Despitethistheevidencewassufficiently convincing that the jury took four hours including lunch to findUlbricht guilty on all seven counts He was sentenced to life imprisonmentwithoutparoleUlbrichtrsquosfansandfamilyremainunshakablyconvincedofhisinnocenceand

virtuous character he didnrsquot do it you canrsquot provehe did itwhat he didwasharmreductioninthewarondrugshewasjailedjustforrunningawebsitelikeanyone could themurders didnrsquotactually happen so paying tomurder peopleandalltheirroommatesisnrsquotacrimeandshouldnrsquothavebeenmentionedintheother trial he hasnrsquot beenconvicted of procuringmurder so it probably neverhappenedandhersquosreallyagoodguyhewasentrappedintopayinghundredsofthousandsofdollarstomurdersomeoneandalltheirroommatesthegovernmentignorestheConstitutionalsofreedomDarknetpostershadthreatenedthejudge

Katherine B Forrest and posted private personal information about her inOctober2014121and8chanbaphometpostedprivateinformationaboutheragainbetween theverdictand the sentencing122HismotherLynUlbrichtmaintainsFreeRossorg123

TheyusedmostlydigitalevidenceinthistrialWhetherornotyoubelievetheir evidencehellip it significantly lowers the standardof evidenceat trialsDigital material can be created out of nothing It doesnrsquot take muchimaginationtoseehowthisisathreattousall

IfonlytheprosecutorshadhadtohandsomesortofcryptographicallyrobustledgerofalltransactionswidelydistributedwiththousandsofverifiablecopiesavailableUlbrichtrsquos January 2016 appeal was primarily on the basis that the

investigationincludedcorruptlawenforcementagentsthereforealltheevidenceshouldbethrownoutastaintedThisisnotaninherentlyunreasonablebasisforanappealbutwelllogtxt124TheappealwasrejectedinMay2017theappealjudgesupholdinginparticularthelifesentencewithoutparoleonthebasisthatldquoUlbrichtwaspreparedlikeotherdrugkingpinstoprotecthisprofitsbypayinglarge sums of money to have individuals who threatened his enterprisemurderedrdquo125

Silk Road imitators sprang up soon after it started andmanymore after itwent down Atlantis ran fromMarch to September 2013 Project Black Flagclosed when the Silk Road was busted stealing all its usersrsquo bitcoins SheepMarketplace ran from March to December 2013 closing when a vendorapparentlystole$100millioninusersrsquobitcoinsthoughitmayhavebeenanexitscam126SilkRoad20startedinNovember2013lostbitcoinstothetransactionmalleabilitybugwascrippledbyarrestsandtheoperatorwasfinallyarrestedinNovember 2014One undercover federal agent fromThe SilkRoad had beeninvited to the administrator group of Silk Road 20 on its very first day ofoperation127

Chapter5HowBitcoinminingcentralised

Thefiretrapera

Bitcoinpromisedthatanyonecouldminebitcoinsthemselvesndashyoucouldmakemagical Internet money out of nothing (but electricity and hardware) Theminingdifficultyisadjustedautomaticallyevery14daystokeeptheblockrateataboutoneeverytenminutesandintheearlydaysthedifficultywasverylowindeedMiningworksbycalculatingonespecificfunctionoverandoverasabsolutely

fast as possible As far back as 2009 people had realised that graphics cardswouldbemuchmoreefficient128ndashagraphicsprocessingunit(GPU)isdesignedtorunsimplecalculationsveryfasttocomputevideogamepixelsandthesamesort of processingwas able to computeBitcoin hashes eight hundred times asfast as a generalCPUBy 2010 this had become the normalminingmethodThesewereconsumergraphicscards sominingwas still accessible toanyonewithafewhundreddollarsanditwasquitefeasibletocomeoutaheadwhilethepricewasontheupwardslopeof thefirstbubble(Particularlyifyoustoletheelectricityapopularstrategy)

ThesortofthinghomeBitcoinminersproudlyphotographedtoshoweveryonebackinthedaySourceKillhamsterButtcoinFoundationoriginalsourceunknown

There are many hilarious and horrifying stories from these days The nowdefunctBitcoinMiningAccidentsblogfeaturedhomeminersrsquoproudphotosoftheir hideously bodged firetrapmining rigs129 This famous talewas posted inJune2011

IrsquomdonewithBitcoinItwaseasymoneybutitwasnrsquotworththe(literal)heatgthad4machineswithmultipleoverclocked5850sinmybedroomgtfanspeedsat100gtroomwaswarmbuttolerablegtweathersuddenlygetshotteronedaygtgetsevereheatstrokewhileIrsquomsleepinggtgettakentotheERgetcoveredinbagsoficeanddrinktonsofgatoradeandwatergtfinallycooldownafterwhatseemedlikeforevergtfindoutIhaveminorpermanentbraindamagenowbecausemybrainwashotandswelledalotIwishIwasjoking130

FurtherefficiencywaspossibleInlate2012ButterflyLabsreleasedmining

hardwareusingafield-programmablegatearray(FPGA)asiliconchipthatyoucan program the circuit of This was five times as efficient (in hashes perkilowatt-hour)asthegraphicscardsofthetimeThiswasthestartofindustrialBitcoinminingandthedeclineofend-userminingBitcoin mining was fully industrialised in 2013 with application-specific

integrated circuits (ASICs) These were pretty much the FPGAs butmanufacturedascustomsiliconchipsandweremuchmoreefficientagainThelargestbitcoinminersnowsponsorthedevelopmentofnewASICsfortheirownusendashsince2013youcanrsquotcompetewithoutdesigningyourownminingchipsYoucanbuyASICminingrigsndashinMay2017theBitmainAntMinerS9was

$1161 for 135 terahashsec at 1323 watts131 ndash but they will rapidly becomeobsoleteandyouareunlikely tobeable to turnaprofitunlessyouhaveverycheaporfreeelectricity(Iknowonepersonwhominedathomethroughto2014keepingacloseeye

onelectricityandhardwarecostsandstoppedwhenhomeminingwasnolongerviableevenwithASICsHecameoutafewhundreddollarsaheadandhadfunwithitwhiletherewasfuntobehadThisisnottheusualstoryhowever)From2014onward theminingnetworkwasbasedalmostentirely inChina

runningASICsonverycheapsubsidisedlocalelectricity(Therehaslongbeenspeculation thatmuchof this is toevadecurrencycontrolsndashbuyelectricity inyuan sell bitcoins for dollars132) On 30 June 2017 the total Bitcoin networkhashratewas55exahashespersecondndashthatrsquos55times1018orthreemilliontimesthehashrateintheGPUeraasofearly2011EverythingaboutminingismoreefficientinbulkBytheendof201675of

the Bitcoin hashrate was being generated in one building using 140megawatts133 ndash or over half the estimated power used byall ofGooglersquos datacentresworldwideatthetime134

There have been occasional calls to re-democratisemining by changing thehash function some other cryptocurrencies deliberately chose hash functionsthatwouldnrsquot be efficient on agraphics cardor anASICBut it is always thecase that any function particularly a simple one like a hash will be moreefficient on hardware specialised to just that function than on more general-purposehardwareAndweknowhowtoprogramahashfunctionintoanFPGAforminingandthenbaseanASIConitIftheBitcoinhashweretochangenewASICswouldfollowwithonlymanufacturingleadtime

Abusingyourhashpowerforfunandprofit

Bitcoin relies on distributed consensus the blockchain is what a majority ofminingcapacitysaysitisTheconsensusmodelreliesonthefactthatyoucanrsquotoutdoalltheotherminerscasuallyndashsoitrsquosnotldquosecuredbymathrdquobutsecuredbyeconomicsbalancedbetweenmultipleplayersUnfortunately every force in the Bitcoin ecosystem tends to centralisation

MiningbenefitsfromeconomiesofscalesoitrsquosprogressedfromminingonyourPCtographicscardstoprogrammablechips(FPGAs)toASICsNakamotorsquosoriginalBitcoinwhitepaperassumesapeer-to-peernetworkthat

anyone can join In practice the miners operate their own centralisedcommunicationpoolpreviouslytheBitcoinRelayNetworkandnowcalledtheFastInternetBitcoinRelayEngine(FIBRE)asitrsquosmoreefficient(This came close to being a single point of failure in January 2016 as the

BRNwasabouttoshutdownfromlackoffundingandthedecentralisedpeer-to-peernetworkwouldnothavebeenabletohandlethetraffic)AsofMarch2017threepoolscontrolledover50andsixpoolsover75of

thehashratewiththelargestindividualpoolat213135Thereisnoreasonthatmultiplepoolscouldnothavea singleownerThe largestminingpoolownersalreadymeetandoperateasacartel136

If you control more than 50 of mining power you can perform a ldquo51attackrdquowhich allows you towrite the longest blockchainwhichwill then betakenbytherestofthenetworkascanonicalYoucandouble-spendconfirmedtransactionsorrejectanynewtransactionyoudonrsquotapproveofYoucanrejectotherminersrsquoblocksYoucanrsquotspendsomeoneelsersquosbitcoinsbutyoucanstoptheownerfromspendingthemEvenifyouhaveabitlessthan50youcanstillmountsimilarattackswith

abetter-than-averagechanceof successFrom25of thehash rateupward aselfishminer canmount 51-style attacks and expect to turn a greater profitthantheywouldotherwise137

This isnrsquot hypothetical ndashmining poolGHashiowent over 50of the hashrate several times in June and July2014138GHashdoing thiswasparticularlyproblematic as the pool had double-spent against a gambling site earlier thatyearTheyblamedarogueemployee139

Bitcoindecentralises things thatshouldnotbedecentralised thencentralisesthemanywaybutwastefully

Chapter6WhoisSatoshiNakamoto

Yoursquollknowsufficientproofhasbeenprovidedwhenitactuallyhappensbecausecryptographerswillbeconvinced

ndashPeterToddBitcoincoredeveloper140

The creator of Bitcoin the pseudonymous ldquoSatoshi Nakamotordquo mined 11millionbitcoinsover2009and2010HewithdrewfromtheBitcoinworldandcutoffcontactcompletelyin2011Nobodyknowswhohereallywas

SearchingforSatoshi

SinceNakamotorsquos disappearance there has been endless speculation as to hisidentity ndash as whoever was behind ldquoSatoshirdquo owned 11 million bitcoins thathavenrsquot moved since his disappearance The Wikipedia article on SatoshiNakamoto even has a section listing people suspected of being him ndashcypherpunksHalFinney(whohadfallenillin2009anddiedin2014)andNickSzaboengineerDorianNakamotomathematicianShinichiMochizukihellipAllthatisknownofNakamotoisemailsandmessageboardposts141Heeven

bought and edited bitcoinorg using Tor He gave his birthdate on the P2PFoundation forums as 5 April 1975142 and his location as Japan He was aWindowsC++programmerHewrotetheBitcoinwhitepaperinOpenOffice24AllofhismessagesarewritteninfluentandidiomaticEnglishinasinglestyleHewasa calmmethodical andprecisepersonwhoknewhiswayaround theuseofcryptographictoolsHemayhavejustwantedhisprivacyatfirstbutthestalker-liketendenciesof

some Bitcoin fans and obvious interest in a million-bitcoin stash constituteexcellent reasons to continue to keep his head down The reams of Bitcoinconspiracytheoristprojectionandpareidoliathatfollowedsinglederivedldquofactsrdquolike a birth date is franklydisturbing143 and evenbetter reasonnot towant to

leaveoneselfexposed(GwernBranwenawriterwho ferretedoutNakamotorsquosapparentbirthdate

discoveredthiswhenanincoherentbutpersistentBitcoinertriedtothreatenandblackmailhim in late 2013 on the assumption that hewas Satoshi144 ldquoGwernBranwenrdquoisalsoapseudonymforsimilarreasonsofprivacy)Bitcoin advocatesworry that such a largepoolofbitcoins coming intoplay

would massively destabilise the Bitcoin world and ndash per Bitcoin economictheories ndash cause massive devaluation of bitcoins due to the sudden supplyincrease (Though what would probably happen is that everyone would justpretendeverythingwasfineandkeepspeculatingbuyingdrugsandpayingtounlock their PCs from ransomware ndash there are already plenty of Bitcoinldquowhalesrdquo with enough coins to destabilise the price if they wanted to) SinceeveryBitcointransactionisvisibleontheblockchaintherearethosewhowatchtheblockchainlikehawksforthosebitcoinsevermovingIfsomeonecomesforwardclaimingtobeSatoshiNakamotothereisprecisely

one thing people are interested in do they control those bitcoins If they canmoveevena fractionofabitcoin fromNakamotorsquospile to someoneelse theyareSatoshiNakamotoOrtheycouldsignamessageusingthePGPprivatekey(acryptographickeyforsigningemailmessages) thatmatched thePGPpublickeythatNakamotohadputonthefrontofbitcoinorgin2008IftheycanrsquottheyarenrsquotSatoshi

DorianNakamoto

NewsmagazineNewsweekhadbeensoldoffasadebt-ridden liability in2010and stopped print publication in 2012 It was sold again in late 2013 andrelaunchedinprintinMarch2014ItledtherelaunchwithwhatseemedamajorscoopaftertwomonthsofinvestigationNewsweekjournalistshadidentifieda64-year-oldengineer fromLosAngelesDorianPrenticeSatoshiNakamotoastheSatoshiNakamotowhohadcreatedBitcoin145

DorianNakamotowasnotimpressedAsreportersgatheredoutsidehishouseheofferedaninterviewtothefirstonewhowouldbuyhimlunchndashldquoWaitaminuteIwantmyfreelunchfirstIrsquomgoingwiththisguyrdquondashandafterareportercarchasethroughLAspoketotheAssociatedPressdenyinganyinvolvementinorknowledgeofBitcoin146ThequotethatNewsweekclaimedasanadmissionofbeingSatoshiwasldquoIamnolongerinvolvedinthatandIcannotdiscussitItrsquosbeenturnedovertootherpeopleTheyareinchargeofitnowI

nolongerhaveanyconnectionrdquoHoweverhesaidthathehadbeenspeakingofhisworkonclassifiedsystemsformilitarycontractorsandthathehadnrsquotevenheardofBitcoin(whichhefirstcalledldquoBitcomrdquowithanM)untilhissonhadbeencontactedbyareportertwomonthsearlierIn the first sighting since 2011 the ldquoSatoshi Nakamotordquo account that had

posted the 2009 announcement of Bitcoin 01 on the P2P Foundation forumscommented on that post ldquoI am not DorianNakamotordquo (Some noted that thecommentcouldhavebeenpostedbya forumadministratorand that itwasnotcryptographicallyconfirmedtobeSatoshiNakamoto)147TheBitcoinworldwasboth utterly unconvinced byNewsweekrsquos report and outraged that theywouldviolateanallegedSatoshiNakamotorsquosprivacyinthatmanner148149

Newsweek defended its article150 but eventually appended a statement fromDorianNakamototothewebversionoftheoriginalpieceinwhichhedeniedthewholestoryandnotedthedamageithaddonetohislivelihood

ProfessorDrDrCraigWrightNakamotoDundeeThatrsquosnotasignature

CraigWrightisanAustraliancomputerbusinessmanHeclaimedin2016tobeSatoshi Nakamoto He didnrsquot move a bitcoin from the Satoshi stash orsuccessfullysignamessageusingaknownSatoshiNakamotokeyndashinsteadhedidabsolutelyeverythingelseexceptthosethingsinwaysthatdidnrsquotcheckoutandwhichothersimmediatelyspottedtheproblemsin151

WrightrsquosLinkedInpage152 (since deleted) at the end of 2015 listedmultiplemasterrsquos degrees a doctorate in theology from an unnamed university and adoctorate incomputer science fromCharlesSturtUniversity earnedduringhisfiveyearsasanunpaidadjunctlecturer(alongwiththreemoremasterrsquosinthattime)ThisseconddoctorateturnsoutnottohaveyetbeenawardedCSUsayingthatthedoctoralthesiswasstillbeingconsidered153 (ItwasfinallyacceptedinFebruary2017154)Thetextof theprofilewaspepperedwithtypographicalandgrammaticalerrorsAtthetopoftheworkhistoryitstatedldquoJuly2015ndashPresent(6months)WritingpapersResearchManaging changeNothingbut securityandblockchainrdquoWrighthadbeenactiveontheCypherpunksmailinglistin1996155sohemay

have been aware of the ongoing currency discussions In February 2011 heblogged that central banks had ldquodevalued all our savings and capitalinvestmentsrdquothroughldquoprintingmoneyrdquoleadingtoaresurgenceofinterestinthe

goldstandard156HethenproposedaPayPal-likesystembackedwithgoldInthecommentsheemphasisedldquoThesolebasisisinacurrencythatcannotbeprintedlikepaperrdquoImaginesomeonewritingthisiftheyhadinventedBitcointwoyearsbeforeThefirsttimeWrightisknowntohavespokenofBitcoinwasinthecomments

of his August 2011 post on The Conversation ldquoLulzSec Anonymous hellipfreedomfightersorthenewfaceofevilrdquoinwhichhewroteofldquoBitCoinrdquoasasolutiontoWikiLeaksrsquoproblemsreceivingdonations157

Wright started buying bitcoins on Mt Gox in April 2013 including1724BTCatthepeakofthebubbleinNovemberfor$1198each158Sometimein 2013 he posted backdated entries to his personal blog with references toBitcoinandBitcoin-relatedconcepts

A post dated August 2008 mentions he will be releasing aldquocryptocurrencypaperrdquoandreferencesldquoTripleEntryAccountingrdquo159a2005paperbyfinancialcryptographerIanGriggOne post dated November 2008 includes a PGP key owned bysatoshinvistomailcom ndash one letter different fromsatoshivistomailcom an address the real Nakamoto had beenknowntouseThisPGPkeyusedaciphersuitenotused inPGPatthe time and wasnrsquot on the public key servers in 2011 whichsuggeststhekeyhadalsobeenbackdated160

Finallydated10January2009(itwouldhavebeen9JanuaryintheUS)therewasthispost

BitcoinWelle-goldisdownthetoiletGoodideabutagaincentralisedauthorityTheBetaofBitcoinislivetomorrowThisisdecentralizedhellipWetryuntilitworksSome good coders on this The paper rockshttpwwwbitcoinorgbitcoinpdf

WrightestablishedthecompanyHotwirePEin2013withthestatedpurposeof research and development work using e-learning and e-payment softwareHotwirebought thesoftwarefromWrightrsquosownWrightFamilyTrustHotwirewas capitalised byWright with AUD$30million in bitcoins (Itrsquos not clear iftheseexisted thiswouldhavebeen15ofallbitcoinsat the time)AUD$29millionofthiswaspaid(stillinbitcoins)toWrightrsquostrusttobuysoftwareThisincurred sales tax (GST) Hotwire then claimed a GST refund of AUD$31million on this RampD expense ndash which would have been received from the

AustralianTaxOfficeinactualdollarsTheATOwasunimpressedwith thesearrangementsandwithheld therefund

pending investigation161 eventually assessing aAUD$17million penalty Themid-2014 administratorrsquos report for Hotwire PE noted the company wascapitalisedonlywithbitcoinswithitsonlyassetsbeinganticipatedtaxrebatesandblamedthecompanyrsquosfailureonthecollapseofMtGoxWright had also applied for an RampD incentive scheme where a company

couldreceiveitstaxrebateinadvanceHiscompanyDeMorganclaimedin2015thatitwaseligibleforuptoAUD$54millionforasupercomputerldquodedicatedtoCryptocurrencyandsmartcontractresearchrdquo162

InJune2015WrightgothisformercolleagueStefanMatthewstoputhimintouchwithRobertMacGregorofCanadianmoneytransmitternTrustMatthewstoldMacGregorthatWrightwasalmostcertainlySatoshiNakamotoMacGregorwasworkingwith Canadian gambling billionaire CalvinAyrewhoMatthewshadalsopreviouslyworkedforOn 29 June 2015 MacGregor and Ayre signed a deal to buy Wrightrsquos

companiesandhisclaimedblockchainpatentsandclearhisdebtslegalfeesandemployeesrsquobackwagesandformaresearchunitledbyWrightthattheycouldselltoalargercompanyTheyalsosetouttomarketldquoSatoshiNakamotordquorsquoslifestory and commissioned novelist and journalist Andrew OrsquoHagan to write abiographyOrsquoHagandidnrsquottaketheirmoneyandrefusedtosignanondisclosureagreement but instead pursued the story as an embedded but independentjournalist He eventually published a book-length article on Wright in theLondonReviewofBooks163

(MatthewstoldOrsquoHaganthatWrighthadshownhimthe2008Bitcoinwhitepaper before publication though Wrightrsquos February 2011 blog post makes itseemstartlinglyunlikelythatWrighthadheardofBitcointhatearlyWrighthadalsotoldMatthewshehadmetwithRossUlbrichtoftheSilkRoadinSydneyOrsquoHagannotesldquoMacGregorlatertoldmehewasconvincedbecauseWrighthadshownMatthewsthedraftSatoshiwhitepaperlsquoIalwayshadthatrsquoMacGregorsaidrdquo)In November 2015 an anonymous source began sending documents about

Wright and Bitcoin to Gwern Branwen Branwen provided the documents toAndyGreenbergatWired164AsimilardocumentstashwassenttojournalistsatGizmodo ldquoI hacked Satoshi Naklamoto [sic] These files are all from hisbusinessaccountThepersonisDrCraigWrightrdquo165Documentdropshadbeensent to others including theNew York Times andNathaniel Popper author ofBitcoinhistoryDigitalGoldnoneconsidered thestorysufficientlycredible to

pursueLeahMcGrathGoodmanatNewsweeknotedthatldquoitwasbeingshoppedaroundfairlyaggressivelythisautumnrdquo166

GizmodospeculatedthatWrightandDaveKleimanndashacomputersecurityandforensics expert and author who had died in April 2013 ndash had together beenldquoSatoshirdquoWrighthadco-authoredsomeofKleimanrsquossecuritystudyguidesandclaimedhehadbeenaclosefriendAs well as pointers to the earlier backdated blog entries the ldquoleakedrdquo

documentsincludedascannedPDFofanunsigneddocumentwithKleimanrsquosnameonitdated6September2011purportingtosetupatrusttheTulipTrustbacked by 1100111 BTC controlled byKleiman and locked until2020 (The Satoshi stash being locked in a trust answeredMacGregorrsquosquestionldquowhy isnrsquothesittingonan islandsurroundedbypilesofgoldrdquo)ThedocumentincludesthenoteldquoTheamountnotincluded will be used to show the lsquolies and fraud perpetuated byAdamWestwoodoftheAustralianTaxOfficeagainstDrWrightrsquordquo167

anunverifiedtranscriptofinterviewsbetweenWrightandhislawyerandtheAustralianTaxOfficeincludingclaimsthatWrighthadbeenmining bitcoins since 2009 and how he had ldquo11million BitcoinsThere was a point in time when he had around 10 of all theBitcoinsoutthereMrKleimanwouldhavehadasimilaramountrdquo168

emailspurportedlyfrom2009discussingcryptocurrency-relatedideaswithKleimana letter from supercomputer vendor SGI to Wrightrsquos companyCloudcroftsayingitwouldbeassistinginthedevelopmentofldquohyper-densitymachinesrdquo (whatever those are the termappears only to beusedbyoraroundWright)169

The documents and claims were greeted with widespread skepticismparticularlygiventhebackdatedblogpostsandthetechnicaldetailsthatfailedtocheck outNews siteFusionwent so far as to assert outright thatWright hadlikely sent the ldquoleakrdquo himself170 SGI said it had never had any contact withCloudcroftorWright171CloudcroftrsquosC01NhadbeenNo17on theNovember2015Top500listoftheworldrsquosmostpowerfulcomputersalthoughithassincebeen removed from thatmonthrsquos list172Top500 declined to detail how theyrsquodverifiedthisentryA few hours after theWired andGizmodo stories becameworldwide news

Wrightrsquoshouseandofficewereraidedbypoliceonbehalfof theATO though

they stated the raidwas ldquounrelated to recentmassmedia reportingrdquo173WrightandhiswifehadmovedoutthedaybeforeWrighttoldOrsquoHaganofskippingthecountry just in time to evade the police The ATO continued investigatingthroughthenextfewmonthstheyfirmlybelievedldquoWrightisnotthecreatorofBitcoinandthathemayhavecreatedthehoaxtodistractfromhistaxissuesrdquo174

Wrightdeletedhisonlinesocialmediapresenceanddidnotrespondtomediaqueries Nothing more was heard from him for a fewmonths he was in theLondonofficeofnCryptthesubsidiarynTrusthadcreatedforhimworkingonblockchain-relatedpatentsHespokeatlengthtoOrsquoHaganatthistimeabouthislifeandworkOrsquoHagan

notedthatWrightldquohadahabitofdissemblingofnowandthenlyingaboutsmallthingsinawaythatcastshadeonlargerthingsrdquo

Wright toldme that around this time hewas in correspondencewithWeiDaiwithGavinAndresenwhowould go on to lead the development ofbitcoin and Mike Hearn a Google engineer who had ideas about thedirection bitcoin should take Yet when I asked for copies of the emailsbetweenSatoshiandthesemenhesaidtheyhadbeenwipedwhenhewasrunningfromtheATOItseemedoddandstilldoesthatsomeemailswerelostwhileotherswerenot

AllenPedersenwhoworkedforWrightbothinAustraliaandatnCrypttoldOrsquoHagan

Hersquos sold his soulhellipThey canrsquot just sign all these papers and think itrsquosgoing to be all right that theyrsquoll sort something out It doesnrsquotwork thatwayTheynowhavetogototheendandlivewithitButtheyrsquoredoingiton first classWhen this Satoshi thing comes out I can see a lot of badthings happening and they are not geared up for this any of them hellipTherersquosnotreallyahappyendingherehellipinAustraliayoucouldsayhewasincontrolHersquos learnedabsolutelynothingHersquosnowinthisboxhecanrsquotmovehecanrsquotdoanythingandthisboxisgettingsmallerandsmaller

Gavin Andresen had taken over as lead Bitcoin developer when Nakamotoabandoned the projectHe had communicated at lengthwithNakamoto in theearlydaysWrightconvincedhimhemightbeNakamotobywritingemails inhisusualstyleandthenthesamecontentinNakamotorsquosstyleAndresen went to London to meet with Wright Wright cryptographically

signed a message as Satoshi Nakamoto on his own computer and verified itAndresenwanted tocheck itonhis computer sayinghehad tobeable to saythat hersquod checked it independently Wright suddenly balked not trusting

Andresenrsquos hardware A new laptopwas obtained and unwrapped andWrightinstalled the Bitcoin Electrum wallet software175 Wright opened the claimedSatoshiNakamotoBitcoinwalletonthenewlaptopandseemedtoverifythatheheld a Satoshi Nakamoto private key176 Wright performed a similardemonstration for Jon Matonis from the Bitcoin Foundation177 None of thisevidencewas released forpublic reviewAndresen said ldquoIwasnot allowed tokeep the message or laptop (fear it would leak before OfficialAnnouncement)rdquo178

ThePRteamsecuredtheBBCTheEconomistandGQthejournalistssignednondisclosureagreementsandembargoesandinlateAprilWrightdemonstrateduse of the Satoshi key to eachOrsquoHagan noted how oddly convoluted all thiswas given that everyone knew that allWright had to do was send an emailsignedwithaSatoshiPGPkeyormoveabitcoinfromtheSatoshistashandtheentireInternetwouldlightupldquoIfeltdistinctlythattherewassomethingmissingandsomethingwrongrdquoOnMonday 2May 2016 at 800amWright posted to his blog a Jean-Paul

SartrespeechclaimedtobesignedwithaSatoshiPGPkeyandAndresenpostedthathebelievedWrightwasSatoshiRoryCellan-JonesfromtheBBCCalvinAyre and The Economist tweeted A segment from Cellan-Jones aired on theBBCRadio4Todayprogramme themost importantcurrentaffairs radioshowintheUKThestoryblanketedthemediaBymidday the Internet had analysed the evidence and was not impressed

WrightrsquosblogpostwasnotsignedwithaSatoshikeyndashitwasclearlyfakedanold signature from the blockchain had been copied and pasted onto themessage179WrightrsquosnamebecameapunchlineNobody could work out what was up with Wright ndash he had considerable

supporting evidence of being Satoshi Nakamoto except the cryptographicevidencethatwouldnail theproofandtherealSatoshiwouldknowverywellthatthatwastheonlythingthatwouldnailtheproofThemoneymenwerenotpleasedbutworkedonhowtorecoverthesituation

ldquoThisiswhatwersquoregoingtodobecauseheknewthenextmovewaspackyourtoothbrush and get on a plane and good luck in Australiardquo MacGregor toldOrsquoHaganOnTuesday3MayWrightposted tohisblog thathewouldmoveabitcoin

from the Satoshi stashOnWednesday 4May the nCrypt team organised forWrighttosendbitcoinsfromtheSatoshistashtoAndresenandCellan-JonesattheBBCWrightsaidtoAndresenthathewasworriedaboutasecurityflawintheearlyblockchainthatwouldexposehimtotheftifhemovedanearlybitcoin

AndresensaidtheproblemhadbeenfixedbutWrightcontinuedtoworryOn Thursday Wright sent around an email link to a news story from

SiliconAngleldquoCraigWrightfacescriminalchargesandseriousjailtimeinUKrdquondashthathewouldbearrestedasthecreatorofBitcoinforenablingterrorismldquoIamthesourceof terrorist fundsasbitcoincreatororIamafraudto theworldAtleastafraudisabletoseehisfamilyThereisnothingIcandordquoHeclosedhisblog and posted a final goodbye message apologising for disappointingeveryoneThenewsstoryturnedouttobeafakepostedonanimpostorsitebutwiththe

design from the SiliconAngle site180 The fake quickly disappeared nobodyknowsthesourceMany noted thatWrightrsquos storywould allmake sense ifDaveKleiman had

been the main technical ldquoSatoshi Nakamotordquo and Wright had started bystretching his own involvement in the creation of Bitcoin and got in over hisheadButthoughKleimanasasecurityexpertwasfamiliarwithcryptographytherewasnoevidenceduringhislifethathehadanyinterestincryptocurrencyorC++programmingletaloneBitcoinndasheverywordofsuchcameviaWrightsourcesclosetoWrightortheWiredGizmodoldquoleakerrdquoWright disappeared from the public eye though he did file various

blockchain-relatedpatents181182Heemergedagaininearly2017withnChain183(the new name for nCrypt originally EITC) with Robert MacGregor AllenPedersen184andJonMatonis185intowInlateJune2017hespokeattheFutureofBitcoinConference(wherehewas

introducedasldquoBitcoinDundeerdquo)andthreatenedlegalactionagainst thosewhohadcalledhimaldquofraudrdquo186thisledtoaburstofpeopleincludingBitcoincoredeveloper Peter Todd187 calling him a fraud He refused to be drawn on hispreviousclaimstobeSatoshi

Chapter7Spendingbitcoinsin2017

TheonlyusecaseforwhichBitcoinevenrivalsconventionalfinancialsystemsis illicit goods and services ndash mostly drugs ndash and computer ransoms Illegaldrugsonthedarknethavebeen theprimarynon-speculationusecasesince theSilkRoad started in January 2011 reaching an estimated $142million in themonth of January 2016188 (or $170 million a year) They were overtaken byransomwaresometimein2016ndashtheFBIestimatesransomwarepaymentsat$1billion in 2016189All use cases licit and illicit are severely hamperedby theperennialtransactionbacklog

Bitcoinisfullthetransactionclog

TheBitcoinblocksizeis1megabyteper10minuteswhichallowsatheoreticalmaximum of 7 transactions per second Transactions were cheap and fast formanyyearsndashbutbymid-2015theblockswereoftenfullSuddenlythereweredelaysandincreasingfeesBitcoinhadreachedcapacityforthefewusersithadThisrapidlybecamethenewnormalTheFAQonbitcoinorgchangedfrom

ldquoVerylowfeeshellipnofeesorextremelysmallfeesrdquoupto29July2015toldquoLowfeesrdquoon4August2015andldquoChooseyourownfeesrdquoon7August2015190

WhatthismeansisthatusersareinablindauctionwheretheyhavetoguessbiggerandbiggerfeesinthehopeofgettingtheirtransactionthroughTransactionsareroutinelydelayedhoursordayssomanyjustgetlost(Only57oftransactionsareconfirmedinthefirsthour20nevergetconfirmedatallandareeventuallydropped191)ItdidnrsquothelpwhensomepeopleonRedditrbitcointhoughttheyrsquodstress-test

the blockchain in May 2015 They sent out a flood of complex chainedtransactionswhichsentconfirmationtimesfromtenminutesuptoeighthoursat a cost of 24 BTC in fees (only a few hundred dollars at the time)192Interestinglythisattackdidnrsquotevenfillmanyoftheblocksndashjusttheldquomempoolrdquo(ldquomemorypoolrdquondashthebacklogoftransactionstobeprocessed)193

AJulyattacksenthundredsoftransactionspersecondwithalowvaluebutalargemessagefieldtakingupspaceintheblocks194InOctoberanattackersentafloodof88000transactionsfillingthemempoolonsomenetworknodesand

knocking16ofnodesoffline195Attackscontinuedthrough2016196

Thesedaysspamattacksare largelysuperfluousasclogged transactionsarejust part of Bitcoin By October 2016 Bitcoin regularly had around 40000unconfirmed transactions in the mempool at any time and in May 2017 itpeakedat200000197

Thepossiblesolutionsare1 Increasetheblocksizewhichwillincreasecentralisationevenfurther

ndash big blocks take longer to propagate and the blockchain becomesevenmoreunwieldy(Thoughthatshipreallysailedin2013)

2 Sidechains bolt on a completely different non-Bitcoincryptocurrency and do all the real transactions there (This ispresently vapourware) It is unclear why anyone would create ausablealternatecryptocurrencythenpegittoBitcoinratherthanjustuseitinitsownright

3 The LightningNetwork bolt on a completely different non-Bitcoinnetwork and do all the real transactions there (This is alsovapourware)

4 Useadifferentcryptocurrencythathasnrsquotcloggedyet(Thedarknetsareexploringthisoption)

The Bitcoin community is now sufficiently dysfunctional that even such asimpleproposalasldquoOK letrsquos increase theblocksize to twomegabytesrdquo led tocommunity schisms code forks retributive DDOS attacks death threats198 asplit between theChineseminers and theAmerican core programmershellipandplenty of other clear evidence that this and other problems in the BitcoinprotocolwillneverbefixedbyaconsensusprocessOn the other hand just increasing the block size wonrsquot fix Bitcoinrsquos

architectureandtheblockswillrapidlyfillagainndashgoingbythetrendfrom2013to2015blockswouldbeaveragingaround16megabytesbymid-2017ndashandtheblockchainwillgrowevenfasterBitcoin was the cardboard-and-string proof of concept for the idea of

cryptocurrencythatwasthenpressedintoproductionuseItrsquosamazingitheldupinrealuseaslongasitdid

Bitcoinfordrugswelcometothedarknet

Thedarknetmarketsarefuelledbyuserswhowanttobuydrugswithouthaving

to go to the bad part of town and talk to people from aminority and dealersobtainingcommercialquantities tosell locallyAlthough itrsquos less than01ofthe global drug economy199 Bitcoin is visibly a part of contemporary drugcultureDrugparaphernaliastoresevenhaveldquoBuyBitcoinhererdquosigns

SkunkHouseCroydonUKPhotocopy2016KarenBoydldquoTBFtothemtheyhavenowtakendowntheBitcoindecalsaseventheyhavedecideditrsquosbobbinsrdquondash

KarenBoyd2017

DarknetmarketsremainthemostpopularBitcoinusecaseafterspeculationandransomwareIn2014darknetmarketswereestimatedtohaveprocessedmorebitcoinsthanalllegitimatepaymentprocessorsputtogether200

GwernBranwenhaswrittenextensivelyonthedarknetmarketsandhasreleased16terabytesofscreenshotsfromdarknetsites201withanalyses202Thedarknetmarketsfulfilademand(drugs)butdespiteincreasinglycomplexescrowarrangementstheystillfalltobadoperationalsecurityorgettinghackedorjuststealalltheirusersrsquomoneyndashldquotheconstantwearyingturmoilofexit-scamsandhacksrdquo203ThatsaidreliabilityandqualityremainsurprisinglygoodotherwiseHoweverevendrugbuyersavoidBitcoiniftheypossiblycanBothbuyers

andsellersfrequentlycomplainofBitcoinrsquosridiculouslyvolatilepricemessingupdealsandtransactionstakinghoursordaystobeconfirmedwithanunpredictablefeeSomesmalldarknetmarketsallowminorcryptocurrencieslikeMoneroInMay2017AlphaBaythelargestdarknetmarketstartedofferingEthereumasanoption204ndashbecauseBitcoinwasfailingtoserveitsprimaryconsumerusecase

Ransomware

RansomwarecombinescomputermalwareencryptionandanonymouspaymentsystemsMalicioussoftwarespreadsthroughemailspamorexploitingcomputersecurityholesitencryptsthefilesonyourWindowsPCandanysharedfoldersitcanaccessandamessagepopsuptellingyoutosendBitcoinstothehackerrsquosaddress (usually an address per victim) to get the key to unlock your systembeforethedeadlineofafewdaysBitcoinisnowthepaymentchannelofchoicebutransomwareexistedfor

decadesbeforeBitcoinThefirstextortionmalwarewastheldquoAIDSTrojanrdquoorldquoPCCyborgTrojanrdquoin1989whichwouldhideintheAUTOEXECBATfileonaDOSPCandtheninetiethtimeitwasrunencryptallfilenamesonthediskanddemandyousend$189toapostofficeboxinPanamaLaterpaymentschemesincludede-GoldorLibertyReservepremiumrateSMSmessagesorinternationalphonecallsorbuyingparticularmedicinesonaparticularwebsite205The2011ldquopolicevirusrdquopretendedtobefromthelocalpoliceforceanddemandedpaymentbycreditcard206The2013ldquoFBIMoneyPakrdquoransomwaredemandedpaymentviaonlinemoneytransferservicesMoneyPakorUkashCryptoLockerthefirstransomwaretouseBitcoin(thoughyoucouldalsopay

byMoneypakorUkash)showedupinSeptember2013Itwashugelysuccessfultakingabout$3millionandspawnedmanyimitatorsSecurityprofessionalsIspoketosaythatthereasonfortheexplosionin

ransomwarefromabout2015onisnotBitcoin(asmediareportsoftenclaim)butthereadyavailabilityofransomwarebuildersinmalwarekitsfromthehackerundergroundsincethattimendashsothatanyscript-kiddiecanuseakittomaketheirownransomwareThebest-knownransomwareoflateisprobablyWannaCryTheWannaCry

attackof12May2017knockedoutseveralNHShospitalsintheUKandcompaniesaroundtheworldItusedaMicrosoftWindowsvulnerabilitythathadbeenfixedinMarchbutmanyorganisationshadnotupdatedtheirWindowsinstallationsSomevictimshavetremendousdifficultyobtainingthebitcoinstopaythe

ransomndashmostexchangeshavestrongidentityverificationrequirementsandoftenthedelaybeforeallowingtradesislongerthantheransomwarersquosdeadlineNottomentionthefrequentdelaysgettingBitcointransactionsthroughatallBitcoinsaresohardfornormalpeopletousethatfromCryptoLockeron

ransomwareoperatorshavebeenknowntoprovidetechnicalsupporttovictimssotheycanworkouthowtopaythemandunlocktheirfilesF-Secureevencompiledacustomerserviceevaluationofransomwaregangs207

Citrixranapromotionalsurveyin2016208andagainin2017209suggestingthatsomeUKcompanieswerekeepingBitcoinsonhandjustincaseithappenedtothemndashthoughpayingransomsisnotrecommended210asvictimsoftendonrsquotgettheirfilesbackeventhenandpayingupmarksyouasafuturetargetTelstrarsquosldquo2017CyberSecurityReportrdquosaidthatathirdofsurveyedAustralianorganisationswhopaidtheransomdidnrsquotgettheirfilesback211VictimsareunsurprisinglyincreasinglyreluctanttotrustthegoodwilloforganisedcriminalgangsWannaCryinfectedPCsaroundtheworldandonlytookin$80000ITprofessionalsrecommendkeepingWindowsfullyupdatedforsecurityand

keepingreliabledailybackupssothatifyoursquorehityoucanjustwipethePCandrestoreyourdataWhentheNHSwashitbyWannaCrynopatientdatawasstoredontheaffectedmachinesandtheydidnotpaytheransomndashtheyjustspentthenextdayreimagingthousandsofPCsafresh212

BitcoinseemstobetheonlycryptocurrencyusedbyransomwaresofarndashthoughoneWannaCryimitatorminedthealtcoinMonerooninfectedPCs213

Ifyoudogetanapparentinfectionitrsquosworthcheckingitisnrsquotfakeransomwarethatlocksyourscreenanddemandsyourmoneybutdoesnrsquotbotherwithencryptingyourfiles214

TheWannaCryattackwassufficientlyegregiousthatsomestartedcallingforBitcointobebannedaltogethersinceitsnon-speculationusesarelargelyillegalOneexchangeCoinmxhadevenbeenchargedin2015withmoneylaunderingviolationsforsellingbitcoinstothevictimsofransomwareattacksasthisenabledthecriminalstogetpaidforthemndashthoughthiswasaspartofalonglistofothermoney-launderingcharges215

Non-illegalgoodsandservices

Forordinarypeople toregardBitcoinasmoneyshopsother thandarknetdrugmarkets have to accept it Advocates are very keen on merchant adoptionbecauseitspreadsBitcoinrsquosnameinthewiderworldandmakesit lookusefulUnfortunatelyapproximatelynoneofthembuythingswithbitcoinsthemselvesThewaytheprocessusuallyworksis

advocateslobbyamerchanttoacceptBitcoin

themerchantsaysnoadvocatesharassthemerchant

Iftheydoacceptthe merchant sets up a mechanism to accept Bitcoin ndash usually viaBitPayCoinbaseorasimilarpaymentprocessorwhowillgivethemdollarsmeaningtheynevertouchabitcointhemselvesafteraninitialburstnobodymuchusesitadvocatesprotestloudlyatthemerchantdroppingBitcoin

Theadvocatestendtoholdtheircoinsratherthanspendingtheminordertocash in when other people have increased demand and raised the priceProminent Bitcoin advocates have even worried that too much merchantadoptionmightdropthevalueoftheirholding216

Thegeneralpublicdonrsquotbuybitcoinstospendonanythingtheycouldjustbuyin ordinary money and without waiting hours or days for the transaction toconfirmAllbutaveryfewmerchantadoptionsfallbythewaysideCardsAgainstHumanityin2013wasatypicalexampleofBitcoinoutreachin

practiceCardsAgainstHumanityisacardgamethatyoucanbuymail-orderorjustdownload thePDFs toprintoutyourselfOneBitcoiner asked ifhecouldbuyapackwithbitcoinswhentheysaidnoheemailedbackpressingthepointand stressing the ldquoexposurerdquo value this would offer them (Of course everycreator knows thatwhen you offer them ldquoexposurerdquo thatmeans you have nointentionofpayingthem)When they replied demurring once more the Bitcoiner complained to his

fellowadvocatesonRedditrbitcoin217ldquoIwasnrsquotexpecting themtodoasinglesaleinBitcoinsjustformebutinsteadIwantedthemtoconsiderdoingbusinessusingbitcoins andpotentially benefit from the publicity thatmight comewiththatrdquoOnecommenterpostedldquoThey justprefer the imaginarydebtbasedlsquomoneyrsquo

their slavemasters issue via the central banks of the worldrdquo (Max Temkin ofCardsAgainstHumanityrespondedldquoYesIuseittobuygroceriesrdquo218)AnothersuggestedcontinuingtoemailthemldquoHeyOPifyoureallywanttoproveyourpoint to the sellers of this game you should Once a month send an emaildetailinghowmuch theBitcoinyouwouldhavesent inpayment for thegamehasincreasedinvaluecomparedtohowmuchtheUSDhasdecreasedinvaluedue to inflation After awhile they just might understandrdquo Others harassedTemkinonhisblogandthreatenedfurtheractiononReddit219

WhenmerchantsdoadoptBitcoinittendsnottoresultinafloodofbusiness

AustralianphoneappMyBusforlocalbustravelinCanberraaddedBitcoinasan option inMarch 2014 and had twenty-three transactions total by the timetheyremoveditinJanuary2015WhentheytemporarilyswitchedofftheoptionformaintenanceinSeptember2014theyreceivedldquoabout30emailsfrompeopleaskingforittobereinstalledwhichisoddbecausethatrsquosmorepeoplethanhaveactuallyusedthefeaturerdquo220

AutomatticthecompanythatdevelopsbloggingsoftwareWordPressofferedBitcoin in November 2012 to allow paid wordpresscom upgrades for userswithoutaccesstoPayPalorcreditcardsTheywithdrewtheoptioninFebruary2015notingitwasonlyusedapproximatelytwiceaweek221

TheMozillaFoundation the charity that develops theFirefoxwebbrowserbeganacceptingBitcoindonationsfortheirendof2014campaignThiswasnrsquotgood enough for the advocates they demanded Mozilla include BitcoinprominentlyontheprimarydonationpageWithmillionsofpageviewsitwasquiteeasytorunanABtestwhereyouserveadifferentversionofthepagetoafractionoftheviewersandcandirectlycomparetheeffectsofthetwoversionsTheAB test showed that the text ldquoDonatewithBitcoinrdquodropped revenuepervisitor by 75 adding the text would have lost them $140000 over thecampaign for the sake of a few thousand dollars in Bitcoin222 The BitcoincommunityofcourseclaimedthatthisliteraldirectmeasurementwassomehowstatisticallyboguslistingobjectionsthatshowedtheydidnrsquotunderstandwhatanABtestwas223

TheWikimediaFoundation (the charity behindWikipedia) did rather betteraccepting Bitcoin via Coinbase fromAugust 2014 by August 2015 they hadtaken $220000 though $140000 of that was in the first week224 Wikimediadidnrsquot AB test Bitcoin on the primary page only listing it at the end of thesecondaryldquoWaystoGiverdquopage(This was after some problematic interactions with Bitcoin advocates One

memberoftheWikimediafundraisingteamnotedinJanuary2014ldquoThebitcoincommunity should be aware that their persistent and often times aggressiverude and vulgar messaging towards me and my fellow coworkers is notappreciatednordoesithelptheircauserdquo225)OverstockcomstartedacceptingBitcoin inearly2014becauseCEOPatrick

Byrne is a huge Bitcoin fan and took in $1million in the firstmonth226 andanother$2millionovertherestof2014ndash02ofitstotalsalesof$15billion227ndashthoughalossof$117000oncryptocurrenciesfor2015228

WhollyHemp a smallmanufacturerofhempsoap startedacceptingBitcoinout of interest in the technology and founderRobert Lestakwas for a time a

moderatorofRedditrbitcoinAftertheusualinitialburst229WhollyHempendedup making 02 of sales in Bitcoin and an AB test showed that prominentmentionofBitcoinacceptancereducedgrosssalesby58230TheyremovedtheBitcoin option altogether in April 2015 and were harassed by Bitcoinadvocates231forthenextseveralmonths232LestakldquoThisiswhyyoudonrsquothearaboutbusinessespubliclydroppingBitcoinasapaymentoptionBitcoinerswillmakeyourlifealivinghellifyoudordquo

ldquoMrBitcoinrdquoattheBitcoinBowlPhotocopy2014BenGutzler

HopingtodrumupbusinesswithmerchantspaymentprocessorBitPaysponsoredtheStPetersburgBowlaminorcollegefootballgamenamingthe2014gametheBitcoinBowlYoucouldnrsquotuseBitcoininthestadiumatallafewattendeeswereinterestedbutalmostnobodykneworcaredwhatthisthingwasorthoughtldquoBitcoinrdquowasacompany233ndashStPetersburgpresentedakeytothecitytoldquothechairofBitcoinrdquo234BitPayclaimedalmostahundredlocalbusinesseshadsignedupndashbutveryfewsawsignificantsalesandnearlyhalfsawzero235AyearlaterlocalBitcoinretailtradewasalmostnonexistent236

ThegamewasplayedonabaseballfieldwithterribleturfandthefootballfanswereunimpressedThemaininterestwasthemascotMrBitcoinamandressedupasaphysicalbitcoinrunningaroundthebleachersattemptingtowhipupexcitementThoughoriginallyathree-yeardealthesponsorshipwasendedafterjustone

yearBitPayhavinghadtolayoffseveralemployeesshortlyaftertheevent

CasestudyIndividualPubs

IndividualPubsasmallUKpubchainisthemostsuccessfulBitcoinmerchantadoption I know of Steve Early is a Cambridge computer scientist and beerenthusiast turned publican He writes all his own till software and controlsystems for the pubs (Theonly pub chain ever to get a six-pagewriteup in aLinux magazine237) When he said in mid-2013 that he was thinking aboutBitcoinIconsideredhewastheonepersonIknewwhowasmostlikelytodowelloutofitThepubcorporationsellsthecoinstoSteveattheBitPayrateforthatdayStevesellsthemathisleisureItwasactuallyeasiertoprocessbitcoinsthancardsldquoIwassofrustratedand

stillamwiththeinabilitytointegratecardpaymentswiththetillsThisseemstobeauniquelyUKthingndashthebanksowntheterminalsYoualwayshavetorentthemfromthebankoraresellerTheyconfiguretheterminalyoudonrsquotgetanAPI to it This is why Britain was able to go chip-and-PIN so quickly ndash thebankscouldjustreplacetheterminalswithouthavingtoconvincethemerchantsldquoIn June 2013 Iwas relief-managing our pub inNorwich and Iwas bored

AddingBitcointothetillswastwoeveningsofhackingTherewereacoupleofweeks of testing and refinement and itrsquos basically beenuntouched since thenexceptwhenaninterfacechanges238IdidittoscratchtheitchnotforpublicityorprofitldquoTakings stayed high for about ninemonths about pound1000 amonth out of a

coupleofhundredthousandacrossthechainCurrentlyitrsquosaboutpound200amonthwhichIsuspectrepresentstwoorthreecustomersSinceIrsquovestartedIrsquovetakenaboutpound17000worthldquoI am acceptingBitcoin in themost naivemanner possible accepting zero-

confirmation transactionsrdquo (Where you can see someonersquos tried a transactionbutithasnrsquotmadeitintoablockyetvulnerabletofraudulentcustomersdouble-spending)ldquoWhichisprettymuchtheonlywayitcanworkinapubsettingZeroconfirmation has worked out so far Therersquos been one occasion where atransactionwasnrsquotconfirmedldquoThetransactionbackloggettingbiggerandbiggerastheblocksizestaysthe

same is going to be a problem A hundred percent of your customers can behonestandyoucanstill loseoutbecauseyourtransactionsaredroppedWhentoo many are dropped thatrsquos when Irsquoll have to push the off switch I have

probably more than recovered that from people accidentally paying twicebecause we didnrsquot think the transaction went through the first time Forcomparison we take about fifty quid of bogus notes a year Irsquove turned offBitcoin transactions at all the pubs except the Pembury andQueen Edith theotherpubsweregettingmorefailedtransactionsthansuccessfulonesrdquo

Chapter8Tradingbitcoinsin2017thesecondcryptobubbleIfyouwanttotradebitcoinsorcryptoassetsingeneralin2017approachitlikepennystocksonlywithlessregulationorsubstanceTheseareextremelyriskyassetsIfyoudonrsquotseriouslyknowyourstuffyouwillbetheoneotherpeoplemaketheirmoneyfromApproximately 95 of on-chain transactions are day traders on Chinese

exchanges239WesternBitcoinadvocatesarefunctionallyasideshowapartfromtheactualcoderswhoworkontheBitcoincoresoftware

Howtogetbitcoins

If you donrsquot mine bitcoins yourself or sell a product or service for bitcoinsyoursquoll need to buy them This can be fraught Even the mostly-unregulatedexchangeswant to be able to convert toUS dollars so they complywithUSKnow Your Customer anti-money-laundering laws (KYCAML) demandtrustworthygovernmentidentificationndashandrememberthatyoursquoreoftensendingthis topeopleyouknownothingaboutndashandwill cutoffyouraccount if theythinkyoursquoredoinganythingevenslightlysuspect(CoinbaseasktoverifyyourUSbankaccountbyloggingintoitasyou240)YoucanbuybitcoinswithoutIDatapricepremium(andmuchgreaterrisk)

from less trustworthy sources such as a business deal in a parking lot withsomeoneyoumetonLocalBitcoinsndashthosealwaysworkoutwellYou can buy bitcoinswith ID at a price premium (and some risk) from a

BitcoinATMifyoufindonethatworksproperlyandyoursquorepreparedtowaitages for anything to happen These used to be far easier to use but then theauthoritiesrealisedtheywerehandystreet-cornermoney-launderingdevicesandstartedrequiringKYCAML-qualityidentificationOthercryptocurrenciescanbeboughtsimilarlyoryoucanbuybitcoinsand

thenbuytheothercoinwiththoseSomebanks in theUK241 andAustralia242 have closed accounts forBitcoin-

related activity ndash it has a stigma as a currency widely used for questionable

transactions

Fromthefirstbubbletothesecond

Afterthe2013bubbleand2014pricecrashpeoplelostinterestandthetradingvolume declined The price slowly rose again and was $630 by mid-October2016andbubbledtoapeakof$3000inJune2017ndashbutlargeholderstryingtoselltheirbitcoinsriskcausingaflashcrashtheldquopricerdquoisnotrealisableforanysubstantialquantityThemarketremainsthinenoughthatsingletraderscansendthepriceupordown$30243andanApril2017crashfrom$1180to6cents(duetoconfigurationerrorsonCoinbasersquosGDAXexchange)wascourtesy100BTCoftrades244

As well as drugs and ransomware non-speculative usage includes variousldquoRepublic of Bitcoinrdquo schemes run by the infamous RussianMMM concernwhoperpetratedthelargestPonziinhistoryinthe1990sAfterstartingupagainin2011theyadoptedBitcoinin2015runningschemesinChinaandNigeriaThe price rise during 2016 without organic volume was helped along by

ldquopaintingthetaperdquoinwhichautomatedsystemstradeinacoordinatedmannertopushthepriceupTheldquoWillybotrdquoandldquoMarkusrdquobotswerenotoriousonMtGoxfromtheendof2013until itsclosureandappeared tobeoperatingevenwhen the exchange was offline245 There were accusations of similar tape-paintingin2016betweenChineseexchangesOKCoinandHuobi246AssoonasChineseregulatorsstoppedbyinearly2017tolookatwhatthelocalexchangeswere actually doing both price247 and on-exchange transaction volume248collapsed and withdrawals were suspended for a month249 MMMrsquos Nigerianschemealsopushedthepriceupinlate2016250

ThequotedpriceofBitcoinndashtypicallyaweightedaverageofexchangespotprices251 ndash has been observed going up evenwhen the blockchainwas gettinghammered with transaction spam when non-spam transactions were all butimpossible this was activity entirely inside the individual exchanges withoutreferencetotheoutsideworldIfyoursquoreonlinewhenyoursquorereadingthissectiongotoCryptowatch252alist

ofpricesatvariousexchangesand lookat thespreadsBitcoin isnotshortonprogrammerswhocanautomateobviousarbitrageopportunitiessospreadslikethatdirectlyindicatejusthowharditisinpracticetogetyouractualmoney(andsometimesyourbitcoins)outoftheexchangesThepricerosedizzyinglyinasecondmajorbubbleinmid-2017goingfrom

$900inApriltoaround$3000inJunebringingothercryptoassetswithitndashbutthis pricewas difficult to realise asmany exchanges had trouble sending outhardcurrencyatall

Bitfinexthehackthebankblockandthesecondbubble

Taiwan-basedBitfinexisoneofthemorepopularBitcoinexchangesAdvocateslike and trust it and enjoy using it ndash it has margin trading and other fancyfeaturesandlistsawidevarietyofcryptoassetsndashandrecommendittoothersBitfinexwasoriginallybasedonaleaked253copyofthecodebasefromdefunct

exchangeBitcoinica which was founded by sixteen-year-old Bitcointalk userldquoZhoutongrdquoandshutdownafterbeinghackedin2012Itssoftwareturnedouttobemadeentirelyofcopy-and-pastedcheeseandstringthatnobodyatallknewhow to fix This is quite typical of Bitcoin-related code and systems as iffinancial software and systems architecture had never happened One ofBitfinexrsquos early developers described what the system was like when he hadbeenworkingonit254

It has proved impossible to cleanly modularize and upgrade zhoutongrsquosspaghetti code (Or if it is possibleBitfinex technical teamdoesnrsquot knowhowtoproceed)InthecurrentsystemeverythingisentangledThereisnoclean separation of concerns They inherited this steaming shitpile of acodebaseandtheyrsquorestuckwithitTheir legacy data model as implemented in their current system is

insaneThe systemwasdesignedbya16 yearold FFSEverything is adhoc there is no specification there was zero documentation there isminimalaccountingforedgecasesexceptionhandlingwastackedonasanafterthoughtTherewasno thinking things throughEverything isad-hocThereforeitkindaworksexceptwhenitdoesnrsquot

ABitfinex representative responded stating that ldquoa grand total of 0 lines fromBitcoinicarsquos code exist on Bitfinexrdquo ndash the site moved at least partially to theAlphaPoint platform in 2015255 ndash but the developer asked him to explain ifBitfinexhadanall-newcodebasehowtheyhadaccuratelyreproducedbugsthatdatedbacktoBitcoinica256

Thesoftwareproblemswereglossedover foryearsbecauseday tradersareotherwiseknownascompulsivegamblersandcryptodaytradersmakeforeign

exchange day traders look sober considered and balanced The traders didnrsquotcareaslongasitmostlyworkedandtheycouldkeeptradingAndtobefairthetraders loved theBitfinex platformBitfinexworked to polish up its front-endusability and back-end system software and prided itself on its quality as acryptotradingplatformThenon2August2016nearly120000BTC (thenaroundUS$68million)

wasstolenfromBitfinexcustomeraccountsBitfinexhadsetupcustomersrsquofundseachintheirownindividualsegregated

wallet with three keys one held by Bitfinex one held by third-party agencyBitGo and one held by either the user orBitfinex (as an offline backup key)BitGohadbuiltanAPIforBitfinextomanagethisAnytransferwouldrequiretwo of the three keys257 Their aim was to provide greater transparency withtransactionsvisibleontheblockchainanditalsohamperedattemptstousetheexchangeasamixerBitfinexwouldsend transactions toBitGowhowouldcheck the transaction

wasinaccordwiththepolicysetforthatwalletandsignifitwasBitGorsquosAPIallowed policy changes ndash but it included unintended functionality allowingglobal limits tobechangedwithoutexplicitout-of-bandconfirmationNeitherBitfinexnorBitGohadrealisedthisvulnerabilityndashbutthehackerdidFulldetailsofthehackhaveyettobereleasedButitappearsthehackerknew

bothBitfinexandBitGorsquos systems intimatelyTheygot intoBitfinexrsquos systemgained access to the accounts that could change limits and sent a global limitchangethusallowingthemtoproceedtowithdrawthousandsofBitcoinsUsuallyatheftofthismagnitudeheraldsanexchangedisappearingorshutting

upshopwithapologiesorlocalregulatorsnoticingitsexistenceandswoopingin Bitfinex considered going into bankruptcy which might leave customerswaitingyearsforapayoutButasthesupplierofgamblingtradingfacilitiesnotavailableelsewhereBitfinexfelt therewassufficientdemandfortheirservicesthat adrastic actionwouldbe considered acceptable to their users rather thanhave some customers take a 100 loss they assessed a 36 ldquohaircutrdquo on allcustomerdepositsndashincludingnon-BitcoindepositsDepositorswhosecoinshadbeen hackedwould be compensatedwithmoney from depositorswho hadnrsquotldquoweare leaning towardsasocialized lossscenarioamongbitcoinbalancesandactiveloanstoBTCUSDpositionsrdquo258ThecompanywouldthentrytotradeitswayoutYoumight think that compensatingyour customersusingmoney fromother

customerswhiletheownersdonrsquottakeahitwouldbeagainsttherulesinanyreasonablefinancialsystemParticularlyasbankruptciesusuallypaydepositors

andcreditorsfirstandequityholderslastButwelcometoBitcoinWhy on earth did the users put up with this Secondly because this was

claimed to be the haircut theyrsquod take ifBitfinexwere to liquidate259 (Bitfinexdidnrsquot show their working) But firstly because they were desperate forcontinued access to their favoured strip mall casino Bitfinex promptly wentbackuptoNo1ontheBitcoinexchangevolumecharts(SomeusersdidconsidersuingbutfoundthecompanyldquoaMatryoshkadollof

shadyshellcompaniesindifferentjurisdictionssoitrsquoshardtoworkoutwhattherightplacetosuethemisThenyouhavethecostandtimeofthelawsuitandifthe tokens arenrsquotworthmuch by the time you get to the end of this long andexpensiveprocesstherersquosarisktheyrsquollgointoliquidationanyhowrdquo260)Bitfinex didnrsquot want its users to feel theyrsquod been left high and dry So it

offered them Bitfinex tokens (BFX) for their losses saying that theyrsquod comethroughat some laterdateon these IOUsand reimburse theholderswith theirfacevalue261

The token is a notional credit is dependent on the Bitfinex GrouprsquosrecoveryofLossesand issubordinated toanyclaimsagainst theBitfinexGroupnotrelatedtotheLosses

Youcouldeventradethesetokensndashtradingawayyourrighttoreimbursementif the stolen coins were recovered ndash and use them as collateral for margintrading262ThoughonlyonBitfinex

Thetokenandyourrightspursuanttheretomaynotbeassignedexceptwithnotice to and the prior consent of the Bitfinex Group on terms to bedeterminedbytheBitfinexGroup

Youmight think thiswould constitute offering an unregistered security butwelcome toBitcoinTheprice forBFXdroppedbelow its $1 facevalue evenbeforereleaseopeningat$080andendingthedayat$032Bitfinexredeemedabout1oftheBFXinearlySeptemberAsithappened

they had enabledmargin trading on BFX itself one day before and the pricewentupfrom$040to$056justbeforetheannouncementAroundthetimeofthe1redemption30oftradingonBitfinexwasBFX

whichtheycollectedtradingfeesonTheBFXtokensalsokepttheircustomerson Bitfinex in the hope of a payout rather than just cashing out and nevercomingbackIn late September they offered conversion of BFX into equity in their

company iFinex Inc263 In October they came up with another layer theRecovery Right Token (RRT) for everyone who had sold their BFX for

equity264ShouldanyofthestolencoinseverberecoveredBitfinexwouldfirstpaybacktheBFXholderswhohadnotconvertedtheirBFXtosomethingelsethen pay backRRT holderswith the remainder Thatrsquos a token on a token onmoney they would normally have had to pay back You could also trade theRRTsontheexchange265

ConvolutedarrangementslikethisarepartofwhybankruptcylawsletalonefinancialtradingregulationsexistsothatcreditorsanddepositorsgetpaidfirstandfairlyinaclearandopenmannerInthemeantimeBitfinexpromisedafinancialandsecurityauditNotbyany

such tawdryprofessionas actualaccountants theyweregoing touseldquoLedgerLabsIncatopblockchainforensicsandtechnologyfirmrdquowhichhappenstoberunbyVitalikButerincreatorofEthereum(ofwhichmorelater)266Theylateradmittedthisaudithadneverhappened267

Bitfinex then posted an open letter to the hacker seeking ldquoa mutuallyagreeable arrangement in exchange for an enormous bug bountyrdquo ie if onlythey would explain how theyrsquod hacked Bitfinex ldquoOur interest here is not toaccuse blameormakedemands but rather todiscuss an arrangement thatwethinkyouwillfindinterestingrdquo268

Itwas entirely unclear to any observerwhat possible arrangement could bemore interesting to the thief than ldquoI have all your bitcoins nowrdquo The stolenbitcoinsareslowlybeingsoldoffthroughotherexchanges269whichisverylikea bank accepting a big bag of dye-marked notes known to have been robbedfromanotherbankanddecidingtheydonrsquotcareOn 3 April 2017 Bitfinex announced they would finally redeem the other

99oftheBFXtokensfortheir$100facevalue270TheypaidbackthedollarvalueofthestolenbitcoinsatthetimeofthetheftndashieabouthalfwhatitwasbyAprilTheirhaircutgamblehadpaidoffandtheywereproudtohavemadetheir users whole once more ldquoWersquove demonstrated an alternative tobankruptcyrdquo271

What they didnrsquot announce was that in mid-March Wells Fargo had toldBitfinexrsquosTaiwanesebanksthatitwouldstopacceptinginternationalUSdollarwires fromBitfinexcutting themoffentirelyasof31MarchTheBFXtokenredemptionwasonlyanumberintheuserrsquosUSDaccountonBitfinexandnotanythingthatcouldbewithdrawn(SomelargercustomerscouldgetUSdollarsouttoalimiteddegree272butasIwritethisinJune2017retailcustomersstillcanrsquotreliablygetUSdollarsout)Bankingrelationshipsareaperennialproblemforcryptoexchangesndashbanks

and particularly correspondent banks (whose customers are other banks) hatedealing withmoney service businesses because the KYCAML compliance iscomplicated and expensive Phil Potter Chief Strategy Officer noted on aBitcoinpodcastduringtheWellsFargoproblems273

Wersquovehadbankinghiccupsinthepastwersquovejustalwaysbeenabletoroutearounditordealwithitopenupnewaccountsorwhathaveyouhellipshifttoanewcorporateentitylotsofcatandmousetricks

Bitfinex filed suit againstWellsFargoon5April stating that theirbusinesswas now ldquocrippledrdquo and under ldquoexistential threatrdquo and seeking a temporaryrestrainingorder274Theystillhadnrsquottoldtheircustomerstherewasanyproblemthough users had been reportingwithdrawal problems sincemid-March Theydroppedthesuiton12April275atthatstagehavingonlyadmittedtheproblemtocustomersalreadydiscussingitonReddit(MarkKarpelegraves noted howwhenMt Goxwas cut off by its US bank his

lawyersadvisedthatsuingtheintermediatebankwasldquotheworstthingwecouldpossiblydordquoandldquothebestwaytoseeyourselfblockedfromallbanksrdquo276)On18AprilBitfinexrsquosTaiwanesebanksalsostopped incomingwires277By

20 April no international withdrawals were possible in any currency onlydomesticwithdrawalswithinTaiwan278

AllthesefreshUSdollarsreturnedtoBFXtokenholdersthencausedthepriceofabitcointogoupwhichendeduplaunchingthesecondgreatBitcoinbubblendashfrom$900perbitcoinatthestartofAprilto$1900inmid-Mayand$3000inearlyJune279Themechanismis

1 UsershaveaUSDaccountandaBTCaccountTheycanrsquotselltheirbitcoins and withdraw their cash but they can buy more bitcoinsusing theirnewly-topped-upUSDaccountndashwhichcontains trappedldquodollarsrdquo which canrsquot be used for anything else Think of it as aBitfinex ldquoUSDrdquo token not as actual US dollars ndash Disneyland fun-moneywhichcanonlybespentinsidethethemeparkThepricegoesupInAprilBTConBitfinexwasoften$200higherthanelsewhere

2 With thehigherpriceonBitfinex traders arbitragebybuyingcoinson an exchange with a lower price and selling them on Bitfinex(NotethattheUSDfromthesaleisstuckonBitfinex)Thisraisesthepriceontheotherexchanges

3 Expectations rise the price getsmainstream press andmore peoplegetintoBitcoinThebubbleinflates

This works precisely because you canrsquot get your money out ndash and other

exchangeswerealsohavingproblemswithUSdollarwithdrawalsUserswerereluctant to remove their BTC fromBitfinex because the ldquopricerdquo was highestthere(evenifunrealisable)andbecausetheyloveditasatradingplatformThetrappedldquoUSDrdquoalsogetsusedtobuyothercryptocurrenciesndashthepriceof

altcoinstendstoriseandfallwiththepriceofbitcoinsndashandthishasfuelednewICOs(ldquoInitialCoinOfferingsrdquodetailednextchapter)aspeopledesperatelylookforsomewheretoputtheirunspendableldquodollarsrdquoThisgotEthereumandICOsintothebubbleaswellEven better onBitfinex you can useBTC as collateral tomargin-trade on

USDwhich you can then use to buymoreBTCWhich also drives the priceup280AndofcourseyoucanrsquotgettheUSDoutsoyoumightaswellbuymorecryptoswithit(BitfinexcertainlydidnrsquotintendtostartabubbleandBitcoinispronetowild

swingsofspeculationanywayasIwritethisBTCisactuallyloweratBitfinexthanatotherexchangesThebubblecontinues)WhileitrsquosgoodforBitfinexrsquoscustomersthatthecompanyrsquosdesperategamble

paid off itwas a desperate gambleOne problem is that others seem to havetaken itasamodelSouthKoreanexchangeYapizonwashackedon22Aprilwith3816BTC(thenabout$5million)beingstolenIt toohasapplieda37haircutndashcoincidentallyaboutthesamepercentagethatBitfinexappliedndashtoallcustomerBTCaccountsinexchangeforatokencalledFei281

AlthoughBitfinex has considerably professionalised since then the originalfounder ofBitfinexRaphaelNicolle never seemed to appreciate the problemfinancial regulators tend to have with schemes that pay early investors usingmoney from later investorsHe enthusiastically backed the Pirateat40Ponzi ndashthough at least he later apologised for that one282 ndash and cameupwith a high-yieldschemeofhisown

SoIrsquomthinkingofthefollowingplanwhenIneedmorecoinsthanIhavetofillanorderIwillaskeveryonethatpreviouslyldquoregisteredrdquowithmetolend me some btc After 7 days I will return all of it principal + 2interestsForyoutobecontactedyouwouldhavetoposthereorinPMtosayyoumightlendmebitcoinsandapproxhowmanyyoursquodbewillingtolendme283

Nicollehasnotbeenseenonlinesincethe120000BTChack284

BitfinexdoesansweronecommonquestionaskedofBitcoinscepticsldquoIfyoursquoresocriticalofBitcoinwhydonrsquotyoushortitrdquoldquoWellhelliprdquo

Chapter9Altcoins

Bitcoin was an open protocol implemented in open source code So alternatecryptocurrencies or altcoins quickly sprang up ndash mostly slightly-tweakedversionsof theBitcoincodemanygeneratedautomaticallyat thenow-defunctservicecoingenioOtherblockchainsmighthavedifferenthashesblocksizesblocktimesor

consensusmodels(howtochoosewhoaddsthenextblock)ShorttimesmeanyoucanverifytransactionsfasterbuttooshortatimemeansablockmaynotgetallthewayacrossthenetworkbeforeitrsquostimeforthenextblockndashleadingtoldquoconfirmedrdquotransactionsnolongerbeingconfirmedwhenanotherversionofthatblockchainisfoundthatrsquoslongerProofofWorkisobviouslywastefulTheothermainproposedconsensus

modelisProofofStakeinwhichthenextblockminerischosenatrandomaccordingtohowmanycoinstheyalreadyownThissavesonwastedhashingbutisabittooblatantlyarentiereconomyndashldquothemswhathasgetsrdquoAndlikeeveryothereconomicendeavourinhistoryitwillobviouslytendtowardpeopleputtinginupto$50worthofefforttoacquire$50worthofcoinsndashastealthldquoproofofworkrdquohoweveryoutrytostructureit(Althoughitmaybelessecologicallydestructivendashspending$4999ofyourbankbalancegenerateslesscarbondioxidethanburning$4999worthofcoal)AfewaltcoinshavetriednewideassuchasNamecoin(anattemptto

implementanalternateInternetDNSsystemonablockchain)Freicoin(whichusesdemurragendashnegativeinterestndashtodiscouragespeculativehoarding)andCurecoinandFoldingcoin(whoseProofofWorkisproteinfoldingforFoldingHomeadistributedcomputingprojectfordiseaseresearch285)ButmosthaveamuchsimplervaluepropositionyoumightgetrichtooifyoustartyourownmagicalInternetmoneyTheusualschemeisthatthecreatorshavemoreofthecointhananyoneelse

substantiallypreminingthecoinbeforereleaseTheylaunchitwithspeculativepromisesofinterestingfuturefeaturesthenselltheircoinoff(forbitcoins)tellingthenewbagholderstheyrsquoreactuallyearlyadoptersSomewentfurtherDafuqCoincompromisedexchangeswitharootkitbecausetheexchangesfailedtocheckthecodebeforerunningit286287

Bitcoinadvocatescorrectlyconsidermostaltcoinsascamandcaneffortlesslylistalltheproblemswiththemndashwhilefailingtonotethatmostofthesearealsoproblemswiththesubstantiallyearly-adopter-ownedBitcoinCryptocurrencyadvocatesandlazyjournalistsliketotalkabouttheldquomarket

caprdquoofacryptowhichisthetotalnumberofcoinsortokensinexistencemultipliedbytodayrsquospriceThisisabogusnumberthatrsquosnotactuallyapplicabletoanythingndashitrsquosnotmoneythatwasputintothecryptoitrsquosnotarealisablevaluelikeacompanymarketcapitdoesnrsquotaffectpricesndashitrsquosjustaneasily-calculatednumberthatsoundsgoodinaheadlineTradingissothininanycryptoevenBitcointhatyoucouldneverrealiseafractionofthenumberIfyouwanttocompareinterestandactivityincryptoassetsyouneedtocomparetradingvolumesifyoucanfindgoodnumbersforthose

Litecoin

Litecoin is theldquome toordquocoin Ithasnrsquotmany interestingstoriesbut itwas themost prominent altcoin before the first Bitcoin bubble burst for a few yearssites like the Pirate Bay that accepted Bitcoin donations often also acceptedLitecoindonationsItwasmarketedasldquothesilvertoBitcoinrsquosgoldrdquoThemaindifference from Bitcoin is a different hash designed to be resistant to GPUmining(thoughASICseventuallycameout)andashorterblocktimeLitecoinrsquos price went up with Bitcoinrsquos until 2013 the price crashed with

Bitcoinrsquosandduring2014itdeclinedfromitspeakof$42(spotpricesof$68onsomeexchanges) to $150 It hovered around$4until it hit $30 in the secondbubble ndash altcoin prices tend to track Bitcoinrsquos price ndash and the small currentvolumeisChinesespeculators

Dogecoin

Dogecoin (pronounced ldquodozhe-coinrdquo or ldquodogue-coinrdquo) started in December2013originallyasajokebasedontheldquoDogerdquoShibaInuInternetmeme288Theideawasmostly to have some funwith cryptocurrency cheap enough tomessaroundwithandwhoknowsmaybewersquollallgetrichDogecoiners(ldquoshibesrdquo)gatheringonRedditrdogecoinstilldreamtofa

cryptocurrencypaydayndashbuttheymadeanexplicitpointofbeingnicerasacommunitythanBitcoinadvocateswhohadquiteareputationbythisstage

DogecoingotcaughtupinthehypeoftheBitcoinbubbleandquicklygainedinpricepeakinginJanuary2014at017ofacentperDOGEdespitealmostnouse cases (some used it to tip other Reddit commenters) and not beingexchangeable for anything but bitcoins The Dogecoin Foundation started byBenDoernbergandthecoinrsquoscreatorJacksonPalmerraisednearly$30000ofDogecoins in January to send the Jamaican bobsled team to the 2014WinterOlympicsDoge4Waterraised$32000forcleanwaterinKenyaThisattractedtheattentionofafellowcallinghimselfAlexGreenldquoMyname

isAlexGreenIhavezeroonlinefootprintrdquoHequicklysetupUKcryptocurrencyexchangeMoolahWhileotherstippedsingleDogecoinsworthafractionofapennyGreencaughtattentionwithtipsofthousandsofdollarsDogecointhenraised$50000tosponsoraNASCARracerJoshWise(Green

putin$15000himself)WisersquosraceinMay2014wasprobablythemediapeakforDogecoinGreenstartedfundraisersonrdogecoinforsharesinMoolahandnevermind

thosefiddlyregulationsaboutpromotingsecuritiestothegeneralpublicBymid-JunehehadraisedoverhalfamilliondollarsHehadalsopushedmostoftheoriginalDogecoincrowdintoleavingrepeatedlythreateningtosuePalmerandDoernbergforharassmentforquestioninghisuseofrdogecointopushunregisteredsecuritiesPalmerandDoernbergcorrectlysmeltaratItcameoutthatldquoGreenrdquowas

formerlyknownasRyanKennedyRyanGentleRyanFrancisandmultipleothernameswithalonghistoryofcreatingscamstartupsthatraisedfundsandthenvanished289MoolahshutdowninOctoberandldquoGreenrdquodisappearedwiththemoneyMoolahhadtakenovercryptocurrencyexchangeMintpalinJuly2014That

exchangeshutdownwithMoolahinOctoberafteraldquohackrdquoKennedywascaughtsellingtheMintpalbitcoinsonLocalBitcoinsinFebruary2015290

AswellasaserialscammerKennedyturnedouttobeaserialrapistconvictedinMay2016ofthreecountsofrape291andjailedfor11yearsHewasalsochargedoverthestolenMintpalbitcoinsinJune2017292

WithGreenKennedynolongerinthepicturerdogecoinrecovereditsspiritsomewhatrefusedtoworryaboutpricesanymoreandisbacktojusthavingfunthoughwithwistfuldreamsofcryptorichesUnlikeothercryptocurrenciesrsquoclaimsabouttheirpricesDogecoinmaysucceedingoingldquotothemoonrdquondashthecommunitysponsoredsendingaphysicalDogecoinonanAstroboticcommercialmoonshot293

ItcameoutinMay2017thattheoperatoroftheDogecointippingbotonReddithadstolenallthedepositedDogecoinstwoyearsearlier294Muchsorrymanyloss

Ethereum

EthereumwasproposedbyVitalikButerin(anearlyBitcoinerandaco-founderofBitcoinMagazine) and developed byButerinGavinWood JeffreyWilckeand others Its key innovation is that you can run smart contracts on ablockchain programs that are triggered to run automatically in a givencircumstance If Bitcoin is like an Excel spreadsheet then Ethereum is like aspreadsheetwithmacrosThisnewideawasinterestingenoughtoquicklymakeEthereumthesecondmostpopularcryptocurrencyTransactionsandsmartcontractprograms(whichtheycallldquodappsrdquoshortfor

ldquodistributedapplicationsrdquo)requiregas (acertainamountof thecurrencytokenether abbreviatedETH)which is paid to theminerwhose computer runs thetransaction or smart contract This also keeps smart contracts from runningforeverEthereumhasitsownhome-brewedProofofWorkhash295whichisdesigned

tobeASIC-resistanttoavoidminingcentralisationndashitrequiresafewgigabytesof fast memory on hand so mining is presently GPU-based There are looseplanstomovetoProofofStake296(Forawhileduringthesecondcryptobubbleyoucould actuallymakemoneymining etheron last yearrsquosvideo cardwhichledtoasmallgoldrushinthevideocardsthemselves297andanensuingglutofburnt-outcardsonthesecond-handmarket)Ethereumrsquos pitch has always been ridiculously aspirational Itrsquos a ldquosmart

contracts platformrdquo itrsquos a ldquoworldwide distributed computerrdquo at one pointWikipedia called it ldquoWeb 30rdquo at another a ldquopublishing platformrdquo AnythingotherthanacryptocurrencyTothisdaydrive-byeditorsoccasionallyswingbytheEthereumarticleinWikipediatoremovethewordldquocryptocurrencyrdquoOf course the cryptocurrency is overwhelmingly themain use and that the

cryptocurrencywillgotothemoonisthemainhopeEthereum has a block time of around 14 to 16 seconds (Bitcoinrsquos is 10

minutes)Howdoblocksmake it across thenetwork in that timeWell oftentheydonrsquot(thoughblocksonlybeingafewkilobyteshelps298)Sothereareabout7validbutorphanedblocks299Aminer can storeup to two failedblocks intheir block as ldquounclesrdquo and the miners of the blocks that became uncles get

some reward tooEthereumpicks thehighest-scoring chain andunclesgive ablockahigherscoreThisavoidspenalisingminerswhoarefurtherawayfromthe rest of the network reducing economic pressure to centralise TheunconfirmedtransactionsintheunclewillusuallystayarounduntiltheyfinallymakeitintoablockTheexistenceofasinglecanonicalblockchainisfrequentlyquestionablebutsomehowitallmuddlesforthEthereum has a current maximum of about 14 transactions per second300

(Bitcoinrsquosis7TPS)Asatmid-2017itrsquosrunningabout2-3TPShavingrapidlyrisenover2017301populardappsalreadyfilltheblocksandclogthesystemforhoursatatimesuchastheBancorandStatusICOsTheEthereumcommunityseems to have faith in theEthereumFoundation so a fix ismore likely to beaccepted without a Bitcoin-style community civil war and backward-compatibility-breaking changes in Ethereum are a regular occurrence and aremostlymanagedwithoutcontroversyThe developers have always stated that Ethereum is explicitly experimental

and unfinished (and never mind the hundreds of millions of dollars in etherswillingaroundinit)andthatthepromisedfancyfunctionalitywillneedyearsofwork302 They occasionally boggle at people treating it asmuchmore of afinishedproductthantheydo303

Ethereum advocates talk up corporate adoption by Microsoft and othercompaniesndashitrsquosapopularchoiceofplatformforbusinessblockchaintrialsanditssmartcontractfunctionalityisreusedbyalotofotherblockchainsoftwarendashbut this is adoption of the software to run separate in-house blockchains notadoptionofthepublicEthereumchainandcurrency

Buterinrsquosquantumquest

BeforeEthereumVitalikButerinputconsiderableeffort in2013 into trying toconvince investors to fund him to build a quantum computer (Note that noquantumcomputersabletosolvepracticalproblemsareverifiedasexistingasofearly2017)Hisplanwastousethisquantumcomputertosolvecomputationallyinfeasibleproblemsthatcanrsquotbedonepracticallyonanordinarycomputersuchasreversingcryptographichashfunctions304

Since he didnrsquot know how to build a quantum computer his plan was tosimulateoneonanordinarycomputerndashsincethisapparentlywouldnrsquotcountasjust runningaprogram tosolve the impossibleproblemThiswasan idea thathadlongbeenputforwardbyJordanAshhisassociateinthisendeavourwho

hadputconsiderableeffortintothisstartlinglycrankmathematicalnotion305

Buterin andAshrsquos planwas to use this simulated quantum computer not torevolutionise computation and change the world ndash but only to use it to minebitcoinsfasterthananyoneelseandcornerthemarketSadlyfortheirFieldsMedalhopestheyfailedtosecuresufficientfundingto

breakmathematics Investorsmay have been put off by the pointed questionsfrom the crowdon how quite apart from themathematical implausibility thiswoulddestroyanyconfidenceinBitcoinandkillthegoldengooseItrsquosworthnotingthatapracticalquantumcomputerwouldbeabletosolvethe

SHA-256hashusedinBitcoinsomewhatfaster thananordinarycomputer306ndashbut it could also quickly break the conventionally-unbreakable public-keyencryption that protects a userrsquos Bitcoin balance So if you secretly had aquantumcomputeryoucouldmineabitfasteroryoucouldjuststealeveryoneelsersquosbitcoinsButerin later said he had ldquogreatly overestimatedrdquo the likelihood of the team

breaking mathematics estimating this task at maybe 1 to 5 possible(apparently a purely subjective guesswith no basis orworking given for thisnumber) and assures us that his skepticism concerning quantum claims hasldquosubstantially increasedrdquo He now puts the probability at ldquolt01rdquo thoughcompetent observers would likely consider even that on the high side for amathematicalimpossibility307

ICOsmagicbeansandbubblemachines

Thereisnothingintheworldmorehelplessandirresponsibleanddepravedthanamaninthedepthsofanetherbinge

ndashHunterSThompsonFearandLoathinginLasVegas

ThesnappynewphraseforldquobuyourpreminedaltcoinrdquoisldquoICOrdquo(ldquoInitialCoinOfferingrdquo or ldquo Initial Crowdfunding Offeringrdquo) These are typically tokensrunningontopoftheEthereumblockchainusuallyinasmartcontractwrittentothestandardERC-20interface308

Therersquosnomininginvolvedndashyoucreateasmartcontractthatmanagesapileof tokens sellasmallpercentageandhold the rest tosell laterYoualsokeepcentralised control over the token If itrsquos ERC-20 compliant itrsquos easy for anexchangetotradeinit

An ICOmakes sense for crowdfunding in very limited conditions ndash if youhavea technicalproblemthat requiresdecentralisedcryptographicallyverifiedtokens(ifitdoesnrsquotneedtokenstheyshouldnrsquotbeboltedon)ifthetokensaredirectly usable on the platform itself if at least a proof-of-concept of thetechnology verifiably exists It also helps if the idea is even plausible as abusinessUnsurprisinglymostICOsdonrsquotmeetthesecriteriaTokenofferingshavebeenaroundawhilebutkickedoffenormously in the

secondbubbleTheusualpretextiscrowdfundingbutinpracticethetokensarejust traded on the exchanges as commodities The creators then cash in ThevaluepropositionforbuyersisasforthecreatorseasymoneyinabubbleBancorrsquos ICO raised $144 million with none of the due diligence of an

ordinary Initial Public Offering the barest prospectus and no indication theirplan(aldquomarketmakerrdquotosellaltcoinsthatarenrsquotsellingotherwise)wouldevenworkThis isclearlysuperiorforacertaintypeofseller to theIPObubbleofthedot-comerainthatthesearenrsquotactuallysharesandthepurchasershavenoinfluenceoverthefundedenterpriseevenintheoryThe ideas themselves are asbadas theworstdot-com IPOsDigix thefirst

tokencrowdsaleontheEthereumblockchain itself isacryptocurrencybackedby gold309 Golem offers a ldquodecentralizedrdquo (buzzword alert) market incomputing like Amazon Web Services except you can only pay using theirtoken310 Gnosis offers semiautomatic prediction markets using their token311SingularDTVisabizarreplantofundaTVshowabouttheSingularityinwhicha Caribbean island adopts Ethereum as its currency and Austrian economicsworks(thisonegetsitsownsectionlaterinthebook)IconomiisanindexfundofotherICOs312

Thetokensmartcontractsareoftenincompetentinbothintendedfunctionalityandprogrammingability313This turnsoutnot tomatteras longas theydo thebasic jobattractbuyersandsell tokensStatus raised300000ETH(thenover$100million) tohellipwrite anEthereumphone appHopefully thatrsquos enough todevelopaphoneappItsoldoutinjustafewhoursTheactualpromisesastowhatpeoplewillgetforthat$100millionaretypical314

RiskofabandonmentlackofsuccessTheUserunderstandsandacceptsthatthecreationoftheSNTandthedevelopmentoftheStatusProjectmaybeabandonedforanumberof reasons including lackof interest fromthepublic lack of funding lack of commercial success or prospects (egcausedbycompetingprojects)TheUserthereforeunderstandsthatthereisnoassurancethatevenif theStatusProject ispartiallyorfullydevelopedand launched theUserwill receiveanybenefits through theSNTheldby

himEOSfoundedbyserialblockchainentrepreneurDannyLarimerisasdirectas

possible in this regard Theyrsquore also marketing it to the general public withadvertisements on the sides of London taxis315 Herersquos how the white paperdescribesit316

TheEOSIOsoftwareintroducesanewblockchainarchitecturedesignedtoenableverticalandhorizontalscalingofdecentralizedapplicationsThisisachieved by creating an operating system-like construct upon whichapplications can be built The software provides accounts authenticationdatabasesasynchronouscommunicationandtheschedulingofapplicationsacross hundreds of CPU cores or clusters The resulting technology is ablockchain architecture that scales tomillions of transactions per secondeliminates user fees and allows for quick and easy deployment ofdecentralizedapplications

No that doesnrsquot end ldquoand a ponyrdquo EOS is a rebranding of Larimerrsquos 2014projectBitShares317whichfailedtoachievethiseitherEOSisreleasingonebilliontokensindailytranchesoverthecourseofayear

atapriceofldquohowmuchmoneydoyouhavetothrowatusrdquoReallythatrsquosthepricethedayrsquostakeinETHdividedbythenumberoftokensreleasedthatdaySoIsendinsomeetherandIgethellip318

The EOS Tokens do not have any rights uses purpose attributesfunctionalitiesorfeaturesexpressorimpliedincludingwithoutlimitationany uses purpose attributes functionalities or features on the EOSPlatform

ThelegalEOSTokenPurchaseAgreementisafranklyamazingdocumentthateveryone should read319 US citizens or residents are not to buy the tokens(though EOS assures us they totally donrsquot constitute a security ndash hear thatSEC) the tokens are defined as not being useful in anymannerwhatsoeverforty-eight hours after the end of the distribution period the tokens will nolongerbetransferablethebuyerpromisesnottopurchasethemforspeculationor investment If therersquos any legal problems caused by you buying theseofficiallyworthlessthingsyouagreetoindemnifyEOSCryptofansstilllineduptobuythemldquoWhateverthesepeopledoIrsquomgoing

allinNuffsaidrdquo320

EOSwasalsodrivenupbyanother ICOpressone a ldquoContentDistributionPublicChainrdquotorunontheforthcomingEOSblockchain321ThepressoneICOsells 20 of its tokens for bitcoins 30 for ether and 50 for EOS tokens

FounderXiaolaiLiisanEOSBitSharesinvestorChinesespeculatorswentall-inonICOsbuyingintodubiousproposalsfrom

fear of missing out to the point where exchange BTC38 refused to put newtokens up and warned that illicit fundraising can carry the death penalty inChina322OneChineseldquoICOrdquobrokenewbarriersinmarketefficiencyyoudidnrsquotevenneedtoputyouretherintoityourselfBecausetheldquowhitepaperrdquocontainedmalware that found your Ethereumwallet and emptied itNow thatrsquos a smartcontract323

TheotherbigproblemwithICOsisthattheyrsquorealreadyrecreatingtheBitcointransactionclogbutonEthereumBoth theBancorandStatus ICOs filled theblocksonthedayoftheirreleasewithStatusrsquoshighertransactionfeesblockingall smaller transaction fees for several hours Some exchanges had to stoptrading ETH because they couldnrsquot get transactions onto the Ethereumblockchain324

History doesnrsquot repeat but it does rhyme One of the most famous shareofferings from the South Sea Bubble of 1719-1720 was ldquo A company forcarryingonanundertakingofgreatadvantagebutnobodytoknowwhatitisrdquo325

Themanofgeniuswhoessayedthisboldandsuccessfulinroaduponpubliccredulitymerelystatedinhisprospectusthattherequiredcapitalwashalfamillion infive thousandsharesof100poundseachdeposit2poundspershareEachsubscriberpayinghisdepositwouldbeentitledto100poundsperannumpershareHowthis immenseprofitwas tobeobtainedhedidnotcondescend to informthemat that timebutpromised that inamonthfullparticularsshouldbedulyannouncedandacallmadefortheremaining98poundsofthesubscriptionNextmorningatnineorsquoclockthisgreatmanopenedanofficeinCornhillCrowdsofpeoplebesethisdoorandwhenheshutupatthreeorsquoclockhefoundthatnolessthanonethousandshareshadbeensubscribedforandthedepositspaidHewas thus infivehours thewinnerof2000poundsHewasphilosopher enough tobe contentedwithhisventureandsetoff thesameeveningfor theContinentHewasneverheardofagain

ThefinestICOremainsPonzICO326apieceofldquoblockchainperformanceartrdquowherein earlier contributors are paid directly from later contributors with thefoundertakingameagre50offthetopHispitchndashldquoIntodayrsquosage itseemsbetter to promote the plausibility of future profit rather thanwaste energy onactuallydeliveringrdquo327ndashgrossed$4000asofJune2017328

Chapter10Smartcontractsstupidhumans

DrStrangelovebutontheblockchain

Smart contracts were originally quite separate from cryptocurrencies andblockchainsTheywere firstproposedbyNickSzabo in1994329You set up alegalagreementintheformofacomputerprogramthattriggerswhenparticularconditionsaremetandwhichcannotbeinterferedwithoncedeployedTheideais to replace the messy uncertainty and hierarchy of conventional human-mediatedlegalagreementswiththecleardeterministicrigourofcomputercodeimmune to human interference in order to make business and the law morepredictableandeffectiveThisisabadideaineverywayComputercodemapsverybadlytoreal-world

legalagreementswhere thehardpart isnotnormaloperationsbutwhat todowhen things go wrong immutability means you canrsquot fix problemsprogrammersneedtowriteperfectbug-freeprogramsfirsttimeeverytimeandthecontractcanrsquotbeupdatedifcircumstancesorlawschangeifthecontractactsonreal-worlddatathatdatawilloftenneedhumaninterpretationAndimagineyourmoneyworkingasreliablyasyourPCDr Strangelove is the best-known story of an unstoppable smart contract

goingwrongimmunetohumaninterventionTheUShassentnuclearbomberstotheSovietUnionthatcanonlyberecalledwithacodethatnobodyhasifanybombs hit these will trigger the Soviet Unionrsquos deterrent an unstoppabledoomsday device that cannot be dismantled or disarmed andwill explode onanyattempt toThe real-lifeversionrsquos consequences arenot asdrastic but themisguidedthinkingisthesameFortunately most of the worst real-world smart contract proposals are

infeasiblewhattheyrsquoreactuallyusedforisldquohonestPonzisrdquoandICOtokens

Sowhowantssmartcontractsanyway

Therearefivegroupsofpeoplewhowantsmartcontracts

1 Computerprogrammerswhodonrsquothaveanaptitudeforsocialorlegalconventionsbutdohaveanaptitudeforprogrammingsotheyrsquodlikesocialandlegalconventionstoworkabitmorelikethat

2 Anarcho-capitalistswhowanttoreplacethegovernmentwithasmallDOSbatchfile(Particularlyoneswhoarealsointhefirstgroup)

3 Businesseswhowant toautomateawaydealingwithcustomersbutstilltaketheirmoney

4 Peoplesellingyouflim-flamwithathinveneeroftechnologyontopwhohaveaswersquovenotedfoundrichpickingsinsmartcontractsforICOs

5 Innovative entrepreneurs who have come into conflict with thetraditional legal system previously and would like somethingdeterministic enough that they can take your money and escapethroughthecracks(Seealsogroup4)

Legalcodeisnotcomputercode

Szaboisacomputerscientistwhohasstudiedlawandhasadvocatedaroleforsmartcontractsinpubliclawwithduecaution330HoweverotherswanttotaketheideamuchfurtherSomeadvocatesspeakofreplacinglawyersandjudgeswithcomputercode331

as if this is an obviously good idea there are even anarcho-capitalists whoseriously posit replacing most functions of government with a computerprogram332 Others speak of completely autonomous corporate entities doingdeals with real money and goods without even the possibility of outsideinterference333

ComputerprogrammersworkinanareawhereeverythingcanbedeterminedcleanlyandclearlyifonlyinprincipleSousingcomputerstosortoutallthoseannoyinggreyareas inhuman interaction is tempting if youdonrsquotunderstandlaw (which involves intent)butyoudounderstandcode (whichdoespreciselywhatyoutellitndashthoughmaybenotpreciselywhatyoumeant)thenyoumaytrytoworkaroundlawusingcodeThe trouble is that this conceptionof smart contracts isbasedona severely

limitedunderstandingofhowcontractsthelawandsocialagreementsworkItconcentratesonatechnicalformthatcanbeput intocomputercodeItdoesnrsquotaddressthesocialmeaningofwhataldquocontractrdquoisthechangeablecontextsreal-world contracts operate in how theyrsquore fulfilled in practice ndash or how you fix

themwhenthingsgowrongWith conventional contracts if there isnrsquot a reasonable human at thewheel

youcaninfactgotocourtNotallcontractsarelegallyenforceableIntheworstcaseagovernmentcanpassnewlawmakingaseverelyproblematicvarietyofclauseunenforceableSmartcontractsworkonthewrongleveltheyrunonfactsandnotonhuman

intentndashbut legalcontractsareacodificationofhumanintentHumanintent isinexact but contracts assume they will be running on human minds in thecontextofhumaninstitutionsforhumanpurposesAconventionalcontractevenonespecifiedaspreciselyaspossiblewillhave

disputes and changes in circumstances and resolving thesewill often involveascertainingwhatpeoplewere thinkingat the timeandwhat theworldoutsidethe contractwas doingThe purpose of law is not to achieve philosophical ormathematicaltruthbuttotakeamessyrealityandachieveworkableresultsthatsocietycanlivewithEvenVitalik Buterin has acknowledged that for smart contracts to work as

advertisedwewouldneedtocreateahuman-equivalentartificialintelligencetounderstandwhatpeoplemeantthecontracttodo334ndashwhatpeoplewerethinkingat the time is a key issue in resolving many a contractual dispute ldquoIntent isfundamentallycomplexrdquo

Theoracleproblemgarbageingarbageout

In software testing an oracle is any mechanism that determines if a test haspassed or failed The oracle problem is how to do this without costly humaninterventionThis usagewas adopted for smart contractswhere the oracle problem is to

determinewhetherareal-worldconditioninasmartcontracthasbeenmetUnlessyoujustwanttoshuffletokensinsideyoursmartcontractplatformat

somepointyoursquoregoingtoneedtointeractwiththeoutsideworldYourcontracthastoknowifashipmenthasnotjustbeendeliveredbutiswhatyouorderedorif a given piece of work has been done to a satisfactory standard This willfrequentlyinvolveunavoidabletrustinhumanjudgementAnd remember garbage in means garbage out You may set up incentives

against false data ndash but what about accidental errors or disputed data orunavailable data Or as Matt Levine from Bloomberg points out ldquoMyimmutableunforgeablecryptographicallysecureblockchainrecordprovingthat

Ihave10000poundsofaluminuminawarehouseisnotmuchusetoabankifIthensmugglethealuminumoutofthewarehousethroughthebackdoorrdquo335

Technology and business journalists writing about non-cryptocurrency usecasesforsmartcontractsneverseemtomentionthattheirldquotrustlessrdquosystemwillstill involve trustinghumanswherever it touches thephysicalworldYoumayhave a tamperproof system for running contract code but the inputs have tocomefromoutsidethissecurespaceA common proposal is to outsource your oracle to a prediction market ndash

humansbettingonpredictionsndashthatisalsoonyourblockchainsuchasAugurSomehowtheoutcomeofabetissupposedtosubstitutefordirectknowledgeofaneventhavinghappenedornotwithsufficientconfidenceintheprocesstoletitaffectyourmoney Ifyourquestion isnrsquotpopularenough toattract sufficientuninvolvedwagersndash itwouldoftenbeworth it foroneparty to just bribe thebettorsndashyouwillstillhavetheoracleproblemindeterminingwhethertheeventhasinfactoccurredYoucanrsquotgetridofthehumanelementbyaddinganotherlayerofindirectionndashitrsquosoraclesallthewaydown(Augur has openly bragged that they think running on a blockchain means

theycandodgeUSgovernment regulationongamblingandderivativeswhichled to the shutdown of previous prediction markets despite being a singlecompanywithknownprincipals336)

Immutabilitymakeyourmistakesunfixable

The value proposition of ldquoimmutabilityrdquo is that nobody can mess with yourcontractonceitrsquosbeendeployedThecommonpitchtomusiciansforexampleis that the big record label will have to pay you as it says in your contractquicklyandautomaticallyBut in practice immunity to human interference is as serious a problem as

Bitcoin transactions being irreversible The standard example of a real-worldsmartcontractisacarthatstopsworkingifyourpaymentfails337OritsInternetconnection fails Or therersquos a software bug Unstoppably immune to humanintercessionorchangesincircumstancesIn the real world circumstances change out from under you How many

musicians have been so pleased with the first contract they signed andunderstood it themselves sowell that theyrsquodneverwantonedotof it alteredIncludingbysaylatercourtproceedingsThe most famous attempt at an autonomous corporation immune to

interferenceTheDAOcrashedandburnedwhenitturnedouttohaveasecurityhole that couldnrsquot be fixed in time and got hacked as detailed later in thischapterThe eventual fix for The DAO hack demonstrates the other problem with

smart contracts the ldquoimmutablerdquo system containing the smart contract wassuddenlyconsideredchangeablethemomentthebigboysriskedlosingenoughmoney(Szaborsquos original 1994 paper noted the need to allow human intervention

thoughby2014hewasfullyintosmartcontractsonablockchainwithnohumaninterventionpossible338Hedidnrsquotofferanycommentonthe2016failureofTheDAO)

Immutabilitytheenemyofgoodsoftwareengineering

SmartcontractsmakenosenseassoftwareengineeringYouneedaperfectbug-freeprogramndashbuthumansarereallybadatcodingwithouterrorProgrammingtothisextremequalitylevelisdonebyorganisationslikeNASAforspacecraftanditrsquoshideouslyslowandexpensive(Everydaybusinesseswouldfindafloorfulloflawyersbothcheaperandmoreeffective)A much-touted advantage of smart contracts is that the code is public so

anyonecancheckandverifyitbeforeengagingwithitTheproblemisthatitisextremelydifficult to tell preciselywhat a programmight possibly dowithoutactually running it339 Even if you do see any obvious (or exploitable) bugsnobody can fix them once the contractrsquos been deployed ndash your bugs areimmutableThentherersquosthequestionofwhatrsquosanerrorandwhatrsquosdeliberateInthewider

world of security programming we have the Underhanded C Contest acompetitiontowritedeceptiveprogramsthatlookliketheyjusthaveabugldquoyoumust write C code that is as readable clear innocent and straightforward aspossible and yet it must fail to perform at its apparent function To bemorespecific it should perform some specific underhanded task that will not bedetected by examining the source coderdquo340 The Ethereum community is alsorunningoneforSoliditytoencouragesecurityawareness341IfyouthinkpeoplehavetroublewithloopholesandtrapsinconventionalcontractshellipSmartcontracts relyon theprogrambeingperfect andnothavinganybugs

Buttheyalsorelyonthelanguage(egSolidityinEthereum)beingperfectandnothavinganybugsAndtheplatformthelanguagerunson(egtheEthereum

VirtualMachine)beingperfectandnothavinganybugsYoucandeployfully-auditedcodethatyoursquovemathematicallyproveniscorrectndashandthenabuginalower layer means you have a security hole anyway And this has alreadyhappened342

Ethereumsmartcontractsinpractice

If you suspect that spending cryptocurrencies on virtual thrones for non-existentkingdoms is illegal inyour jurisdictionpleaseavoidparticipating(andcomplaintoyourpoliticalrepresentatives)

ndashchain-letterautomaticPonzischemeldquoKingoftheEtherrdquo343

For decades smart contracts were just an interesting hypothetical Whenblockchains came along smart contract advocates were very interested in theblockchainrsquos immutability There were some smart contract experiments onBitcoin butEthereumwas prettymuch the first practical platform forwritingandrunningcomputerprogramsonablockchainHumansarebadat tasksrequiringperfectionButwhenprogrammingerrors

have drastic consequences the usual approach is to make it harder to shootyourself in the foot functional programming languages formal methodsmathematicalverificationofthecodedonrsquotuseafullcomputerlanguage(avoidTuring completeness) and so on Szabo wrote up some requirements and asimpleexamplelanguagein2002344

This is particularly important when you have multiple smart contractsinteractingwitheachotherndashmassivelyconcurrentprogrammingwithunknownpossibly-hostileprogramscallingintofunctionsofyoursEthereum ignores all of this Its standard contract language Solidity is a

procedural language based on theweb programming language JavaScript ndash tomake it as easy as possible for beginners towrite their first smart contract ItcontainsmanyconstructsthatmisleadprogrammerscomingfromJavaScriptintoshootingthemselvesinthefoot345Itisill-suitedandhazardousforconcurrency(egtheSolarstormvulnerability346)despite thisbeingaspecific intendedusecaseThereareendlessguidestowritingasecuresmartcontractforEthereumbut

mostEthereumcontractsignorethemwiththeobviousconsequences347

Smart contracts onEthereumareworse than evennon-financial commercialcode as of May 2016 Ethereum contracts averaged 100 obvious bugs (soobviousamachinecouldspotthem)per1000linesofcode348(ForcomparisonMicrosoftcodeaverages15obviousbugsper1000linesNASAspacecraftcodearound0per500000lines)Since cryptocurrencyenthusiastshadalready self-selected forgullibility the

veryfirstsmartcontracts theywrotewerechain letters lotteriesandautomaticPonzi schemesThese ably demonstrated the requirement for coding correctlyfirsttimeeverytime

The casinowhosepseudorandomnumbergenerator had the randomseed in the code so anyone could recreate the precise sequence ofrandomnumbers349

TheGovernMentalPonziwasgoingtopayout1100ETHbutduetoacodingerrorthisrequiredmoregasthanthemaximumpossiblegasforatransactionTheetherisnowstuckthereforever350

Many schemeswhich ran out of gas due to bugs eg King of theEther351

Rubixi Ponzi Errors in the code copy-and-pasted from othercontracts allowed anyone to become the owner and take themoney352

A Ponzi which would pay out only to the creator of the schemebecauseofwhatlookedtocasualinspectionofthecodelikeatypoinavariablename353NodoubtjustanaccidentIrsquomsure

AutomatedPonzischemesarenotnearlyasfashionablein2017mostoftheeffort goes into smart contracts for managing ICO tokens However as TheDAOshowedthecodingqualityisasgoodasever

TheDAOthesteadfastironwillofunstoppablecode

You just learnedchemistryand the first thingyoubuiltwasagiantbombandyoucanrsquotunderstandwhyitblewupinyourface

ndashbrockchainbrockshizerethereum354

Not content with their existing sales of Internet fairy gold some Ethereumdevelopers atGermanblockchain startupSlockit came upwith an evenmore

complicated scheme The DAO ndash a Decentralized Autonomous OrganizationwithldquoTherdquoaspartof thenameThiswasasmartcontractonEthereumwhichwouldtakepeoplersquosmoneyandgiveittoprojectsvotedonbythecontributorsasworthfundingadistributedventurecapitalfirm

TheDAOrsquosMissionToblazeanewpath inbusinessorganizationfor thebetterment of its members existing simultaneously nowhere andeverywhereandoperatingsolelywiththesteadfastironwillofunstoppablecode355

BoldinoriginalIrsquomsuretherearenoobviousproblemstherethatjumprightoutatyouTheDAOlaunchedon30April2016gotmassivepublicityandbecame the

biggestcrowdfundinginhistoryuptothattimewithover$150millioninETHfrom11000investorsinDAOtokensFourteenpercentofalletherwasinTheDAO It was the most prominent smart contract of all time achievingconsiderable mainstream press coverage It proceeded to illustrate just abouteverypotentialissuethathaseverbeenraisedwithsmartcontractsTheDAOrsquoslegalfootingwasuncertainandwidelyquestionedSellingtokens

inTheDAOclosely resembled trading inunregisteredsecuritiesndashparticularlywhenDAOtokensthemselveshitcryptocurrencyexchangesndashandtheSEChadcomedownonsimilarschemesinthepastTherewasnocorporateentitysoitwould default in most legal systems to being a general partnership with theinvestorshavingunlimitedpersonalliabilityandthecreatorsandthedesignatedldquocuratorsrdquooftheschemelikelyalsobeingliableShortlybeforethego-livedateresearchersflaggedseveralmechanismsinthe

designofTheDAOthatwouldalmostcertainlyleadtolossesforinvestorsandcalledforamoratoriumonTheDAOuntiltheycouldbefixed356

Worse on 9 June a bug was found in multiple smart contracts written inSolidityincludingTheDAOifabalancefunctionwascalledrecursivelyintheright way you could withdraw money repeatedly at no cost ldquoYour smartcontractisprobablyvulnerabletobeingemptiedifyoukeeptrackofanysortofuserbalancesandwerenotveryverycarefulrdquo357ThiswasnottechnicallyabuginSolidity but the language design hadmade it fatally easy to leave yourselfwideopenThe DAO principals decided to proceed anyway Stephen Tual of Slockit

confidentlydeclaringon12JuneldquoNoDAOfundsatriskfollowingtheEthereumsmart contract lsquorecursive callrsquo bug discoveryrdquo358hellip and on 17 June a hackerused this recursivecallbug todrain$50million fromTheDAOAndnobody

could stop thishappeningbecause the smart contract codecouldnrsquotbe alteredwithout two weeksrsquo consensus from participants The price of ether promptlydroppedfrom$2150to$15(Tualpostedon9Julyahopefullistofreasonswhytheattackermightgiveall

theetherbackjustlikethatBecauseitwouldbeintheirrationalself-interest359Thisdidnrsquothappenoddlyenough)EthereumFoundationprincipalsdiscussedoptions includinga soft forkor a

hard fork of the code or even of the blockchain itself or a rollback of theblockchainThecommunitywrangledwith thephilosophical issues thewholepointofsmartcontractswasthattheycouldnrsquotbefiddledwithThiscontracthadbeenadvertisedasldquothesteadfastironwillofunstoppablecoderdquobutitappearedonly the hacker had read the contractrsquos fine print closely enough360 Someseriouslydebatedwhetherthisshouldevenberegardedasaldquotheftrdquosayingthatcodeislawandintentdoesnrsquotmatter(unlikeinreal-worldcontractsoperatinginalegalsystemorindeedinfraudlawingeneral)Othersarguedthatthemarketintegrity of the Ethereum smart contract system required that incompetentcontractswhichTheDAOcertainlywashadtobeallowedtofail(The proposed soft fork solution was to blacklist transactions whose result

interacted with the ldquodark DAOrdquo the attacker had poured the funds into Thiswould have allowed a fairly obvious denial-of-service attack flood EthereumwithcostlycomputationsthatendatthedarkDAOIncomputersciencetermsthisapproachcouldonlyhaveworkedbyfirstsolvingthehaltingproblemyouwould need to be able to determine the outcome of any possible Ethereumprogramwithoutactuallyrunningitandobservingtheresult361)TheDAOwasshutdownsoonafterandon20JulytheEthereumFoundation

ndash several of whose principals were curators of The DAO362 andor heavilyinvested in it ndash changed how the actual code of Ethereum interpreted theirblockchain(theldquoimmutablerdquoledger)soastowindbackthehackandtakebacktheir money The blockchain was ldquoimmutablerdquo so they changed how it wasinterpretedTheldquoimpossiblerdquobailouthadhappenedThisillustratedthefinalmajorproblemwithsmartcontractsCODEISLAW

untilthewhalesareindangeroflosingmoneyEthereum promptly split into two separate blockchains each with its own

currency ndash Ethereum (ETH) the wound-back version supported by theEthereum Foundation and Ethereum Classic (ETC) the original code andblockchainndashbecauseallthiswastoogreedyevenforcryptofanstoputupwithBothblockchainsandcurrenciesoperatetodayWelldoneall

Apologists note that The DAO was just an experiment (a $150 millionldquoexperimentrdquo) to answer the question can we have a workable decentralizedautonomous organization running on smart contracts with no humaninterventionAnditanswereditnoprobablynot

Chapter11BusinessbafflegabbutontheBlockchain

Ifyoursquoreabusinessguyyoucouldlookatthecurrentconstructversusthenewconstructandsaylsquoarenrsquotyoujustbuildingabigdatabasersquo

ndashCharleyCooperR3BlockchainConsortium

YoucanreplacethetermldquodistributedledgersrdquowithldquosharedExcelsheetsrdquoinabout90percentoftalkaboutblockchainandfinance

ndashTracyAlloway363

As Bitcoin became more famous its dubious nature became increasinglyobvious to mainstream observers So the buzzword of choice shifted fromldquoBitcoinrdquotoldquotheblockchainrdquoorjustldquoBlockchainrdquoTheyreallymeant theBitcoinblockchainas thegoalwas toget interestup

andthepricewithitThisparticularlypickeduparoundlate2014364when theBitcoinpricehadcrateredThevaluepropositionwasthatBitcoinwasthemostsecurechainasithadthemosthashingpowersoeveryonewantingablockchainshouldusethatoneHoweverthelimitof7transactionspersecondworldwideblocks being too full for transactions to get through anyway and that yourInternet of Things light bulb was profoundly unlikely to add enough flashmemory for 120 gigabytes of SatoshiDice gambling spam were all a bit tooobvioustotheprospectivecustomersBut by late 2015 ldquoBlockchainrdquo hype had taken on a life of its own as a

business buzzword If in a manner somewhat uncomfortable with its Bitcoinorigins This has been further euphemised to ldquodistributed ledger technologyrdquowhichwouldonthefaceofitincludesharedExcelspreadsheetsIn the real world nobody outside the cryptocurrency subculture uses

blockchains proper because they are ridiculously impractical and the mostprominentoneusesasmuchelectricityasallofIrelandThismeanstheirfantasylifeisrichindeedRepeattoyourselfifitsoundstoogoodtobetrueitalmostcertainlyis

WhatcanBlockchaindoforme

Thekeyproblemwithblockchainproposalsforbusinessare1 Decentralisation isveryexpensiveanddoesnrsquotgetyoumuchat the

lossofefficiencyandcontrolRecentralisingimmediatelymakesthesystemmuchmoreefficient

2 Your problem is pretty much always sorting out your data andformatsandblockchainswonrsquotcleanupyourdataforyou

If you start with ldquohellip but with Blockchainrdquo then putting lots of differentwordsbeforeldquobutrdquo isnrsquot likelytoresult insomethingthatrsquosactuallyusefulandpracticalTransaction ledgers in tamper-evident chains and treesof hashes are a good

ideaandbusinessesareabout todiscoverhowtouse themfor tamper-evidentledgersThesewilllikelybebrandedldquoBlockchainrdquowhetherornottheproducthasanythingelsetodowithblockchainsIfyouhaveprogrammers theyprobablysave theircode inGitwhich is the

closestIcanthinkoftoausefulblockchain-liketechnologyitsavesindividualcode edits as transactions in Merkle trees with tamper-evident hashes anddevelopers routinely copy entire Git repositories around identifying them byhash Itrsquos a distributed ledger but for computer programs rather than moneyWhatitdoesnrsquothaveistheblockchainconsensusmechanismndashyoutakeorleavetheversionoftherepositoryyoursquoreoffered(Ihavehadoneldquodistributedledgertechnologyrdquodeveloper admit his productwasbasically a simplifiedversionofGit)Gitwasreleasedin2005andwasbasedonworkgoingbacktothelate1990s

Merkle trees were invented in 1979 The good bits of blockchain are notoriginalandtheoriginalbitsofblockchainturnoutnottobemuchgoodButifyou use Git you can tell your management ldquooh yes wersquove been usingblockchain-relatedtechnologiesforyearsnowhelliprdquoBusiness Blockchain marketing claims are rarely this grounded however

Theyrsquore largely divorced from tawdry considerations of technical or economicfeasibilitymathematical coherencyor logical consistencyNormalpeoplehearthesenigh-magicalclaimsseeobvioususesforthemintheirownbusinessandareleftwiththeimpressionldquoBlockchainrdquocangetthemthesethingsSomeof the claims are sort of true in some sense butmost are completely

fancifulManystartfromahypotheticalusecasendashoftenlifteddirectlyfromthewildestBitcoin advocacyndash then tout the hypothetical as if itwere an existing

and practical technology This includes claims made for ldquodistributed ledgertechnologyrdquowhichalsomostlyoriginateinBitcoinadvocacy365

IBMrsquospromotionale-bookMakingBlockchainReadyforBusiness366isagoodexample It sells vague and implied future potential ndash ldquodiscover what newbusinessmodelscouldemergeiftrustampmanualprocessesareeliminatedrdquoldquohowmightafastermoresecurestandardizedandoperationallyefficienttransactionmodelcreatenewopportunitiesforyourbusinessrdquoAlmosteverysolid-lookingldquoisrdquo statement concerning blockchains ndash ldquoan enterprise-class cross-industryopen standard for distributed ledgers that can transform the way businesstransactions are conducted globallyrdquo ldquohighly secure blockchain services andframeworks that address regulatory compliance across financial servicesgovernmentandhealthcarerdquondashisreallyaldquomightrdquoorldquocouldrdquonoblockchainhasall the claimed abilities in the present day and certainly notHyperledger thebasisofIBMBlockchainIsatinononepresentationbyaBigFouraccountingfirmontheBlockchain

in health care three blokes (one with a tie two without) talking about thehypotheticalpossibilitiesablockchainmightofferhealthcareinthefutureallofwhichwasgenericextrudedblockchainhypeandmuchofitBitcoinhypewiththe buzzword changed When an audience member tiring of this foggy talkaskediftherewasanythingconcretethatblockchainscouldoffertheNHStheyrespondedthataskingforpracticalusesofBlockchainwasldquoliketryingtopredictFacebookin1993rdquoThemaintakeawayforthehealthcaresectorpeopleIwaswithwas swearing never to use said accounting firm for anythingwhatsoeverthatwasnrsquotaccountingA sure tell of a reality-free writeup completely detached from earthly

considerationsiswhenawritertalksaboutldquoBlockchainrdquocapitalBnoldquotherdquo367YoushouldtrymentallyreplacingthewordldquoBlockchainrdquowithldquoCloudrdquoandseeif the article seems eerily familiar Also try the previous business technologybuzzwordsldquobigdatardquoldquoNoSQLrdquoldquoSaaSrdquoandldquoWeb20rdquoandseehowitworkswiththose

ButallthesecompaniesareusingBlockchainnow

TheyalmostcertainlyarenrsquotBlockchainmarketersconsistentlyclaimsomeprominentcompanyldquoisusingrdquo

ablockchainwhentherersquosjustbeenapressreleasethattheyrsquorerunningavendortrialorldquoinvestigatingrdquorunningafuturetrialThisisbecauseanldquoinvestigationrdquo

ischeapndashthisbookisalegitimatebusinessexpenseforthispurposebythewayndash and worth the PR value in showing yoursquore fully up to date with currentbuzzwords ldquoResearching the opportunitiesrdquo could mean anything but almostcertainlydoesmeannothingTheBitcoinpress iscomposedofadvocacyblogsenthusiasticallypromoting

anythingtodowithcryptosbecausewhattheirreadershipwantsisreassurancethatthisisthefuture(andthattheirBitcoinholdingwillgotothemoon)Evenwhencoveringactualnews the journalism tends tobe ridiculously sloppy (Inusing these as sources for this book Irsquove had to carefully double-check anygiven claim isnrsquot aspirational rubbish and Irsquove probablymissed a few) Theywrite articles about things that have not happened yet and probably wonrsquotldquoTalkingaboutrdquobecomesldquoconsideringdoingrdquobecomesldquowilldordquobecomesldquoisdoingrdquoEvenifagivenblockchaintrialdoesinfacthappenlaterfailureisnotdocumentedThemainstreampress assume this is specialist press rather thanboosterism

andrunstoriestakingallthisatfacevalueAsthebuzzwordldquoBlockchainrdquohasgained currency they have tended to run blockchainmarketersrsquo press releasesbarelyeditedassumingtheremustbesomethingtoallofthis(IBMhaveputoutalotoftheselately)Asoneotherwiseveryblockchain-positivepaperTechUKrsquosldquoIndustrialisation

ofDistributedLedgerTechnologyinBankingandFinancialServicesrdquoputsit368

There is currently no commercially available proven technology platformtested for enterprise classvolume security reliability and regulationsyetThis isoneof thekeyfactorsholdingbacktheproductiveimplementationoftheusecasesTodateforconductingPOCs369bankshaveusedavailableopen sourceor vendor technologiesSeveral compromises or assumptionscan be made at POC stage but these cannot be carried on to productionsystems

Ifyouseeausecasethatcatchesyourattentionawebsearchonthecompanynames and the word ldquoblockchainrdquo will often track down the original pressrelease Check very carefully which details are clearly substantiated in thepresenttenseandwhichareaspirational

Blockchainswonrsquotcleanupyourdataforyou

When blockchain schemes do promise some specific outcome itrsquos usually themagic of full availability of properly cleaned up and standardised data The

actual problem is cleaning up the data in the first place or getting legacysystemstalkingtoeachotheratallIn finance in particular the back-office systems are decades old and wonrsquot

interoperate without tremendous effort For all the considerable effort atcomputerisationtherersquosstilltoomuchpaperandhumaneffortSettlementscanstilltakedaysWallStreetwasveryreceptivetotheblockchainpitch370

The blockchain proponentsrsquo business goal is to become the organisationcontrolling the new data standard with a monopoly maintained by networkeffectThebarrierthatsucheffortsfounderonoverandoverndashanddidbeforeanyonetriedaddingblockchainstotheideandashisthatnoindustryrsquosplayerswanttocreateanewcentraloctopusExamplesinclude

Blem Information Management an insurance software companyposit putting all documents on a blockchain so smart contracts canspeed up payouts The problem this claims to solve is insurersdeliberately altering or losing documents ldquoThere have always beensuspicions that insurers could change thedataonwhat the situationwas in the pastrdquo371 Itrsquos not explained how an insurer prepared tocommitblatantfraudcouldbetrustedtopayaclaimanywayAssessingclaimsisinfactthehardpartandclaimsadjustmentisdonebyhumanstalkingtohumansTheproposalusessmartcontractstospeedupprocessingclaimsndashwhichjustmovesalltheback-officecomputing from the insurer to the miners of the blockchain inquestionLand title registers on a blockchain solves no part of the actualproblemwith land title registry parcels of land that have anownerbuthaveescapedbeingputontheexistingofficialregister372Storingtheofficialregisteronablockchainoffersnoadvantageoverhavingitin an ordinary database (which you can already distributeauthenticatedcopiesof) andnodigital recordwill enforce landuseforyouSupply chain provenance is a perennial proposal Provenance Incproposes putting tuna catches on the Ethereum blockchain Theyclaim tooffer supplychain transparency toallparticipants and thiswill reveal illegal overfishing or fishing that involves human rightsabusesThedatawouldstillbeenteredbylocalhumansundertheauspicesof ldquotrustedrdquo local NGOs who pay monthly for the software The

assumption seems to be that commercial operations engaging inillegal overfishing or human rights abuses will carefully documenttheirillegalactivitiesontheblockchainandnotjust lieorbribetheldquoneutralrdquo inspectors or adjudicators ndash as happens in current supplychainmonitoring373 Themainbyproduct is amonopoly for the traceability providerie Provenance Their own white paper simultaneously claims thesystem is ldquodecentralizedrdquo but with a centrally-controlledldquoProvenance-validated chain of custodyrdquo374 The actual present-dayproblemturnsouttobenoagreementonwhatdatatocollectorwhattodowithitAlmosteveryproposedmusicindustrycase(seenextchapter)

Thesealsohaveagallopingcaseof theldquooracleproblemrdquogettinggoodreal-worlddataintotheblockchaininthefirstplacerequireshumanjudgement(Someblockchainhypetalksaboutldquoartificialintelligenceontheblockchainrdquo

If someone tries this one drill down for details of their artificial intelligenceproduct)If your big goal is cleaned-up and standardised data across multiple

organisationstheonlyapproachlikelytogetyouthereiscreatingadataschemathat is so obviously and elegantly the right thing that everyone just adopts itthemselvesasthedefactostandardandastandardsbodyorregulatoreventuallysaysldquoheyusethisonerdquoNotelackofblockchains(Thisistheusualapproachincomputing though even there companies routinely try to set themselves up inthe roleofcentraloctopus)Andobviously theblockchainwonrsquot replaceyourback-office systems without as much work time and money as any othersoftwarereplacementprojectwouldbeGettingfundingatlonglasttocleanupyourdataandformatsmaybeworth

saying thewordldquoblockchainrdquoMattLevinefromBloomberg notes ldquoThewordlsquoblockchainrsquo has managed to make that boring back-office coordination worksexywhichmeansthatitmightactuallygetdonerdquo375Thisratherthananythingblockchainsthemselvesofferseemstobethemostproductiveresultofbusinessblockchain trials to date Once thatrsquos in place you can increase efficiencymarkedlybytakingtheblockchainbitout

Sixquestionstoaskyourblockchainsalesman

Ifsomeoneistryingtosellyouonblockchainstheobviousskepticalquestions

willgetyoualongwayAretheyconfusingldquomightrdquoandldquoisrdquo(Almostallbusinessblockchainclaims are full of ldquomightrdquo and salespeople talking about ldquothepossibilitiesrdquo)Dotheyhavepresent-dayworkingblockchainsthatdoevery one of the things theyrsquove claimed you can get fromblockchainsIfnotwhichonesaremissingWillthesystemscaletothesizeofyourdataHowHowdoyoudealwithhumanerrorintheldquoimmutablerdquoblockchainorsmartcontractsIf this is forworkingwithpeopleyoutrust less than thepeopleyoudeal with now how are they assuring the security of the chain ndashwhatrsquos the security threat model (Get your system administratoralongtoaskpointedquestions)If itrsquos forworkingwithpeopleyoucan already trust to that degreewhyareyoubotheringwithablockchainWhat does this get you that a centralised database canrsquot Howprecisely(Drilldown)

Securitythreatmodels

IfyouwanttoworkwithpeopleyoutrustlessthanthoseyoutrustnowyouwillneedtobeabsolutelyclearonhowyourblockchainissecuredagainstattackersbothinternalandexternalWhatisyourthreatmodelWhatattacksfromtheoutsideworlddoyouneed

toprotectagainstWhatattacks fromyour fellowsonyourblockchaindoyouneed to protect againstWhat do your security-conscious IT staff think of allthisAttacksmayinclude376

The usual human problems in cryptographic key managementOrdinary employees just trying to do their jobs are really bad atsecuritythinkingWhatcansomeonedoasldquoyourdquoifyourcompanyrsquoskeysleakorifsomeoneclicksthewronglinkinaphishingemailIfyouhaveenoughhashpoweronaProofofWorkchainfrom25up you can conduct an attack on the system as described in theBitcoinminingchapterInBitcointhisattacksthetransactionledgerinabusinessblockchaintheintegrityoftheinformation

On an invitation-only permissioned blockchain you donrsquot have tocontrol a large chunk of the hash power ndash you just need tocompromiseasinglememberTheminer gets to choosewhich transactions theywrite to the nextblockWhat could theywrite or decline towrite to the chain thatwouldbeadversetoyouWhatifsomeothermembersofyourchaindecidetheydonrsquotlikeyou

Blockchain promises that itwill let peoplewhodonrsquot trust each otherworktogether The trouble is that it does this only approximately with startlinginefficiencyandinawaythatnaturallyrecentralisestooneorafewwinnersashappened with Bitcoin The usual proposal to avoid this is to just start withcentralauthorityatwhichpointyouprobablyshouldnrsquotbeusingablockchain

Permissionedblockchains

Exposingallyourbusinessdataandback-officemachinerytothewholeInternetisobviouslysillySothenextmovewaspermissionedblockchainsforapprovedusersonlyTherearevariousconsensusmodelsorwaystochoosewhogetstowritethe

next blockBitcoin-style competitive Proof ofWork is stupendouslywastefulMost permissionedblockchains use something else typically various formsofjustagreeingtotaketurnsbecausetrustlessnessinpracticeishugelyinefficientandabitoftrustsavesvastamountsofwastedeffortButeventhenaldquopermissionedrdquoblockchainisotherwiseknownasldquothemost

inefficient possible centrally-administered database clusterrdquoAll proposals Irsquoveseeninthecourseofresearchingthischapteriftheyturnedouttodoanythinguseful could gain immediate performance improvements by just moving to aconventionalcentraliseddatabaseYou already work with other people and companies Industry consortia

standardsgroupsandsoonarewell-testedmodelsBlockchainsdonotofferabetterwaytodothisAn August 2015 blog post from Vitalik Buterin discusses ldquopublicrdquo

ldquoconsortiumrdquo and ldquoprivaterdquo blockchains Bitcoin and Ethereum are ldquopublicrdquoblockchains377 This comment chain on the post concisely summarises theinnovationstheprivateblockchainbrings

AndreyZamovskiyLetrsquosjustadmitthatblockchainissimplyanewtypeofreplicationalgorithmforadatabaseclusterThatrsquosit

VitalikButerin Correct PlusMerkle trees TheMerkle trees are actuallyimportantAndrey Zamovskiy Merkle trees have not been invented with bitcointheyrsquovejustgotanadoption

Of course one use case is that a ldquoprivate blockchainrdquo378 or ldquomutualizeddatabase structurerdquo379 might sound less suspect to anti-trust authorities than aldquocartelrdquoAndthedesiretogetoutfromunderthegimleteyeofregulatorspost-2008attracts themoreadventuroussortoffinancialfirmlookingforasuitableldquodark poolrdquo of liquidity380 The next economic disaster courtesy irresponsiblespeculationishardlygoingtocauseitselfafterallIn practice financial institutions talking up ldquoBlockchainrdquo are envisaging a

privatepermissionedblockchainwithonlywell-knownparticipantsandonlyasopenasregulatorsrequire

BeneficiariesofbusinessBlockchain

ThemarketforsellingbuzzwordstouppermanagementhasdoneverywellwithldquoBlockchainrdquowhichisvastlysuperiortoldquocloudcomputingrdquoorldquoNoSQLrdquoinnotbeingverifiablyanyparticularsortofproductwhatsoeverWhichmeans itcanbeanyproductatleasthypotheticallyPeople selling buzzwords to venture capitalists have benefited similarly

Therersquos been about $15 billion in venture capital spent on Bitcoin-relatedventures up to February 2017 which have so far returned zero381 the wordldquoBitcoinrdquoisnowaredflagtoventurecapitalistssoaquickterminologyshiftismostusefulAny business that involves records or logs of any sort can quickly add the

word ldquoblockchainrdquo to improve its marketability and further the all-importantpress release churnalism and ldquoTen Hot Startupsrdquo listings to back its flimsypromotionalWikipediaentryEvenifyourproducthasnothingtodowithblockchainsyoucantalkabout

blockchains to suggestpeopleuseyour thing insteadwhile theyrsquorewaiting forblockchainsthatwork382

Non-beneficiariesofbusinessBlockchain

Akeen prospectivemarket is end userswhowant efficiency savings andwill

evenlookintomagicalflyingunicornponiestoseeiftheycangetthemNoneofthesehavefoundanyinblockchainsThe most prominent current attempt is the Australian Securities Exchange

(ASX) testing a blockchain-based replacement for its 24-year-old back-officesettlementsoftwaretheyrsquoreworkingwithDigitalAssetHoldingssothismightactually involve a blockchain properMany of the claims are pure hype egtheyappeartohavebeensoldthepupldquoinstanttransactionclearancerdquo383andtheircustomersarealreadydeeplyunhappythattheASXarenotproposingsomethingthattalksamoreindustrystandardprotocolldquoWe think if we can get this right we can get very close to real-time

settlementYoushouldbeabletosellsharesatyourdeskrightnowandwalktothenearestATMtogetyourmoneyThatisourmissionrdquosaidthen-CEOElmerFunkeKupperSuchshortblocktimesareunlikelytobesufficientlysecureforasystem with serious money in it far outweighing the comparatively piddlingamountsinBitcoinortheDAOandwithaconcomitantlevelofhostileattackeritispossiblethatDigitalAssetHoldingsdidnotoutlinethisproblemtohimFunke Kupper resigned in August 2016 after a bribery allegation the new

CEOhassaidhersquosstayingthecourse384buthasalsopuntedthedecisionintothelonggrass385

Real businesses donrsquot in fact want the world seeing all their transactionswhichiswheretheideaofprivateblockchainscomesfromAsIBMfoundoutafterstartingHyperledgerallmannerofbusinessesndashfinancialinstitutionsbeefindustry shoe brands confectioners ndash donrsquot want to share data even with allparticipants in their blockchain but only with the people the specific deal isactuallywith386387388Thiswasapparentlynewsto themIt turnsout that IBMsetupanelaboratehammerdesignconsortiumwithoutfirstfindingoutiftherearenails

ldquoBlockchainrdquoproductsyoucanbuy

With so many people waving money and shouting ldquoSELL ME ABLOCKCHAINWHATEVERTHATISrdquo several companieshavecome forthto offer something using that word and fulfilling at least a few of the lessoutlandishclaimsThisiseasierthanyoumightthinksincetheactuallygoodbitisthetamper-

evidentledgerandwealreadyhaveworkingexampleswhichareusefulforrealthings (eg Git) with no need for the sillier aspects of blockchain-style

decentralisationThe examples remain instructive particularly in comparison to Bitcoin or

EthereumAccentureAccentureoffertheonethingcustomerswhoactuallyhavemoney

wantfromablockchaincentralisedadministrationandawaytoedittheledgerwhennecessaryYoumightthinkthatthisisliterallytheoppositeofthestandardblockchain value proposition since the invention of Bitcoin but Accentureprobablyhaveabettertrackrecordofbig-ticketsalesTheymentionTheDAOasanexcellentworkedexampleofwhythisisneeded389

Microsoft Azure Blockchain as a Service promises public consortium orprivateblockchainswithanyconsensusalgorithmyoulikedefinitelyreachingpublicreleasestatuswithatleastsomeofthepromisedfeaturessometimesoonmaybe You will be able to write smart contracts in Solidity offering all theadvantagesofthatlanguagethatwersquovealreadyseenwithTheDAO390

Hyperledger IBM offer the IBM Blockchain based on HyperledgerHyperledgerorgisacorporateopensourcePotemkinvillageofthesortIBMhaslongfavouredtheillusionofanopenprojectwithnoldquothererdquothereIspenthalfan hour dredging the site and could not find one clear statement ofwhat thissoftwareisactuallyintendedtodoletalonedifferencesfromandsimilaritiestoexisting blockchains Even Bitcoin blogCoinDesk notes ldquoAmong the doubtsfacingHyperledger is a perceived lack of clarity onwhatmight be ultimatelyproducedbytheinitiativerdquo391

Ifyouclicklongenoughyoursquollfindapagewheretheparticipatingcompanieshave dumped their unfinished blockchain experiments392 The main codecontributorisDigitalAssetHoldingstheirjoiningannouncement(ontheirownsitenothyperledgerorg)givesas technicaldetailsonly thatHyperledger isanappend-only ledger andhas an actualBitcoin-styleblockchain in it393 (DigitalAsset Holdings was founded by BlytheMasters pioneer of the credit defaultswapthefinancialinstrumentbehindtheglobalfinancialcrisisof2008thatmayhaveprovokedNakamototofinallyreleaseBitcoin)Sawtooth Lake Intelrsquos contribution to Hyperledgerorg replaces the

blitheringly stupid andwasteful Proof ofWorkwith something equally stupidbutlesswastefulProofofElapsedTime394whichmightaswellbecalledProofofBuyingAnIntelCPURatherthanhaveminerscompetetoproducethenextblock a timer running inanenvironment securedbyaDRMmechanismbuiltintoyourIntelCPUpicksifyougettodothenextblockThewhitepaperisanextendedadvertisementforIntelregSoftwareGuardExtensionstrade(SGXtrade)AlsotheyonlyhaveasimulatedProofofBuyingAnIntelCPUmechanismasyet

Thisdoesnrsquotprovideanysecurityagainstmaliciousparticipantsonthelogicthatprivateblockchainsneed speedover securityYoumight think that at thatpoint you donrsquot need a blockchain at all but yoursquore hardly going to sell anyconsultanthourswiththatsortofthinkingChainCoreSoftware to runapermissionedprivateldquoblockchainrdquo It solves

the secure distributed consensus problem in an obvious and sensible mannerblocks are generated only by designated official core nodes395 Distributedconsensus is somuchsimpler ifyoudonrsquotdistribute it2016press stories thatVisa was using it in the real world were in fact forward-looking versions ofVisarsquospressreleasethattheywereplanningapilotprogrammefor2017396

R3 Corda The R3 Consortiumrsquos Corda Distributed Ledger Designed forFinancial Services is the most sensible of all these approaches after carefulconsideration of the fact that the Bitcoin-style blockchain was expresslydesigned tobe thedirectoppositeofwhat largepayingcustomerswithmoneywant their ldquoBlockchain Productrdquo does not in its default configuration hellipcontainablockchain397

UKGovernmentOfficeforScienceldquoDistributedLedgerTechnologybeyondblockchainrdquo

The UKrsquos Chief Scientific Adviser Sir Mark Walpole released a report inJanuary2016 ldquoDistributedLedgerTechnologybeyondblock chainrdquo398 whichcaught some attention at the time as an official government publicationconcerningtheissueThereportrsquosexistencesuggestshigh-levelinterestbutitisnotagoodreport

andwonrsquotinformyouinanymannerndashitwasliterallywrittenbythecompaniesandconsultants sellingblockchainandsmartcontracthype theoverviewbuysthehypewholesalewithfantasticclaimsofpresent-daycapabilitiesthatarenottrueofanyexistingblockchainitsldquocasestudiesrdquoarelargelyhypotheticalandithasway toomany typos fora reportanyonecaredaboutatanystage It readslike an end-of-term assignment written in a single desperate overnightcaffeinatedtourdeforceTheaccompanyingvideo399 isvastlyimprovedifyouimagineitbeingnarratedbyPhilomenaCunkThemeatofthereportisacomplicatedplantoputallUKwelfarespendingon

a single blockchain purchases only being possible through a DRMedsmartphoneforthepurposeoffine-grainedmonitoringofspendinghabitsThenoteworthy thing about this plan is how there is nothing feasible about any

aspectofitThe reportrsquos recommendations are largely generic the important one being

thatthegovernmentshouldrunlocaltrialsinvolvingblockchainsNoneofthesehave shownup in theensuingmonthsbut theremaybeopportunities for saleandongoingmaintenancecontractsontechnologythatcanrsquotpossiblyeverworkproperly

Chapter12CasestudyWhyyoucanrsquotputthemusicindustryonablockchain

Therecordingindustryhassufferednearlytwodecadesofcrisisafterthe1990sCD boom petered out and the Internet proceeded to turn the entire world ofhumancommunicationupsidedownThemusiciansthemselvesarenohappierInaninstructiveworkedexampleofBlockchainhypeinoneindustrybothsideshaveheardthewordldquoblockchainrdquoandwonderifitcouldbetheirsaviourJeremySilverofDigitalCatapultquotesMarkMeharryCEOofMusicGlue

ascallingldquoblockchainrdquotheldquoworstcaseofsmokeandmirrorsrdquothathehasseeninanindustrywhichldquospecialisesinself-deceptionrdquoNeverthelessthewantsandneedsbehindmusicindustryblockchaindreamsareworthexploring

Therightsmanagementquagmire

Any piece ofmusic hasmany intertwined rights Therersquos the copyright in themusicandthewordsthecopyrightinagivenrecordingofthesongtherighttoreproducearecordingmechanicallytherighttopublicperformancetherighttobroadcasttheuseofarecordinginafilmorvideowhateverrightsareinvolvedin streaming ndash still a subject ofmuch negotiation ndash different laws in differentcountrieshellip and these get evenmore complicatedwhen there are samples ofpreviousworksinvolvedKeepingtrackofallof this isahugeamountof labour-intensivebackoffice

faffThesystemsarecreakyhaphazardandill-maintainedAlltheincentivesarenottofixitbecausethatwouldmeanmoreefficientpayoutsThe back office can be horrifyingly slapdash Real example oneUS rights

managementoperationspecialisinginanobscuresubgenrewhichturnsouttobeused ina lotofmoviesTheiraccountantshad to firstkeeprunning then lateremulating32-bitoperatingsystemsbecausethecompanyrsquoscustomsoftwarewaswrittenintheDOSeraThemajorityofpaymentsinthesubgenrewerestalled

for three weeks in 2014 as the accountants waited on a back-ordered 32-bitWindows7PCbecauseasoftwarerewrite(orevenjustrunningitinDOSbox)wasvetoedbythecompanyrsquosownerNowmultiplythisbyanindustryEven ASCAP a membership-based nonprofit collection society for a long

timeconsignedthejobofpayingpeopleproperlytotheldquotoohardrdquobasketndashtheywould collect performance fees from all venues but would only payperformance royalties to the top 200 grossing tours that year indiemusicianswere literally subsidising the biggest rock stars400 This only changed afterwidespreadnegativepublicity401

Ifthemoneyfunnelgetsatallcomplicatedtheagenciesoftenjustgiveupandhand the artistrsquos money to a large company Real example a US-basedsongwriter isamemberofASCAPTheirsongsellsadownload inJapanTheshoppays the local agency JASRAC for public performance JASRAC splitsthe money as 30 public performance and 70 mechanical royalties ndash anarbitrary split varying per country JASRAC takes 15-25 for administrationand passes the rest of the 30public performance toASCAP If you or yourlabeldonrsquot reachoutandclaim the70mechanical itrsquos splitper totalmarketsharebetweenthemajorrecordlabelslocallyEachstepoftheprocessinvolvesmonthsofdelaysandisalmostimpossibletoauditThiscanbecomeapointofcompetitionMusicservicescompanyKobalt for

example have cut a swathe through the industry in the past few yearswith adata-drivenapproachthatpaysmusiciansrelativelyfast402 (Andhasnouseforblockchains)SoundExchangeworkssimilarly

Gettingpaidforyoursong

TheartistofcoursegetspaidonlyaftereveryoneelsersquoscutifatallThentherersquoswhetherasanartistyourdealsconcerningtheserightsareeven

fairAnd thebitwhereyou try to extract themoney that isowed toyou fromlargecompaniesandtheirofficesaroundtheworldThere are various agencies that offer to handle all of this for you because

therersquos never been a shortage of helpful people keen to intermediate betweenyoutheartistandtheprospectofmoneySoalongcomecompaniespromisingtodothisonaldquoblockchainrdquousingldquosmartcontractsrdquothatcanrsquotbeweaseledoutofandwillpayyouinlessthanayearItsoundsalmosttoogoodtobetrue

Therecordindustryrsquoslossofcontrolandthestreamingapocalypse

TherecordcompaniesrsquofundamentalproblemisthattheynolongercontrolstudioaccesspressingplantaccessordistributionndashyoucanrecordonalaptopandsellyourmusiconlineorjustgiveitawayAnyoneonthewholeInternetcanbeanartistandyoursquoreindirectcompetitionwithallofthemAndthemarginalcostofacopyiszeroandyourcustomersknowitTherersquosalotofbitternessandresentmentndashtherecordindustryblamesApple

andGooglefor thefactof technologyeven thoughallof thiscouldhavebeenreasonablyanticipatedinthelate1980sfromtheexistenceoftheearlyInternetand psychoacoustic lossy compression (the basis of MP3) Their response toeverynewtechnologysincethecassettehasbeentotrytostrangleitinthecribTheir consistent strategy concerning the Internet the greatest revolution inhumancommunicationsincetheprintingpresshasbeentotrytohobbleitTheytriedtostoppiracywithDigitalRightsManagement(DRM)whichbred

massive consumer resentment and meant that piracy literally gave listeners abetterproductthanthepaidversionThispeakedwiththeSonyrootkitmalwarefiascoof2005where ifyouputaCD intoyourPC itwould install ahiddensoftwarebackdoorthatblockedCDrippingphonedhometoSonyandleftnewsecurityholesforothermalwaretouse403AndDRMcanrsquotpossiblyworkinthefirst place ndash you canrsquot give someone the lock and the key then keep the keysecret from them forever No DRM that end users wanted to break has everstayedunbrokenTheincomelevelsofthe1990sCDboomturnedoutnottobealawofnature

and streaming has seen people move their music listening from CDs tosomethingverylikeradiondashmuchaswhenradiosentUSrecordsalesfrom100millionin1930to6millionin1932(And therewasadepression then tooThemusic industry livesentirely off

peoplersquosdiscretionaryincomewhichishighlysensitivetoconsumerconfidenceWhentimesaretoughattitudesarehard)TherecordbusinesshasnoideahowtodealwiththeInternetandthereseems

noobvioussolutionThisislikecatnipforsnake-oilsalesmendesperatepeoplewithmoneytospendPerhapsldquoblockchainsrdquowillfixit

BerkleeRethinkandblockchaindreams

TheblockchainhypewentpublicinJuly2015withldquoFairMusicTransparencyandPaymentFlowsintheMusicIndustryrdquo404areportfromtheRethinkMusicinitiative at the Berklee College of Musicrsquos Institute for CreativeEntrepreneurshipTheproblemsitoutlinesarewell-knownandwidelyacknowledged

Whoownswhat is frequentlynot traceableatallldquo20-50percentofmusic payments donrsquot make it to their rightful ownersrdquo MusiccollectionsocietiestriedtocreateaGlobalRepertoireDatabaseintheearly 2010s but scrapped the idea in 2014 as nobody wanted tocreateanewcentraloctopus405ExistingindustrymoneyflowsareanunbelievablycomplicatedmessthatrsquosbarelyunderstoodbymostparticipantsMiddlemen take money without any reasonable present-dayjustificationRecordandpublishingcompaniesdeliberatelyobscurewhattheyoweandwhotheyoweitto406andpayveryslowlyStreaming doesnrsquot pay nearly as well as CDs used to (That lastproblemisnotliketheothersbutkeepsbeingspokenoflikeitis)

Thereportproposes(a)gatherdataaboutasmanyofthesedealsaspossibletomake theproblemsclear (b) revise thecontractualarrangementsof literallytheentirerecordingindustryworldwideandndashinhalfapagetackedontheendndash(c)keeptheentiredetailsofeverydealtherecordingindustryhaseverdoneandcontinues to do on a blockchain and (d) administer the deals using smartcontractsSpecificallyitsuggests

Rights ownership and royalty splits that are recorded on theblockchainmoney being automatically redirected accordingly egdirectlyuponaniTunespurchaseTransactions that occur ldquonearly instantaneouslyrdquo (ldquoin less than onesecondrdquo)anddirectlyfromconsumertoartistwithoutintermediaries

Ofcoursethewordldquoblockchainrdquocaughtallpressattentionandnotanyoftherealproblemstherestofthepaperdescribed

ImogenHeapldquoTinyHumanrdquoTotalsales$13320

OthershadalreadybeenthinkingalongblockchainlinesImogenHeaphasbeen

recording throughmajor labels foracoupleofdecadesnow firstwith theduoFrouFrouandthenasasolosingersongwriterandproducerInthecourseofastringofcharthitsandGrammynominations shersquossufferedquitehershareofduplicitous incompetence at the hands of the music industry and wantssomethingbetterIn late2015Heap foundherself freeofpreviousdeals and so releasedher

newsongldquoTinyHumanrdquoasthetestcaseforMycelia407runningontheEthereumblockchain Her motivation was to cut through the tangle of bad deals andobscure rights the record industry offered ldquoIts success will come from theadoption ofmillions ofmusic loversrdquo408MyceliaworkedwithUjoMusic anattempttoautomatetheback-roomdisbursementsideputtogetherbyEthereumdevelopmentcompanyConsenSyswhoseVinayGuptahadfirsttoldHeapaboutsmartcontractsHeaprsquos explicit goal is to have all music yoursquove ldquoboughtrdquo (not just hers)

behave asmarketing spyware that collects data on the user in themanner ofadvertisingtrackersonwebpages409

We know less about what our songs get up to once theyrsquove left lsquohomersquoWhatwould I like to readon these postcards fromour songsWell howmanytimesitwasplayedbywhoandwherewouldbeagreatstart

ThelastImogenHeapreleasewithspywarewasthe2005SpeakForYourselfCDwithSonyrsquosrootkitmalwarendashaninitiativethatdidnrsquotgodownsowelltheneitherThe press coverage ofHeaprsquos new initiativewas vast and her name is still

routinelybroughtupwheneverblockchaining themusic industry ismentionedWhatIrsquoveyettoseeanyonementionishowwellitdidinpracticeTotalsalesofldquoTinyHumanrdquothroughUjoMusicontheEthereumblockchainwerehellip$13320Not$133200ndashbutonehundredandthirty-threedollarsandtwentycents222sales at 60 cents each410 It literally gotmore press articles than sales It wastakenoffsalesometimein2016411

It didnrsquot help that buying it was almost impossible even for a blockchainadvocate412 let alone an ordinary human music fan You went to the pageclickedldquoDownloadrdquofollowedtheinstructionstocreateanEthereumwalletandwentofftoaBitcoinexchangetobuybitcoinsthenexchangethoseforetherasETHwasnrsquot widely traded directly to dollars at the time Getting hold of thebitcoins required you either to send your money and a pile of governmentidentification to an unregulated exchange ndash the recommended exchangeShapeShift had literally left New York state to avoid anti-money-launderingregulations413 ndash dealwith crooks or bothOnce yoursquod done all this you got a

downloadkeyTheprocesswasridiculouslyglitchyandbuggyldquoTheexactetheramountisabitofagamblerdquo414

UjoMusiclaterpostedaramblingnonexcusefortheldquoTinyHumanrdquodisasterinwhichtheyadmittedthattheyrsquodonlyresearchedwhatthehelltheyweredoingaftertheyrsquoddoneitldquoWearebutafewbright-eyedtechnologistswithaspecialhammerlookingfortherightnailrdquo415

Yoursquodthinkthatat thatpointHeapwouldbewishingshersquodjustput ituponBandcampbutshersquosstillpursuingtheblockchaindreamandsellingothersonitparticularlytheFeaturedArtistsCoalition ie thestarswhodidquitewelloutoftheoldmajorlabelsystemandwouldliketokeepsomethingthatworkslikethatdidNevergiveupA record shopmustnot be harder to use thanBitTorrentThe legal options

iTunesNetflixandSpotifymadeitbigbybeingmoreconvenient thanpiracyand there is nothing convenient about dealing with blockchains For buyingmusiconlineBandcamphasall comersbeat fora recordshopexperience thatdelightsbothbuyersandsellers416pays85totheartistanddoesnrsquothaveanyuseforablockchain

Whyblockchainsareabadfitformusic

Itrsquos immediately obvious that blockchains proper ndash even if euphemised toDistributed Ledger Technology ndash canrsquot possibly be the panacea the recordindustrydesperatelydesiresNo single blockchain can possibly scale to thewholemusic industryThere

wereanestimated35millionsongsiniTunesin2013417Spotifyplayedabillionstreams a daybymid-2015418 If youusemultiple blockchains theywill needreconciliationApart from themetadata itselfbeinghuge therersquos the encodeddetailsof all

thehundred-pagecontractsWhoaretheparticipantsintheblockchainwhowilleachbekeeping their owncopyof all of this dataAndwhowill pay for thecomputingresourcestoexecuteallthesmartcontractsforeachsongplayed(Positedsolutionsincludestoringcontractdetailsoff-chainontheBitTorrent-

likeInterPlanetaryFileSystemsoyoursquodbetterhopetherersquosstillanodethatcanseedafullcopyofyourpublishingdealthirtyyearslaterAlsotheIPFSdoesnrsquotworkyet)ldquoWhere therersquos a hit therersquos a writrdquo Data will change ndash erroneous or

fraudulent claims copyright lawsuits changing ownership information you

litigateyourwayfreeofyourawfulfirstcontractamusiciandiesHowisyourldquoimmutablerdquoblockchaincorrectedWhatrsquos your security threatmodel This one never seems to bementioned

andwersquore talking about real-worldmoney hereHow is your blockchain keptsecureagainsthostileattackersegsomeonewhohasthemoneytobring51ofmining resources tobear against aProof ofWork secured chainHowwillyoucleanupthemessafteranattackerusesbugsinyoursmartcontractplatformthattheyknewexistedandyoudidnrsquot

Attemptstomakesenseofthehype

As blockchain proposals proliferate so do industry white papers franticallytryingtomakesenseofallofthisThebasicclaimsadvancedbyBlockchainforCreativeIndustriesrsquoextensively

publicised ldquoMusic On The Blockchainrdquo419 (foreword by Nick Mason of PinkFloyd)arehighlyquestionable

BCI regard the prospect of a networked database of music copyrightinformation near-instant micropayments transparency through the valuechainandaccess toalternativesourcesofcapitalas the fourkeypotentialbenefitsofblockchaintechnologyfortherecordindustrythougheventhesearenotwithouttheirchallenges

Thatrsquosanunderstatement(TheyalsothinkProofofWorkisagreatideaandnotanaturally-centralisingecologicaldisaster)BCIacknowledgeasproblems

AcryptographichashwonrsquotpreventcopyingWhoentersthedataHowisthedataverified(Theoracleproblem)Credit and splits are often negotiated well after the writing orrecordingPromises of a ldquofair trademusic ecosystemrdquo founder on the obviousproblemthatldquoitisnotclearthatallpartiesunderstandfairnessorfairtradeinthesamewayrdquoWhich blockchain does all this run on what cryptocurrency is ourmedium of exchangeAre any technically up to the task (spoilerno)

MusicTechFestrsquos ldquoMTFLabs Blockchainrdquo meeting420 broke down on theproblem that the various players have always had contradictory interestsviciouslyfoughtandmovingtheperpetualindustrycivilwartotheblockchain

probablywonrsquothelpmuchIn large part due to the inherent fault lineswithin the topic itself the labturned away from seeking ldquosolutionsrdquo to discussing concepts such asldquocopyrightrdquo ldquoownershiprdquo and ldquosecurityrdquo as suchwords can take on verydifferent meanings based on onersquos professional background and personalframes Differences in perception revealed seemingly intractabledisagreements thatwereunlikely to be resolved in aweeklongdiscussionaboutanincrediblycomplextechnologyhellipAstensionsgrewoverfundamentaldifferencesinperceptionandthe

complexity of the issue expanded the more its core limitations wererevealed the effort to arrive at even the most basic conclusions nearlycollapsed

TheirpapernotesthethingstheblockchaincanrsquotdoforyouDRMwhichstillcanrsquotworkStoringlargeamountsofdataegsongfilesDoing all this for free Yoursquoll need some way to pay for all thecomputingresourcesthiswillneedandtherewillprobablyneedtobefeesforallofthehypothesisedtransactions

Theyproposea modular approach where specific problems are solved incrementallybuilding up an open and transparentmeta-system ensuring the individualsystems that address the sub-problems use open standards and globallyacceptable and accessible data for example residing in one or moreblockchain-basedsystems

This is likely theonlyworkable approach to theglobalmetadata problemndashcomeupwithausableopenstandardthatrsquossufficientlyself-evidentlycorrectthatothersadoptitndashexcepttherersquosnoreasontouseablockchainforthisldquoBlockchainor theChaingangrdquoby JeremySilver421 is the best and clearest

surveyIrsquovefoundofblockchaindreamsandhowtheyrelate tomusic industrypsychologyItrsquosnotperfectontechnicaldetailbutyoudonrsquotneedtobeatechietoknowwhatsnake-oilsalesmensoundlikeSilveroutlinesmanyoftheobviousproblemswithmusicalblockchains

ThereallyobviousscalingproblemsMusic industry blockchain maximalists are sincere but misguidedandwanttechnicallyinfeasiblethingsBlockchaindreams requireDRMldquoadding the transactional security

iskeytowhatblockchaindoesThathastobeoneofitskeysellingpointsrdquoHeaprsquos idea of fullmetadata on everything about a song and dealsnotbeingsecretisfundamentallygood(Eveniflisteningtoarecordbeing turned intoanopportunity for spywarehasa few issues)Butblockchains wonrsquot somehow clean up the metadata that the GlobalRepertoireDatabase hoped to gather and that datarsquos still hugely influx(whentherersquosahittherersquosawrit)AsineveryotherindustrythatrsquostriedreconcilingallthedataGlobalRepertoire Database-type proposals fail when everyone realisestheyrsquoreabouttogivethemetadatamaintaineranaturalmonopolyIncumbentswilltreattechnologicalchangeasathreatandresistitasbitterlyastheyhaveeveryothertechnologySilvernotesmajorlabelsrefusing to look at BitTorrent data his firm Semetric was offeringthemeven though itwasanexcellentpredictorof sales for fearofappearingtovalidateBitTorrentinanymanner

TheonepointIthinkSilverslipsonisneartheconclusionFromapurelypragmaticperspectiveifyouaskedatechnologisttodaywhatwouldbethemostefficientsystemtobuildusingcurrenttechnologies tocreate a royalties tracking gathering and distribution system they wouldprobablytellyouitwasblockchain

Let me just differ on that one That said Silver is confident enough in hisconclusion that hersquos now CEO of Digital Catapult a consultancy whoenthusiastically offer business blockchain services even if some of theirpromotionalmaterialisdisconcertinglyaspirational422

Othermusicalblockchaininitiatives

AllofthesehaveastheirbusinessplantobecomethenewcentraloctopusoratleastoneofseveralInthewakeofitsreportBerkleehasstarteditsownOpenMusicInitiativeto

dowhattheGlobalRepertoireDatabasetriedtowithblockchainsthrownintonoobviousutility423

PeerTracksisoneofseveralcompaniesattemptingtosetupasystemwhereevery artist would sell their own separate cryptocurrency tokens as shares intheirfutureearningsandstreamingroyaltieswouldbeallocatedtotheownersof

thetokensviasmartcontracts424Apparentlythebuyerswouldbetheartistrsquosfansrather than music industry companies Founder Ceacutedric Cobban subscribes toAustrianeconomicswhichledhimtoBitcoinandthenthisidea425

BenjiRogersofthedotblockchaininitiativepushesaholisticvisiontowhichthe entire industry would need to subscribe revolving around his ldquobcrdquo fileformatwhichheswearsupanddownisnotatallDigitalRightsManagementwhichcustomersdespisendash itrsquosDigitalRightsExpressionwhichplaysonlyoncompliantplatformsthatonlyletyoudopermittedthingswithitandformatsthatdonrsquotdothisshouldnrsquotbeallowedtoexist426Thisisliterallytheapproachthatcrashedandburnedhardenoughintheearly2000stomakeldquoDRMrdquoacursetothisdayAlsoeverythingshouldinvolveVirtualRealityforsomereasonAndtheInterPlanetaryFileSystemwhichifitworkedwouldstillbeanewformofBitTorrentRevelator promises a generic buzzword soupof rightsmanagement instant

transactionsmicropayments and ldquodisruptive technologiesrdquo to demonstrate theactualpointofmuchofthisgettingfundingfromventurecapitalistsYoursquollbepleasedtoknowtheysayitrsquosallabouttheart427

TheTAO isasmartcontracts-basedrightsadministratorsellingunregisteredsecuritiessharestoraisedevelopmentfundsTheyexplicitlyinvokeTheDAOastheirmodelwhichisaboldtacktotakeafterJuly2016428

All these competing systems speak of the artist as their only and eternalconcernBut theTAOpromoteditsshareofferingwithnewsofa labelputtingalltheirartistsontheTAOjustlikethatsuggestingthatartistsinthenewworldwillplayarolemuchliketheirpresentoneieasortofindustrially-processedcheesesliceAreyousupposedtosignupwithsomeofthesesystemsAllofthemWhy

How are disputeswith your blockchain-based rightsmanagement organisationhandledPerhapsyourcontractwiththemcouldgoonablockchain(SosorryoursmartcontractgothackedAllyourmoneyisgoneYesyours

inparticularNowecanrsquotget itbacksmartcontractsaysnoWellyoucouldsueIsupposeHowmuchmoneyhaveyougotOhnoneWhatapityNevermind)

SingularDTV

The SingularDTV initiative is sufficiently remarkable to cover in depthSingularDTV takes this tottering heap of bad ideas and uses it to implement

anothertotteringheapofbadideasSingularDTV is a platform for filmmakers and TV producers to fund their

content and thendistribute itThis involves a native ICO-style cryptocurrencytoken called SNGLS (running on theEthereumblockchain)with funding andrevenuesadministeredbyasmartcontractcalledCODE429

Thisisthepoisonpillitrunsontheirtokenandtheycontrolthesoftwarethatreads it If theyget greedymdashand reallywhenhas anyonewith power in theentertainment industry ever gotten greedy mdash your ldquoimmutablerdquo andldquodecentralisedrdquoledgermayturnout tobeneitherashappenedwithTheDAOTherewillbeheartfeltexcusesSNGLSweresoldinanICOandaretradedonthecryptocurrencyexchanges

The offer document for their unregistered security430 went out the door a bitearly

UserhascarefullyreviewedthecodeoftheSmartContractSystemlocatedon theEthereumblockchain at the addresses set forthunder [correct cite]andfullyunderstandsandacceptsthefunctionsimplementedtherein

The closest they have to a technologist on the SingularDTV executive isJoseph Lubin of the Ethereum Foundation and ConsenSys the companydeveloping their smart contractEveryone else appears to be amedia industrypersonwhichleavesSingularDTVlookingverylikethestandardmarketingofDRMsnakeoiltodesperateoldmediaSingularDTVrsquosstatedgoalintheirwhitepaper431istwomillionpaidviewings

perepisodeat$260agomdashinethernotactualdollarsmdashofaplannedTVshowoverthenexttwotothreeyearsTheygivenobasisforthisnumbernorwheremillionsofnewEthereumuserswill come fromnorwhymillionsofordinarysuburban consumerswonrsquot find hitting the Pirate Bay vastlymore convenientthandealinginetherandhavingldquosorryforyourlossrdquoevents(Thoughtheyhaveaseven-minuteSingularDTVLightwalletInstructionalVideo)Perhapstheycangrossevenmorethan$13320Whywouldsomeonethinksucharidiculouslyflimsyschemewasagoodand

workable idea Their totally boss sci-fi TV series Singularity no less Aworldwide economic collapse as predicted byAustrian economics leads to afictionalCaribbeanislandbecomingtherichestplaceintheworldbecauseitwasfirsttoadoptEthereumasitscurrencyThenanartificialintelligencetakesoverthe world rendering the preceding plot meaningless To be produced anddistributedworldwidethroughtheS-DTVportalThey are so keen on their sci-fi TV show idea that they named their

blockchainstartupafteritItappearsthattheyareinfactSingularitariansmdashfansof Ray Kurzweilrsquos non-musical-instrument ideas like an artificial intelligencetakingovertheworldthiscenturymdashwhocameupwithawaytopropagandisetheir beliefs in Ethereum and the Singularity (and crank pseudoeconomics)through the medium of science fiction television and decided a crypto assetoffering was clearly the way to collect money to make the TV show toevangelisetheircult432

Summary

BlockchainswonrsquotsolveyourbadrecordingorpublishingdealTheycanrsquotscaleto collecting yourmoney from themain channels let alone other countries orobscuresourcesTheywonrsquotextractmoneyfromSpotifyorYouTubetheydonrsquothavendashSpotifyrsquoshaemorrhagingredinkasitis433Justassumethemajor labelswillhandthewholeindustryovertoAppleasecondtimeIfyouwanttocleanupindustrymetadatablockchainsarenrsquotgoingtodothat

foryouWhatwillissomewaytocleanitupthatdoesnrsquotinvolvecreatinganeworganisationyoucanrsquottrustSomethingalongthelinesofMTFLabsrsquoincrementalapproachisprobablytheonlyonewithachance

Conclusion

IstartedthisbookinOctober2016andfinishedthefirstdraftinDecemberHadItriedtosaythenwhatwascomingnextincryptosthereisnowayIwouldhaveforeseenthesixmonthssinceIwouldhavepredictedthatBitcoinwouldcontinuetobecloggedandbarely

usableforrealpurchaseslicitorillicitIrsquodhavethoughtEthereumwouldkeepstumbling alongwith no real application being found for smart contracts IrsquodhaveforecastldquoBlockchainrdquoslowlyfallingoutoffavourasabusinessbuzzwordasthereturnsfailedtomanifestIwouldnothavepredictedasecondbubbleinBitcoinwithtabloidnewspaper

finance sections enthusing about the fabulous potential of cryptocurrencies tonormalpeoplewhohavenobusinessgoingwithin amileof suchhorrifyinglyriskyinvestmentsIwouldnothaveanticipatedamatchingbubbleinEthereumandespeciallynotinutterlysubstancelessICOtokenswithnobasisinanythingwhatsoever being traded like hotcakes because theyrsquore the exciting new itemandfornootherreasonAtleasttulipsareprettyBitcoin itself as an ideology fundamentally at oddswith reality based on a

technology that reached its limits in 2015 will keep lurching from crisis tocrisis Internecine conflicts will remain the order of the day with partisanswieldingDDOS attacks death threats and the deployment ofCraigWright assomesortofexpertThepricewillriseandfalldizzyinglythoughrealisingitasactualmoneywillstillbestrangelyproblematicexchangeswillcontinue tobehackedonamonthlybasisPeoplewillcontinuetolamentldquoifonlyIrsquodboughtin2011Irsquodberichrdquondashthoughiftheyhadboughtin2011theyrsquodhavelostitinMtGoxCoolerheadswillwonderjusthowmuchlongerthiscanbekeptgoingTheoneconstantisnewideasinfinancebringnewstarry-eyednaiumlfsandnew

predatorsNewtechnologieswillkeepbeingusedasanexcuse toputanextralayerof flim-flamoverold scams in anongoinghistorical reenactmentof thereasonsforeachandeveryfinancialregulationThere will be more promises of free riches in the future and more asset

bubblesAllof thiswillhappenagainThehookmaybedifferentbutwishful

thinkingandscammerstopreyonitareeternalEverythingtodowithcryptocurrenciesandblockchainsisthedomainoffast-

talkingconmenIfanyonetriestosellyouoneitherkicktheminthenutsandrun

Furtherreading

Memoirs of Extraordinary PopularDelusions and theMadness of Crowds byCharlesMackaywasfirstpublishedin1841andremainsthebestbookavailableoneconomicbubblethinking434

Nathaniel Popperrsquos bookDigital Gold Bitcoin and the Inside Story of theMisfits and Millionaires Trying to Reinvent Money is an excellent history ofBitcoinandtheplayersto2014DavidGolumbiarsquosThePoliticsofBitcoinSoftwareasRight-WingExtremism

is a short but very useful academic survey that traces just where the BitcoinclusterofcrankpoliticalandeconomicideassprangfromIzabella Kaminska regularly discusses Bitcoin and blockchains (and

ldquoBlockchainrdquo)intheFinancialTimesbothinthemainpaperandherblogatFTAlphaville Irsquove found her work a powerful and effective antidote to businessbafflegabBlockchainhypeinreal-worldusageMattLevinedoessimilarlygoodworkatBloombergTheRationalWikiorg article on Bitcoin has come along nicely since 2011

UnlikeWikipediawersquorenotconstrainedfromcallingaspadeabloodyshovelIn theUSwersquore tax deductible as a 501(c)3 educational charity Though notacceptingBitcoinatthistime

Glossary

AddressalongnumberwhichyoucansendBitcoinstoandfromCanonlyhavecoinssentfromitusingthematchingkeyTogethertheymakeakeypairinpublickeycryptographyAnarcho-capitalismtheideologythatacompleteabsenceofgovernmentis

essentialandpropertyrightswhichareparamountwillstillfunctionwithoutitBitcoinideologysharesalotofitsideasandjargonASICApplication-SpecificIntegratedCircuitndashasiliconchiptodoasingle

specificjobInminingtheonlypower-efficientwaytominebitcoinsBitcoinThegreatestinventioninthehistoryofhumanityBlockchainTheothergreatestinventioninthehistoryofhumanityBTC the usual abbreviation for Bitcoin as a currency unit Less common

abbreviationXBTBubble in economics when an asset is hugely popular for no discernible

reason The key factor is investors buying in the hope of selling to laterinvestorsBubblesalwayspopBitcoinhashadtwomajorbubblesin2013and2017ColdwalletBitcoinprivatekeyskeptofflineCouldbewalletsoftwareona

computerthatrsquosnotonlinecouldbekeysonaUSBstickcouldbeprintedoutonpaperConsensusmodelHowyouchoosewhogetstowritethenextblockBitcoin

usesProofofWorkwhichishugelywastefulCraigWrightNotSatoshiNakamotoCryptointhiscontextanabbreviationforcryptocurrencyorcryptoassetIn

non-cryptocurrencyusethetermisshortforldquocryptographyrdquoCryptoassetthegeneralclassofcryptographicthingsthatarenrsquotnecessarily

cryptocurrencybutcanbetradedlikeitegtokensinasmartcontractrunningonEthereumCryptocurrencyBitcoinanditsvariouscopiesCypherpunksamailing list forcryptographyenthusiastsagainst the forces

ofoppressionieanygovernmentanywhereHeavyontheanarcho-capitalismMostoftheideasthatbecameBitcoinstartedhere

DAOseeTheDAODapp a ldquodistributed applicationrdquo a fancy name for a smart contract in

EthereumDarknetsites only available viaTorwhere you can buy illegal goods and

servicesusingacryptocurrencyDistributedledgertechnologyaeuphemismforblockchainDRMDigitalRightsManagement an entertainment industry term for ldquothat

song I just bought and downloaded wonrsquot playrdquo Music industry blockchainapplicationsfrequentlyinvolveaversionofitwhetherbynameornotEthereum a cryptocurrency whose value proposition is smart contracts

ArguablythefirstpopularsmartcontractplatformExchangeAsite tobuyorsellcryptos foractualmoneyManyoffer fancy

gamblingtradingfacilitiesMaynotgethackedthismonthFiat Actual proper money that normal people buy things with Only

Bitcoiners ever use this term to when talking about actual money in casualconversationFPGAField-ProgrammableGateArrayndashasiliconchipyoucanprogramto

performyourfunctionInminingthestepbetweengraphicscardsandASICsFront-running instockmarkets forabrokerorexchange toacton insider

informationThecryptoversionistotakeaparticularlygoodtradeandexecuteityourselfbeforeexecuting thecustomerrsquosorderThis is illegalonconventionalregulatedsecurityexchangesGoldstandardaneconomywithaknownandlimitedmoneysupplyBitcoin

aimstoimplementthisdigitallyandharkbacktothedayscountriesbackedtheircurrencywithactualpilesofgoldGPUGraphics Processing Unit the bit of a computer graphics card that

computes video gamepixels very fast and can also computehashes very fastUsedtobethefavouredminingmethodforBitcoinbeforebeingsupersededbyFPGAsandASICsremainsthefavouredminingmethodforEthereumHal Finney Cypherpunks mailing list participant and Bitcoinrsquos first beta

testerDied2014SomepeoplethinkhewasSatoshiNakamotoHashaquickly-computedcheckvalueonachunkofdataIftwochunksof

datahavethesamehashitrsquosusualtoassumetheyareidenticalAhashisstrongifitrsquosallbutimpossibletoguessthedatafromitshashortoconstructachunkofdatathathasthesamehashasanotherchunkofdataBitcoinminingreliesonthis

HashpowerHowmuchcomputingpoweryoucanapplytominingtoguessahashthatgetsyouthebitcoinrewardforaddingablocktotheblockchainHotwalletsoftware thatkeepscopiesof theprivatekeysforyourbitcoins

and sends transactions to and receives them from the Bitcoin network (andeventuallywhentheygointoablocktheblockchain)ICOStands forldquoInitialCoinOfferingrdquoorldquoInitialCrowdfundingOfferingrdquo

but in practicemeans a token that is speculated upon just because speculatorscanHugelypopularinthesecondbubbleImmutablesomethingthatcannotbechangedTheblockchainisconsidered

immutableasanychangewouldchangethehashesandbeimmediatelyevidentKeyanumberwhichworkslikethePINofaBitcoinaddressThisistheone

secretthingyoumustcontrolifyouldquohaverdquoabitcoinKYCAMLKnowYourCustomerAnti-MoneyLaunderingruleswhichany

crypto exchange wanting to deal in hard currencies particularly US dollarsneedstofollowMargincallwhenyouneedtopaybackyourmargintradingloanMargintradingtakingaloanfromyourbrokeragetobuyasecurityletsyou

buymorethanthevalueoftheassetsyouhavetohandCouldbehopingforthesecurity to go up or down Can pay off hugely but is risky (especially withcryptos)ShortsellingisaformofmargintradingMarkKarpelegravesOwnerofMtGoxwhenitcollapsedDidnothingwrongMempool the ldquomemory poolrdquo in the memory of a computer running a

BitcoinnodewhereunconfirmedtransactionspileupMerchantactual shopkeeper selling legal goods or serviceswho probably

doesnrsquotacceptBitcoinMerkle tree an ordered collection of transactions each hashed against the

hash of previous transactions this makes it very quick to verify the tree oftransactionsistheoneyouthinkitisBitcoinandblockchainsrelyonaMerkletreetoverifyeverythingisinorderandhasnrsquotbeentamperedwithInventedbyRalphMerklein1979Mining literally wasting electricity as a competitive sport to make new

bitcoinsMixersomewheretosendyourbitcoinsinordertoobscuretheirhistoryMt Gox The largest bitcoin exchange in the run-up to the 2013 bubble

collapsedsoonaftersending$400millioninbitcoinsupinsmokeNick SzaboCypherpunks list participant Came upwith the idea of smart

contractsProposedBitgoldoneoftheprecursorideastoBitcoinOracle problem how to tell a smart contract when a real-world event it

dependsonhashappenedwithoutrequiringhumanjudgementPaintingthetapewheretraderscolludetomakeitlookliketherersquosactivity

inasecurityortopushthepriceupTheWillyandMarkusbotsrunningonMtGoxinthedaysbeforethe2013crashwereanotoriousBitcoinexamplePermissioned blockchain a private blockchain allowing only known

participantsAllowstheuseofasimplerconsensusmodelPGP ldquoPrettyGood Privacyrdquo a program to sign or encryptmessages using

publickeycryptographyPHPAprogramminglanguageforwebsitesVeryeasytomakeasiteinand

veryeasytomakeaninsecuresiteinifyoudonrsquotknowwhatyoursquoredoingQuitealotofBitcoinexchangesstartedwithsomeonethinkingldquoIknowPHPhowhardcouldrunningaBitcoinexchangeberdquoPonzian ldquoinvestment programmerdquo inwhich earlier investors are paidwith

thecontributionsoflaterinvestorsNamedafterCharlesPonziwhowasfamousforsuchschemesinthe1920sAmoregeneralcategoryoffraudthanldquopyramidschemerdquoPrivateblockchainanothertermforpermissionedblockchainProof of StakeA consensusmodel that is far less wasteful than Proof of

WorkbyjustdeclaringthatthemswhathasgetsProofofWorkAconsensusmodel inwhichyoucompete towrite thenext

blockintheblockchainbyjustwastingmoreelectricitythaneveryoneelseThisisasterribleasitsoundsPublickeycryptographyawaytosignorencryptmessagesusingtwokeys

onetoencodeandonetodecodeEithercandecodemessagesencodedwiththeotherBitcoinusesthistoauthenticatetransactionsashavingbeensentbyyouyousignthemwiththeaddressrsquosprivatekeyandthisisverifiedwiththeaddress(whichisthepublickey)Ransomware Computer malware that locks up your Windows PC and

demandsbitcoinstounlockitRogerVerearlyBitcoinadvocateandanarcho-capitalistSatoshi Nakamoto the pseudonym used by the creator of Bitcoin

Disappearedin2011nobodyknowswhohewasSECTheUSSecuritiesandExchangeCommissionthegovernmentagency

thatenforcessecurities lawandregulates theindustryItsmissionstatement is

ldquoprotectinvestorsmaintainfairorderlyandefficientmarketsfacilitatecapitalformationrdquoShortsellingshortingsellingasecurityyoudonrsquotowninthehopeitwillgo

downandyoucanbuytocoverwhatyousoldAformofmargintradingSmartcontractacontractimplementedasacomputerprogramthattriggers

givenparticularconditionsThe DAO a smart contract for a Distributed Autonomous Organization

intendedtooperateasanautomatedventurecapitalfirmThemostfamoussmartcontract ever as theworldrsquos largest crowdfunding at the time gathering $150millionHackedshortlyafterlaunchlosing$50millionandsplittingEthereumintotwocurrenciesTor The Onion Router a method to browse the web anonymously

Development is substantially sponsored by theUS government both for theirownuseandtohelpdissidentsinoppressivecountries(EvenastheNSAdoesnrsquotlikeitatall)AlsofavouredbyInternettrollsanddarknetusersTulip a pretty flower and the subject of the 1637 bubble known as ldquotulip

maniardquooneofthefirstwell-documentedbubblesTuring completewhen a computer or computer language is sophisticated

enoughthat itcantheoreticallysolveanyproblemthatanyothercomputercanhellipgivenenoughmemoryandtimeYouoftendonrsquotwantthisbecauseitmakesithardertoprovemathematicalcorrectnesswhenyoureallyneedtobecertaineginasmartcontractWalletanywhere you keep the private keys to your bitcoinsCan be ahot

walletorcoldwalletXBTAnabbreviationforBitcoinasacurrencyunitMoreproper(currency

units that arenrsquot for a specific country are supposed to start with X) but lesscommonthanBTC

Acknowledgements

PhilSandifersuggestedinOctober2016thatIwriteabookaboutldquoWhyBitcoinIsStupidorsomethingrdquothuslodgingasortofparasiticalbook-writingworminmy brain (This was supposed to be a quick 15000-word rant before lunch)Always ready with a motivational quip like ldquoif yoursquore expecting a sense ofaccomplishmentwhenyoufinishyoursquollwanttostopthatrdquoArkadyRoseputupwithmetalkingnothingbutcryptosformonthsandbeta-

readtheearlydraftsIknewIwasontosomethingwhenIwatchedArkadylaughoutloudallthroughthesecondhalfofTheDAOsectionIntermittentlycursingPhilforcausingthemtobesubjectedtothisMybeta readers fact-checkersandnit-pickersparticularlyonFacebook for

essential ideas research leads critiques and saving my backside repeatedlyincluding(amongstmanyothers)FionaAppsJulianArdenteMatthewArdillLee Baldwin Sean Barrett Asaf Bartov Jacinta Blackbourne Karen BoydAbigailBradyRickyBuchananRogerBurton-WestDavidCakeKatieChanAlex Clarke DougClowDCoetzee Peter H Coffin LindsayDuff StephenEarlyDanielEricssonldquoDOSrdquoldquoFacehammerrdquoCarolineFordJeffFranzmannSabitha FuriosaAndrewGarrettDavidGoh SteveGustafson JohnHawkes-Reed Nigel Heffernan Deana Holmes Lizzy Jeffcoat Axel Johnston SamKelly Andrew Ketrow Alli Kirkham Jola Kupferer Lev Lafayette StuartLamble Charles Lieberman Joe Lynn Pauline Martindale Chris McKennaBrianMcNeilMegaZoneTristanMillerEdwardMorbiusTomMorrisWayneNixCorwynOrsquoDomhnaillCaoimhiacutenOacuteGormaacuteinHartleyPattersonPhyPhorLarry Pieniazek Drew Robertson Madjai Sabine Gunther Schmidl StefanieSchulteCJScottRebeccaScottDanSheppardJamesSkinnerHelenSmithHumberto Solis Andrew Stallings Tim Starling Jorge Stolfi Joe ThompsonSarahThompsonHester TidcombeNicholas TurnbullDjangoUptonAlisonWheeler and the acerbic cryptocurrency skeptics of Reddit rbuttcoin andSomethingAwfulYOSPOSAlliKirkhamforherappliedexcellencenotonlyinart(IloveScaredBusiness

Guy)butgraphicdesignGocommissionherAllmyfriendswhoferventlyencouragedmethroughmyprogressreportsThankyouIcouldnrsquothavedoneitwithoutallofyouItrsquosamazinghowmuch

workevenashortbookis

AbouttheauthorDavidGerard isaUnixsystemadministratorbydayHis job includeskeepingtrack of exciting new technologies and advising against the bad onesHewaspreviouslyanaward-winningmusic journalistandhasbloggedaboutmusicatRocknerdcouksince2001HeisavolunteerspokesmanforWikipediaand ison the board of the RationalMedia Foundation host of skeptical wikiRationalWikiHiswebsiteisdavidgerardcoukHelivesineastLondonwithhisspouseArkadyandtheirdaughterUntilhereinstalledthelaptoptheywereonhewastheproudownerofsixDogecoins

Index

8chan53Acompanyforcarryingonanundertakingofgreatadvantagebutnobodytoknowwhatitis100Accenture122address12AIDSTrojan72AllCrypt43AllowayTracy111AlphaBay72AlphaPoint84altcoins91Altoid51AmazonWebServices4398anarcho-capitalism1849AndresenGavin65anonymity2652AntMiner57Apple127137arbitrage8388artificialintelligence103117137ASCAP126AshJordan96ASIC56Astrobotic94Atlantis54Augur104AustralianSecuritiesExchange121AustralianTaxOffice63Austrianeconomics234998137

Automattic75AyreCalvin63AzureBlockchain122b-money19BackAdam19Bancor9597Bandcamp130bankingtheunbanked29baphomet(8chan)53BBC3266BeanieBaby35BerkleeRethink128BFX85Bitcoin

creationofnewbitcoins14economicaims22economicequality30exchanges42invention20irreversibility26limitedsupply31SatoshiNakamoto(creator)59security25transactionspersecond28

BitcoinBowl77BitcoinJesus37BitcoinMiningAccidents55BitcoinRelayNetwork58BitcoinSavingsampTrust40Bitcoinica4383bitcoinmarketcom35Bitcointalk4041Bitfinex4083

BitGo84Bitgold19Bitmain57Bitomat43BitPay4374BitShares99BitTorrent130134BlemInformationManagement116blockchain13blockchain(business)111BlockchainforCreativeIndustries132BlockchainortheChaingang133Bloomberg117BranwenGwern606472BrettonWoods20BridgesShaun53brockchainbrockshize108BTC3899bubble35818894139BudovskyArthur18BuffettJimmy40BurningChrome19ButerinVitalik869496103119ButtcoinFoundation2756ButterflyLabs3956ByrnePatrick76C01N65Californianideology18CardsAgainstHumanity75Cellan-JonesRory67ChainCore123CharlesSturtUniversity61ChaumDavid19

Citrix73cloudmining39Cloudcroft65Cloudflare44CobbanCeacutedric135CODE136coindoubler38Coinmx74Coinbase748182CoinDesk122coingenio91CoinLab47coldwallet12consensusmodel91119ConsenSys129136ConversationThe62CooperCharley111Corda123CryptoAnarchistManifesto19cryptocurrency11CryptographyandCryptographyPolicy(mailinglist)2023CryptoLocker73Cryptonomicon19Cryptowatch83Cryptsy44CunkPhilomena124Curecoin91cyberlibertarianism17cyberpunk19Cypherpunks1962Cyprus32DafuqCoin91DaiWei1965

DAOThe105108122135dapp94darknet3748697071decentralisation25112DeMorgan63DigiCash19DigitalAssetHoldings121122DigitalCatapult125134DigitalRightsManagement127135Digix98distributedledgertechnology111131DistributedLedgerTechnologybeyondblockchain123DoernbergBen93Dogecoin92DogecoinFoundation93dotblockchain135DrStrangelove101DreadPirateRoberts49DRM123124127135136e-Gold186272EarlySteve78economiesofscale2558EconomistThe3766eDonkey45EITC68Electrumwallet66EOS98ERC-2097ether94Ethereum728894106116129136EthereumClassic110EthereumFoundation109136EthereumVirtualMachine106

F-Secure73Facebook113FairMusicTransparencyandPaymentFlowsintheMusicIndustry128FalkvingeRick38FarWildsThe45FastInternetBitcoinRelayEngine58FBIMoneyPak73FeaturedArtistsCoalition130fees2669FIBRE58FieldsMedal96FinneyHal203159Firefox76FoldingHome91Foldingcoin91ForceCarlMarkIV53ForrestKatherineB53FPGA56FrancisRyan93FrankAnne48FreeTalkLive3750FreeRossorg53Freicoin91Frosty51FrouFrou129FunkeKupperElmer121Fusion65FutureofBitcoinConference68GarzikJeff50gas94Gawker3750GDAX82

GentleRyan93GHashio58GibsonWilliam19Ginicoefficient30Git112122Gizmodo64GlobalRepertoireDatabase128134Gnosis98goldbug20goldstandard20Golem98GolumbiaDavid141GoodmanLeahMcGrath64Google127GovernMental107GPU55GQ66GreatDepression20Greece32GreenAlex93GreenbergAndy64GriggIan62GuptaVinay129haltingproblem110hash13Hashcash19HearnMike65high-yieldinvestmentprogram3840HoppeHans-Herman24hotwallet12HotwirePE63Huobi82Hyperledger113121122

IBM113115121122IBMBlockchain122ICO889597139Iconomi98immutability11105ImogenHeap129IndividualPubs78IndustrialisationofDistributedLedgerTechnologyinBankingandFinancialServices115InitialCoinOffering8897InitialCrowdfundingOffering97Intel123IntelregSoftwareGuardExtensionstrade123InterPlanetaryFileSystem131135IPFS131iTunes129130131Jamaicanbobsledteam93JASRAC126JavaScript107JohnBirchSociety1721KaminskaIzabella141KarpelegravesMark455287KennedyRyan93Kenya93key12KingoftheEther106KleimanDave64KnowYourCustomer81Kobalt126Kraken44KurzweilRay137KYCAML8187LarimerDanny98

LedgerLabsInc86LestakRobert76LevineMatt104117141LiXiaolai99libertarianism17LibertyReserve1872LightningNetwork2870Litecoin3292LocalBitcoins328193logtxt51LondonReviewofBooks64LubinJoseph136LulzSec62M-Pesa29MacGregorRobert63MackayCharles35141MadoffBernie38MagicTheGatheringOnlineExchange45MagicalTux45MakingBlockchainReadyforBusiness113MalmiMartti3545margintrading4283Markusbot82MasonNick132Mastercard36MastersBlythe122MatonisJon66MatthewsStefan63MayTim19McCalebJed45MeharryMark125MemoryDealers37mempool70

Merkletree13112micropayment26Microsoft95107122miner13mining1455Mintpal93MisesLudwigvon2349mixer2684MMM82MochizukiShinichi59Monero7274MoneyPak73Moolah93Mozilla76MP3127MrBitcoin77MtGox37446282139MTFLabs132137MullinsEustace1721MusicOnTheBlockchain132MusicGlue125MusicTechFest132MyBus75Mycelia129mycrimestxt51NakamotoDorian5960NakamotoSatoshi2022485961122Namecoin91NASA105107NASCAR93nChain68nCrypt65Netflix130

NewYorkTimes3264Newsweek6064NHS73113NicolleRaphael4089nonce14nTrust63OrsquoHaganAndrew63OKCoin82OpenMusicInitiative134OpenOffice59oracleproblem103117Overstockcom76PalmerJackson93PaulRon2149PayPal18283662PCCyborgTrojan72PedersenAllen66PeerTracks134PemburyTavern79PennState49permissionedblockchain119PinkFloyd132PirateBayThe92136Pirateat40374089policevirus72Ponzi3038107PonzICOPopperNathaniel64141PotterPhil87praxeology23pressone99ProjectBlackFlag54ProofofElapsedTime123

ProofofStake9194ProofofWork139194118131prosecutionfutures52provablyfairgambling39ProvenanceInc116pump-and-dump30quantumcomputer96R3BlockchainConsortium111123R3Corda123ransomware6972RationalWiki141Reason(magazine)31Rebitph29RecordingIndustryAssociationofAmerica45RecoveryRightToken86Reddit

rbitcoin38697576rbuttcoin143rdogecoin93Bitfinexdiscussion87

remittances28Revelator135Ripple48RodrigueJean-Paul36RogersBenji135RonDorit30RothbardMurray2449RRT86Rubixi108RuneScape39SandiferPhil24SartreJean-Paul67SatoshiDice111

SawtoothLake123securedbymath13252757Semetric134SGI65SGXtrade123SHA-25696ShamirAdi30ShapeShift130ShaversTrendon40SheepMarketplace54ShibaInu92sidechains2870SiliconAngle67SilkRoad2637486469SilkRoad2054SilverJeremy125133SingularDTV98136Singularity137SkunkHouse71Slashdot3645Slockit108smartcontract94SNGLS136SNT98Solarstorm107Solidity106107109122Sony127SoundExchange126SouthSeaBubble35Spotify130131137StPetersburgBowl77Status9598Stellar48

StephensonNeal19streaming127SzaboNick193259101102105107TAOThe135TechUK115Telstra73TemkinMax75ThielPeter18ThornburgJonathan23TinyHuman129Today(Radio4)67ToddPeter5968Top50065Tor4959TualStephen109TuckerJeffrey40TulipMania35TulipTrust64Turingcompleteness107UjoMusic129UKGovernmentOfficeforScience123Ukash73UlbrichtLyn53UlbrichtRoss264864unbanked29UnderhandedCContest106UnderhandedSolidityCodingContest106Venezuela31VerRoger173744474850virtualreality135Visa2836wallet12WalpoleSirMark123

WannaCry73WashingtonPost32WellsFargo87WesternUnion28WestwoodAdam64WhollyHemp76WikiLeaks3662WikimediaFoundation76Wikipedia76WilckeJeffrey94Willybot82WinterOlympics93Wired64WiseJosh93WoodGavin94WordPress75WrightFamilyTrust63WrightCraig61139Yapizon89YouTube137ZamovskiyAndrey120ZeroHedge24Zhoutong83

Notes[1]

SatoshiNakamotoldquoBitcoinAPeer-to-PeerElectronicCashSystemrdquoBitcoinorg31October2008

[2]Thisispublickeycryptographywheretheaddressistheldquopublickeyrdquo(thateveryoneknows)

andthekeyistheldquoprivatekeyrdquo(thatonlyyouknow)whichareamatchedpairamessageencryptedwithonekeycanbedecryptedwiththeother

[3]TechnicallyaMerkletreeisonlythetreeofhasheswithinablockbutcryptocurrency

routinelyusesthetermtodescribeachainofhashesaswell

[4]ThoughyouonlyhearaboutitthesedaysinregardtocryptocurrencyProofofWorkwasfirst

mootedin1992todealwithemailspamCynthiaDworkMoniDaorldquoPricingviaProcessingorCombattingJunkMailrdquoInProceedingsofthe12thAnnualInternationalCryptologyConferenceonAdvancesinCryptology(CRYPTOrsquo92)ErnestFBrickell(Ed)Springer-VerlagLondonUK139-147

[5]MoreproperlyldquoXBTrdquo(acurrencywithoutanofficialsymbolshouldbenamedstartingwith

anX)thoughmostpeopleuseldquoBTCrdquoanyway

[6]ForallthetechnicaldetailseeldquoDeveloperGuiderdquoBitcoinorg

[7]Bitcoinpowerconsumptionwasestimatedatbetween01and10GWaveragebyJune2014

Irelandconsumedaround3GWbythistimeOrsquoDwyerandMaloneldquoBitcoinMininganditsEnergyFootprintrdquoPresentedatISSC2014CIICT2014LimerickJune26ndash272014(archive)ThemostdetailedestimateIrsquoveseenfor2017putsitatabouthalfa2017IrelandldquoBitcoinEnergyConsumptionIndexrdquoDigiconomist(blog)Archiveasof20May2017

[8]AlanFeuerldquoTheBitcoinIdeologyrdquoNewYorkTimes14December2013

[9]ThissectiondrawsfromThePoliticsofBitcoinSoftwareasRight-WingExtremismbyDavid

Golumbia(UniversityofMinnesotaPress2016)

[10]EricMJacksonThePayPalWarsBattlesWitheBaytheMediatheMafiaandtheRestof

PlanetEarthWorldAheadPublishing2004Chapter1

[11]CharlieMcCombieldquoBitcoinPredecessorndashLibertyReserveFounderReceives20-YearPrison

SentencerdquoCoinTelegraph10May2016(archive)

[12]

DavidChaumldquoBlindsignaturesforuntraceablepaymentsrdquoAdvancesinCryptologyProceedingsofCrypto82(3)1982pp199ndash203

[13]DavidChaumldquoSecuritywithoutIdentificationTransactionSystemstoMakeBigBrother

ObsoleterdquoCommunicationsoftheACM28(10)1985pp1030ndash1044

[14]TimMayldquoTheCryptoAnarchistManifestordquoWritten1988posted22November1992

(archive)

[15]SatoshiNakamotoCommentonldquoTransactionsandScriptsDUPHASH160hellip

EQUALVERIFYCHECKSIGrdquoBitcointalkorgBitcoinForumgtBitcoingtDevelopmentampTechnicalDiscussion18June2010(archive)

[16]SatoshiNakamotoCommentonldquoTheywanttodeletetheWikipediaarticlerdquoBitcointalkorg

BitcoinForumgtBitcoingtBitcoinDiscussion20July2010(archive)

[17]GwernBranwenldquoDaiNakamotoemailsrdquoGwernnetVersionof8March2017

[18]TheconspiracytheoryismostfamouslysetoutinRobertWelchldquoTheTruthInTimerdquo

AmericanOpinionNovember1966

[19]DavidFergusonldquoRonPaulslamsstabilityofUSdollarandBitcoininpro-goldrantrdquoRaw

Story23April2013

[20]SatoshiNakamotoldquoBitcoinopensourceimplementationofP2PcurrencyrdquoP2PFoundation

forums11February2009(archive)

[21]JonathanThornburgldquoBitcoinv01releasedrdquoCryptographyandCryptographyPolicymailing

list17January2009(archive)

[22]LudwigvonMisesHumanActionPartOneHumanActionChapterIITheEpistemological

ProblemsoftheSciencesofHumanAction1PraxeologyandHistoryp32

[23]HeterodoxacrankwithajobAustrianeconomicsisfundedbyrichpeoplewhowant

theoreticalbackingforbeingselfish

[24]PhilipSandiferNeoreactionaBasiliskEruditorumPress2017(Previews)

[25]IrsquodneverencounteredAmerican-styleideologicallibertarianismandanarcho-capitalismbefore

theInternetWhenIfirstheardaboutitIhonestlythoughtitwasawackySwiftianpoliticalsatirethatnobodycouldactuallybelieve

[26]AustrianeconomistsreallyhatetheexampleoftheCapitolHillBabysittingCo-op

[27]BenBestldquoBitcoinandAustrianEconomicsrdquoBitcoinMagazine27August2014(archive)

[28]ldquoMythsrdquoBitcoinWikiAccessed20September2016

[29]ldquoTheStoryOfWhenButtcoinorgSoldOutAndHowButterflyLabsTurnedIt(AndOther

Sites)IntoAProductMarketingMachinerdquoButtcoinFoundation14November2014(archive)

[30]PeterYehldquoFTCShutsDownBogusBitcoinOpButterflyLabsSayslsquoButtcoinrsquordquoAnimal25

September2014

[31]ldquoSecuringyourwalletrdquoBitcoinWiki

[32]ldquoAboutPayPalrdquoarchived26December2014ldquoalmost10millionpaymentsforourcustomers

perdayrdquo

[33]ldquoVisaIncataGlancerdquoVisaJune2015

[34]WesternUnionldquoNoticeof2014AnnualMeetingofStockholdersProxyStatementand2013

AnnualReportrdquop2

[35]ChristopherMalmoldquoASingleBitcoinTransactionTakesThousandsofTimesMoreEnergy

ThanaCreditCardSwiperdquoMotherboard7March2017

[36]GodfreeeldquoIfIwaslookingtosellbig(orrelativelybig)amountsofBTContheOTCmarket

whatwouldbemybestoptionrdquoRedditrbitcoinmarkets15February2015

[37]ZhoutongldquoBitcoinWealthDistribution(Bitcoinicadata)rdquoBitcointalkorgBitcoinForumgt

BitcoingtBitcoinDiscussion6November2011(archive)

[38]StevenEnglanderCitigroupquotedinJoeWiesenthalldquoHowBitcoinIsLikeNorthKoreardquo

BusinessInsider12January2014

[39]DoritRonAdiShamirldquoQuantitativeAnalysisoftheFullBitcoinTransactionGraphrdquo

CryptologyePrintArchiveReport201258425October2012

[40]HalFinneyldquoBitcoin01releasedrdquoCryptographyandCryptographyPolicymailinglist10

January2009

[41]JimEpsteinldquoTheSecretDangerousWorldofVenezuelanBitcoinMiningHow

cryptocurrencyisturningsocialismagainstitselfrdquoReasonJanuary2017

[42]KamiliaLahrichildquoGrowingnumberofVenezuelanstradebolivarsforbitcoinstobuy

necessitiesrdquoTheGuardian16December2016

[43]KamiliaLahrichildquoArgentinarsquosBitcoinSceneBoomsrdquoInternationalFinanceMagazineJuly-

September2015

[44]MarianaZuntildeigaldquoBitcoinlsquominingrsquoisbigbusinessinVenezuelabutthegovernmentwantsto

shutitdownrdquoWashingtonPostMarch102017

[45]NathanielPopperldquoSECRejectsWinklevossBrothersrsquoBidtoCreateBitcoinETFrdquo

DealbookNewYorkTimes10March2017

[46]LeishaChildquoBitcoindigitalcurrencyhitsthree-yearhighof$1000rdquoBBCNews3January

2017

[47]ldquoLocalBitcoinsVolume(Venezuela)rdquoCoinDance

[48]ldquoThesilvertoBitcoinrsquosgoldrdquohellipohnevermind

[49]NickSzaboldquoTheGreekfinancialmessandsomewaysBitcoinmighthelprdquoUnenumerated

(blog)3July2015

[50]ZhouTongedldquoCyprusAnthem(SwedishHouseMafiandashDonrsquotYouWorryChild)rdquoYouTube

5May2013

[51]CharlesMackayMemoirsofExtraordinaryPopularDelusionsandtheMadnessofCrowds

FulltextinvariousformatsonProjectGutenberg

[52]Jean-PaulRodrigueldquoStagesinaBubblerdquoTheGeographyofTransportSystems2008

[53]MarttiMalmiTwitter15January2014

[54]LaszloldquoPizzaforbitcoinsrdquoBitcointalkorgBitcoinForumgtEconomygtMarketplace18

May2010(archive)

[55]historyofbitcoinorg

[56]ldquoABitexpensiveBitcoinrsquosrecordpricelookslikeabubblerdquoDailyChartTheEconomist19

March2013

[57]PeterFordldquoWhytheChinesecanrsquotgetenoughofBitcoinndashdespitebankbanrdquoChristian

ScienceMonitor6December2013

[58]RickFalkvingeldquoTheTargetValueForBitcoinIsNotSome$50Or$100ItIs$100000To

$1000000rdquoFalkvingeonLiberty(blog)6March2013(archive)

[59]AgoodshortoverviewMarieVasekTylerMooreldquoTherersquosNoFreeLunchEvenUsing

BitcoinTrackingthePopularityandProfitsofVirtualCurrencyScamsrdquoInternationalConferenceonFinancialCryptographyandDataSecuritySpringerBerlinHeidelberg2015Blogpost

[60]GwernBranwenldquoBitcoinisWorseisBetterIrreversibletransactionsmeta-scamsrdquo

[61]ldquoScamsDoublingmoneyrdquoRuneScapeWikia

[62]ldquoOperatorsofBitcoinMiningOperationButterflyLabsAgreetoSettleFTCChargesThey

DeceivedConsumersrdquoFederalTradeCommission(pressrelease)18February2016

[63]CyrusFarivarldquoDiggingforanswersThelsquostrongsmellrsquooffraudfromoneBitcoinminer

makerrdquoArsTechnica22April2014

[64]AgoodthoughtechnicalexplanationJonMatonisldquoBitZinoAndTheDawnOflsquoProvably

FairrsquoCasinoGamingrdquoForbes(contributorblog)31August2012(archive)

[65]keepinquietldquoHow999dicecomisstealingyourcoinsandexactlywhyyouwonrsquotbelieve

merdquoBitcointalkorgBitcoinForumgtEconomygtTradingDiscussiongtScamAccusations7February2015(archive)

[66]JeffreyTuckerldquoATheoryoftheScamrdquoBeautifulAnarchy(blog)2January2015

[67]Unclescroogeldquo[shamethread]ThesorryandthankyouPirateat40threadrdquoBitcointalkorg

BitcoinForumgtEconomygtMarketplacegtLendinggtLong-termoffers17August2012(archive)

[68]MageantldquoBitcoinKillerAppHighYieldInvestmentsrdquoBitcointalkorgBitcoinForumgt

BitcoingtBitcoinDiscussion22July2012(archive)

[69]

VitalikButerinldquoPonzischemesTheDangerofHighInterestSavingsFundsrdquoBitcoinMagazine31May2012(archive)

[70]AdrianneJeffriesldquoSuspectedmulti-milliondollarBitcoinpyramidschemeshutsdown

investorsrevoltrdquoTheVerge27August2012

[71]yochdogldquoThepiratespeaksrdquoBitcointalkorgBitcoinForumgtEconomygtMarketplacegt

Lending17September2012(archive)

[72]Killhamsterldquopirateat40ItbecameBillCosbycoinsrdquoButtcoinFoundation5March2014

(archive)

[73]JasonSiebertldquoSECvSHAVERSrdquo21July2014(archive)

[74]SecuritiesandExchangeCommissionvShaversetalUSDistrictCourtEasternDistrictof

TexasNo13-00416

[75]JonathanStempelldquoJudgeAwards$407MillioninSECCaseOverBitcoinPonziSchemerdquo

Recode19September2014

[76]ldquoManhattanUSAttorneyAndFBIAssistantDirectorAnnounceSecuritiesAndWireFraud

ChargesAgainstTexasManForRunningBitcoinPonziSchemerdquoDepartmentofJusticeUSAttorneyrsquosOfficeSouthernDistrictofNewYork(pressrelease)6November2014

[77]NateRaymondldquoTexangetsone-and-a-halfyearsinprisonforrunningbitcoinPonzischemerdquo

Reuters21July2016

[78]JustinOrsquoConnellldquoLawyerRevealsDetailsAbouttheManBehindBitcoinrsquos$45Million

PonziSchemerdquoMotherboard18December2015

[79]WikipediaDunning-KrugereffectFromwhichanothernameforbitcoinsldquoDunning-

Krugerrandsrdquo

[80]ldquoRiskofBitcoinHacksandLossesIsVeryRealrdquoReuters29August2016

[81]KytDotsonldquoThirdLargestBitcoinExchangeBitomatLostTheirWalletOver17000

BitcoinsMissingrdquoSiliconAngle1August2011

[82]Coinabulldquo10QuestionswithZhouTongrdquoBitcoinMagazine30May2012(archive)

[83]genjixCommentonldquo[EmergencyANN]Bitcoinicasiteistakenofflineforsecurity

investigationrdquoBitcointalkorgBitcoinForumgtBitcoingtBitcoinDiscussion25May2012ldquorootrdquoistheadministratoraccountforaUnixorLinuxserver(archive)

[84]VitalikButerinldquoBitcoinicaStolenFromhellipAgainrdquoBitcoinMagazine17July2012(archive)

[85]StanHigginsldquoBitPaySuesInsurerAfterLosing$18MillioninPhishingAttackrdquoCoinDesk

17September2015(archive)

[86]PHMadoreldquoAllCryptBitcoinExchangeClearstheAirrdquoCryptoCoinsNews26March2015

(archive)

[87]DuncanRileyldquoBitcoinstolenfromlendingstartupLoanbaseinallegedhackrdquoSiliconAngle9

February2016

[88]StanHigginsldquoCryptsyCEOStoleMillionsFromExchangeCourtReceiverAllegesrdquo

CoinDesk11August2016

[89]KrakenExchangeldquoNocompromiseCloudFlareissueSomeusersmayneedtoupdatetheir

browserstosupportSNIIEXPusersmayneedtoenableTLS1112rdquoTwitter26January2016(archive)

[90]MatthewPrinceldquokrakenfxletrsquosgetthefactsstraightCreditcardprovidedforpayment

expiredAfter3warningsyouweredowngradedtoafreeaccountrdquoTwitter27January2016(archive)

[91]RogerVerldquoRogerVeronMTGOXBitcoinexchangerdquoYouTube17July2013

[92]RogerVerCommentonldquo[VIDEO]RogerVersaysheissorryaboutMTGOXrdquo

BitcointalkorgBitcoinForumgtEconomygtMarketplacegtServiceDiscussion26February2014(archive)

[93]KdawsonldquoBitcoinReleasesVersion03rdquoSlashdot11July2010

[94]ThissectiondrawsfromDigitalGoldBitcoinandtheInsideStoryoftheMisfitsand

MillionairesTryingtoReinventMoneybyNathanielPopperMarkKarpelegraveshasdisputedpartsofthebookrsquosaccountofeventsldquoRestoringthetruthrdquoBlogpost29May2015

[95]DisclosureMarkKarpelegravesboughtmeamonthofRedditGold(value$5)afterIpostedan

earlydraftoftheBitfinexsectionofthisbooktorbuttcoinwiththenoteldquoredditgoldforcomedygoldfairtradeIrsquodsayrdquo

[96]MarttiMalmildquoIrsquomMarttiMalmiearlybitcoindeveloperandtheoriginalfounderofthe

BitcointalkorgforumsAMArdquoBitcoincomforums18November2015(archive)

[97]ldquoMTGOnlineExchangerdquoArchiveasof25May2007

[98]CyrusFarivarldquoWhytheheadofMtGoxBitcoinexchangeshouldbeinjailrdquoArsTechnica1

August2014

[99]JakeAdelsteinNathalie-KyokoStuckyldquoBehindtheBiggestBitcoinHeistinHistoryInside

theImplosionofMtGoxrdquoDailyBeast19May2016

[100]Incryptographyldquosaltingrdquoisusedtomakeitevenhardertoworkoutapasswordfromitshash

WikipediaSalt(cryptography)

[101]RyanSelkisldquoLeakedMtGoxDocumentLinkedtoConsultingFirmMandalahrdquoCoinDesk

27February2014

[102]AgoodtechnicalexplanationEdFeltenldquoUnderstandingBitcoinrsquostransactionmalleability

problemrdquoFreedomtoTinker(blog)12February2014

[103]NerminHajdarbegovicldquoPriceDropsasMtGoxBlamesBitcoinFlawforWithdrawal

DelaysrdquoCoinDesk10February2014

[104]ChristianDeckerRogerWattenhoferldquoBitcoinTransactionMalleabilityandMtGoxrdquo

arXiv14036676v1[csCR]26March2014

[105]KenShirriffldquoTheprogrammingerrorthatcostMtGox2609bitcoinsrdquoMarch2014(archive)

[106]KimNilssonldquoThemissingMtGoxbitcoinsrdquoWizSec19April2015

[107]ldquoJedMcCalebrdquoLinkedIn

[108]CommainoriginalRogerVerldquoBothAnneFrankandRossUlbrichtcreateddarkmarketsto

helppeoplehidefromviolentoppressorswhoweretryingtohurtpeacefulpeoplerdquoTwitter16July2016(archive)

[109]MikePowerldquoOnlinehighsareoldasthenetthefirste-commercewasadrugsdealrdquoThe

Guardian19April2013

[110]SatoshiNakamotoCommentonldquoRePornrdquoBitcointalkorgBitcoinForumgtEconomygt

Economicsgtadf23September2010(archive)

[111]ldquoJointheTorChallengerdquoElectronicFrontierFoundation

[112]YashaLevineldquoAlmostEveryoneInvolvedinDevelopingTorwas(oris)FundedbytheUS

GovernmentrdquoPando16July2014

[113]EvenFacebookhasoneforusersinheavily-filteredcountriesAlecMuffettldquo1MillionPeople

useFacebookoverTorrdquoFacebookoverTor(officialpage)Facebook22April2016(archive)

[114]GwernBranwenldquoSilkRoadTheoryampPracticerdquo11July2011updated8March2016

[115]AdrianChenldquoTheUndergroundWebsiteWhereYouCanBuyAnyDrugImaginablerdquo

Gawker1June2011

[116]UnitedStatesvRossWilliamUlbrichtS114Cr68(KBF)GovernmentExhibit241Thisfile

iscommonlyreferredtoasldquomycrimestxtrdquobutitsactualnamewasldquologtxtrdquoTherewerealsootherpersonaljournalfilesonthelaptop

[117]AndyGreenbergldquoProsecutorsTrace$134MinBitcoinsFromtheSilkRoadtoUlbrichtrsquos

LaptoprdquoWired29January2015

[118]ThisphrasewaspopularisedbytheNewYorkTimesinJanuary2014(DavidSegalldquoEagle

ScoutIdealistDrugTraffickerrdquoNewYorkTimes18January2014)buttheearliestusageIrsquovefoundisacommentfromYvesSmithfounderoftheblogNakedCapitalismonhisrepostingofYanisVaroufakisldquoBitcoinandtheDangerousFantasyoflsquoApoliticalrsquoMoneyrdquo23April2013(archive)

[119]UnitedStatesvRossWilliamUlbrichtS114Cr68(KBF)OpinionampOrderDocument173

1February2015

[120]JosephCoxldquoHowDidtheFBIFindtheSilkRoadServersAnywayrdquoMotherboard3

October2014

[121]JoeMullinldquoJudgeinSilkRoadcasegetsthreatenedonDarknetrdquoArsTechnica22October

2014

[122]MachkovechSamldquoNotorious8chanlsquosubboardrsquohashistorywipedafterfederaljudgersquos

doxingrdquoArsTechnica12February2015

[123]PolyParadymeldquoInterviewwithLynUlbrichtAboutUpcomingSilkRoadAppealrdquoCoinivore

25November2015(archive)

[124]AndyGreenbergldquoInSilkRoadAppealRossUlbrichtrsquosDefenseFocusesonCorruptFedsrdquo

Wired12January2016

[125]UnitedStatesofAmericavUlbricht15-1815-crDocument177page12231May2017

[126]EileenYuldquoAnonymouswebsitedisappearswith$100MinBitcoinrdquoZDNet5December

2013

[127]AndyGreenbergldquoFedsSeizeSilkRoad2inMajorDarkWebDrugBustrdquoWired6November

2014

[128]SatoshiNakamotoCommentonldquoAfewsuggestionsrdquoBitcointalkorgBitcoinForumgtBitcoin

gtDevelopmentampTechnicalDiscussion12December2009(archive)

[129]ForacollectionoffiretraphomeminingrigsKillhamsterldquoMiningRigMegapostrdquoButtcoin

Foundation13February2015(archive)

[130]ldquoMinerWhoReportedBrainDamageTellsAllrdquoBitcoinMiningAccidents(blog)11June

2011(archive)Imageoforiginalpost

[131]Bitmainshoppage

[132]egYushoCholdquoBitcointradevolumehitsrecordinNovemberrdquoNikkeiAsianReview18

December2016

[133]GauthamldquoBitmainRespondstoControversySurroundingitsUpcoming140000kWMining

CenterrdquoNewsBTC4November2016(archive)

[134]ldquoGoogleDataCenterFAQPart2rdquoDataCenterKnowledge

[135]ldquoBitcoinMiningPoolsrdquoBitcoinChaincom16March2017

[136]YujiNakamuraLuluYilunChenldquoBitcoinMinersSignalRevoltAmidSluggishBlockchainrdquo

Bloomberg13March2017

[137]IttayEyalEminGuumlnSirerldquoHowAMiningMonopolyCanAttackBitcoinrdquoHacking

Distributed(blog)16June2014

[138]CyrusFarivarldquoBitcoinpoolGHashiocommitsto40hashratelimitafterits51breachrdquo

ArsTechnica16July2014

[139]KennySpotzldquoAnInterviewWithJeffreySmithCIOofGHashiordquoBitcoinMagazine23

June2014(archive)

[140]ThomasFox-BrewsterldquoCraigWrightClaimsHersquosBitcoinCreatorSatoshindashExpertsFearAn

EpicScamrdquoForbes(staffblog)2May2016(archive)

[141]TheSatoshiNakamotoInstitutesitecollectseverypublicpostbyhimandemailspeoplehave

released

[142]GwernBranwenldquoHappybirthdaySatoshiNakamotordquoRedditrbitcoin5April2014

[143]egDominicFrisbyldquoTheSearchforSatoshirdquoCoinDesk8November2014

[144]GwernBranwenldquoBlackmailfailrdquo

[145]LeahMcGrathGoodmanldquoThefacebehindBitcoinrdquoNewsweek6March2014

[146]RyanNakashimaldquoMansaidtocreatebitcoindeniesitrdquoAPTheBigStory7March2014

(archive)(video)

[147]SatoshiNakamotoCommentonldquoBitcoinopensourceimplementationofP2PcurrencyrdquoP2P

Foundationforums7March2014(archive)

[148]MattClinchldquolsquoRealrsquobitcoincreatorlsquoIamnotDorianNakamotorsquordquoCNBC7March2014

[149]LeslieKaufmanNoamCohenldquoNewsweekReturnstoPrintandSetsOffaBitcoinStormrdquo

NewYorkTimes7March2014pB3

[150]ldquoNewsweekrsquosStatementontheBitcoinStoryrdquoNewsweek7March2014

[151]FurtherreadingforthissectionNikCubrilovicldquoCraigWrightisnotSatoshiNakamotordquo2

May2016AcomprehensiveoverviewoftheevidenceconcerningWrightrsquosclaims(archive)

[152]ldquoCraigStevenWrightrdquoLinkedInArchiveasof9December2015

[153]ldquoCraigStevenWrightclaimstobeSatoshiNakamotoIsherdquoTheEconomist2May2016

[154]

CraigSWrightldquoThequantificationofinformationsystemsriskAlookatquantitativeresponsestoinformationsecurityissuesrdquo(doctoralthesis)CharlesSturtUniversityFebruary2017

[155]ldquocraig-wright-cpunks-1996txtrdquoCryptome

[156]CraigWrightldquoLookingforpeopleinterestedinstartinganewrevolutioninpaymentsrdquo

CrackedinSecureandGenerallyBroken(blog)4February2011(archive)

[157]CraigSWrightldquoLulzSecAnonymoushellipfreedomfightersorthenewfaceofevilrdquoThe

Conversation9August2011

[158]apoefjmqdsflsldquoAccordingtotheMtgoxleaksfromearly2014ourbrandnewlsquoSatoshirsquoCraig

Wrightbought1724bitcoinsatarateof$1198eachrdquoRedditrbitcoin4May2016

[159]IanGriggldquoTripleEntryAccountingrdquo25December2005

[160]SarahJeongldquoSatoshirsquosPGPKeysAreProbablyBackdatedandPointtoaHoaxrdquo

Motherboard9December2015

[161]ldquoHotwirePreemptiveIntelligencePtyLimited(AdministratorsAppointed)ACN164068348

(lsquotheCompanyrsquo)CirculartoCreditorsrdquoMcGrathNicol26May2014(archive)

[162]ldquoTheDeMorganLtdGroupofCompaniestoreceiveupto$54millionfromAusIndustryRampD

taxrebateschemeAustraliarsquosfastestTop500HPCisdedicatedtoCryptocurrencyandsmartcontractresearchrdquoDeMorganLtd(pressrelease)11May2015(archive)

[163]AndrewOrsquoHaganldquoTheSatoshiAffairrdquoLondonReviewofBooks38(13)pp7-2830June

2016ReprintedinOrsquoHaganrsquos2017bookTheSecretLifeThreeTrueStories(FaberISBN0571335845)

[164]AndyGreenbergGwernBranwenldquoBitcoinrsquosCreatorSatoshiNakamotoIsProbablyThis

UnknownAustralianGeniusrdquoWired8December2015

[165]SamBiddleandAndyCushldquoThisAustralianSaysHeandHisDeadFriendInventedBitcoinrdquo

Gizmodo8December2015updated2May2016

[166]LeahMcGrathGoodmanldquokashhillWeallgotitItwasbeingshoppedaroundfairly

aggressivelythisautumnnathanielpoppera_greenbergrdquoTwitter10December2015

[167]ldquoTulip-Trust-RedactedrdquoGizmodo

[168]PurportedredactedtranscriptofinterviewswithAustralianTaxOfficeauditor

[169]TranscriptRichy_TCommentonldquoWikiLeaksSGIsupercomputerlsquoletterrsquoremovedfrom

CraigWrightrsquoscompanylsquocloudsoftrsquordquoRedditrbitcoin10December2015

[170]KashmirHillldquoWhoisthehackerthatoutedCraigWrightasthecreatorofBitcoinMaybe

CraigWrighthimselfrdquoFusion9December2015

[171]AimeeChanthadavongldquoSGIdenieslinkswithallegedbitcoinfounderCraigWrightrdquoZDNet

11December2015

[172]ldquoTOP500ListNovember2015rdquoTop500November2015Archive19November2015

[173]ElleHuntandPaulFarrellldquoReportedbitcoinlsquofounderrsquoCraigWrightrsquoshomeraidedby

AustralianpolicerdquoTheGuardian9December2015

[174]LeoShanahanldquoATOrsquosfraudsquadprobesBitcoinlsquocreatorrsquoCraigWrightrdquoTheAustralian21

January2016

[175]ThishasbeenhypothesisedasawaytofakethesigningegaRedditdiscussionthread

startedbyElectrumdeveloperEagleTMcommentonldquoGavinexplainshowCraigWrightconvincedhimrdquoRedditrbitcoin2May2016

[176]GavinAndresenldquoSatoshirdquo2May2016(archive)

[177]JonMatonisldquoHowIMetSatoshirdquo2May2016(archive)

[178]GavinAndresenCommentonldquoGavincanyoupleasedetailallpartsofthesignature

verificationyoumentioninyourblogrdquoRedditrbtc2May2016

[179]DanKaminskyldquoValidatingSatoshi(OrNot)rdquo2May2016

[180]ldquoCraigWrightfacescriminalchargesandseriousjailtimeinUKafterclaimingtobeBitcoinrsquos

founderSatoshiNakamotordquo(archive)ThefakesitersquosURLwassilliconanglecomwithtwoLs

[181]ByronKayeJeremyWagstaffldquoAustralianlsquobitcoinfounderrsquoquietlybiddingforpatent

empirerdquoReuters20June2016

[182]ByronKayeJeremyWagstaffldquoBitcoinrsquoslsquocreatorrsquoracestopatenttechnologywithgambling

tycoonrdquoReuters2March2017

[183]JeremyWagstaffByronKayeldquoExclusiveCompanybehindbitcoinlsquocreatorrsquosoldtoprivate

investorsrdquoBloomberg24April2017

[184]ldquoNCHAINLIMITEDCompanynumber09823112rdquoCompaniesHouse2May2017(archive)

[185]ldquoJonMatonisJoinsBlockchainPioneernChainasVicePresidentofCorporateStrategyrdquo

nChain(pressrelease)2May2017(archive)

[186]ldquoCraigWrightatthe2017FutureofBitcoinConferencerdquoYouTubeQuoteat11438ldquoIrsquoma

pariahIamanevilpersonthatsomepeopleliketocallfraudSomeofthosearegoingtodiscoverthelegalconsequencesverycertndashahsurehellipwellIwonrsquotsayexactlywhenandIwonrsquotsaywhoquiteyetbuttheyrsquorecomingrdquo

[187]PeterTodd(petertoddbtc)ldquoIfthatscammertriestosuemeIrsquomgoingtololsohardhelliprdquo

Twitter30June2017

[188]KristyKruithofJudithAldridgeDavidDeacutecaryHeacutetuMeganSimElmaDujsoStijnHoorens

ldquoInternet-facilitateddrugstradeAnanalysisofthesizescopeandtheroleoftheNetherlandsrdquoRandCorporation2016

[189]HerbWeisbaumldquoRansomwareNowaBillionDollaraYearCrimeandGrowingrdquoNBC

News9January2017

[190]ldquoFrequentlyAskedQuestionsFindanswerstorecurringquestionsandmythsaboutBitcoinrdquo

bitcoinorg(Archiveof29July2015archiveof4August2015archiveof7August2015)

[191]GiuseppePappalardoTDiMatteoGuidoCaldarelliTomasoAsteldquoBlockchainInefficiency

intheBitcoinPeersNetworkrdquoarXiv1704014145April2017

[192]45sbvadldquoStressTestRecaprdquoRedditrbitcoin30May2015Graph

[193]ldquoBitcoinNetworkCapacityAnalysisndashPart5StressTestAnalysisrdquoTradeBlock16June

2015(archive)

[194]JacobDonnellyldquoUpdatedBitcoinNetworkStillBackloggedWithTensofThousandsof

UnconfirmedTransactionsCausingDelaysrdquoBitcoinMagazine7July2015(archive)

[195]GraceCaffynldquoBitcoinNodeNumbersFallAfterSpamTransactionlsquoAttackrsquordquoCoinDesk15

October2015

[196]JordanPearsonldquoIsBitcoinUnderAttackrdquoMotherboard1March2016

[197]IzabellaKaminskaldquoThecurrencyofthefuturehasasettlementproblemrdquoFTAlphaville

(blog)FinancialTimes17May2017

[198]NathanielPopperldquoABitcoinBelieverrsquosCrisisofFaithrdquoNewYorkTimes14January2016

[199]RandCorporationrsquosestimateofthedarknetdrugmarketas$142minJanuary2016would

makeit$170myeartheUNOfficeonDrugsandCrimeestimatedthewholeglobalillegaldrugmarketat$3216billionin2003andpresumablymorenowAllthesefiguresareextremelyrubbery(whichmaybewhythelatestglobalfigureisfrom2003)butldquolessthan01rdquoseemsasafestatementldquoWorldDrugReport2005Volume1AnalysisrdquoUnitedNationsOfficeonDrugsandCrimep127ISBN92-1-148200-3

[200]KyleSoskaNicolasChristinldquoMeasuringtheLongitudinalEvolutionoftheOnline

AnonymousMarketplaceEcosystemrdquoProceedingsofthe24thUSENIXSecuritySymposium12-14August2015

[201]GwernBranwenldquoDarkNetMarketarchives2011-2015rdquoInternetArchive12July2015

[202]GwernBranwenldquoBlack-MarketArchivesrdquo1December2013updated3November2016

[203]AndyGreenbergldquoTheSilkRoadrsquosDark-WebDreamisDeadrdquoWired14January2016

[204]AlphaBay_modldquoAlphaBaywilladdEthereumtoitspaymentoptionsrdquoReddit

ralphabaymarket18March2017

[205]ldquoExtortionviruscodegetscrackedrdquoBBCNews1June2006

[206]ldquoWhythepoliceviruswassoeffectiverdquoPCAdvisor26February2013

[207]ldquoNewRansomwareStudyExploreslsquoCustomerJourneyrsquoofGettingYourFilesBackrdquoF-

Secure18July2016

[208]ldquoRansomwareriskcouldcrippleBritishbusinesseswithmanynotreadywhileothers

stockpilingbitcoinstopayuprdquoCitrix(pressrelease)June2016

[209]ChrisMayersldquoRansomwareintheUKOneyearonrdquoCitrixblog6June2017Citrixgivethe

questionsandsampleselectioncriteriainthecomments

[210]ldquoIncidentsofRansomwareontheRiseProtectYourselfandYourOrganizationrdquoFBI29April

2016

[211]ldquoTelstraCyberSecurityReport2017rdquoTelstra30March2017

[212]AccordingtoanNHSITworkerIknowwhospenthisSaturdayreimagingPCs

[213]JeminaKellyldquoBitcoinrsquosmurkierrivalslineuptodisplaceitascybercriminalsrsquofavouriterdquo

Reuters18May2017

[214]FahmidaYRashidldquoHowtotellifyoursquovebeenhitbyfakeransomwarerdquoInfoWorld29April

2016

[215]ldquoManhattanUSAttorneyAnnouncesChargesAgainstTwoFloridaMenforOperatingan

UndergroundBitcoinExchangerdquoFBI(pressrelease)21July2015

[216]DigitalGoldbyNathanielPopperchapter31notesleadinglightsofBitcoinexpressingthis

preciseworryattheBitcoinPacificaconferencein2014ldquoForthesakeofBitcoinasawholethereweremanywhoworriedthattheconsumerswhowerebuyingthingsonlinethroughBitpaywerepushingthepriceofBitcoindowngenerallywhenonlineretailersacceptedBitcoinstheyimmediatelysoldthemofffordollarscreatingadownwardpressureontheoverallpricerdquo

[217]The_MastorldquoItriedtoorderadeckofCardsAgainstHumanityusingBitcoinsbutwas

surprisedbythisnegativeresponseWhatdoyouguysthinkrdquoRedditrbitcoin30July2013

[218]MaxTemkinldquolsquoTheyjustprefertheimaginarydebt-basedmoneytheirslavemastersissuevia

thecentralbanksrsquoYesIuseittobuygroceriesrdquoTwitter30July2013(archive)

[219]ldquoHiMaxInwhatwaydoyoubelieveBitcointobeanlsquoimaginarycurrencyrsquordquoMaxistentialism

(blog)30July2013(archive)

[220]HenryBelotldquoHowmanypeopleactuallyusebitcoininCanberrardquoCanberraTimes3

September2014

[221]GraceCaffynldquoWordPressWeHavenrsquotGivenUponBitcoinrdquoCoinDesk25February2015

[222]AndreaWoodldquoBitcoinDonationstoMozilla17DaysInrdquoMozillaViewSourceFundraising

(blog)8December2014(archive)

[223]NunoMenezesldquoMozillaStudyShowsBitcoinhasNegativeImpactonDonationsrdquoBitcoinist

20August2015(archive)

[224]DavidGerardldquoWikimediadidratherbetterwithbitcointhanMozilla$140kinthefirstweek

$80ksinceforatotalof~$220ksofarintheyearwersquoveaccepteditrdquoRedditrbuttcoin7August2015(IaskedtheWikimediafundraisingdepartmentandpostedtheanswertoReddit)

[225]mwalkerldquoRe[Wikimedial]LetrsquosacceptBitcoinasadonationmethodrdquowikimedialmailing

list8January2014

[226]ShawnKnightldquoOverstockdoesnearly$1millioninBitcoinsalesinfirstmonthrdquoTechSpot

21February2014

[227]HalMBundrickldquoOverstockBitcoinSaleslsquoDisappointingrsquobutlsquoNobodyrsquosComplainingrsquordquo

InsideBitcoins16December2014(archive)

[228]PeteRizzoldquoOverstockReportsOver$100kinCryptoLossesforQ12015rdquoCoinDesk24

June2015

[229]WhollyhempCommentonldquoIworkforalargesportsnutritioncompanyIrsquomtryingtohelp

themimplementabitcoinpayoptionDoyouthinkitrsquollshowshorttermusagerdquoRedditrbitcoin9April2015

[230]WhollyhempCommentonldquoPaymentprocessorsneedtoofferconsumerfriendlyexchange

ratesiftheywantpeopletobuythingswithbitcoinrdquoRedditrbitcoin5April2015

[231]WhollyhempldquoThisiswhyyoudonrsquotangerBitcoinersrdquoRedditrbuttcoin1May2015

[232]WhollyhempCommentonldquoujstolfigoesthewayofwhollyhempafterdeaththreatsfrom

scientologistsrdquoRedditrbuttcoin20September2015

[233]PeteRizzoldquoBitcoinContinuesMarchtoMainstreamatStPetersburgBowlGamerdquoCoinDesk

27December2014

[234]KevinCollierldquoTherealhigh-stakesgamewagedattheBitcoinBowlrdquoTheKernel11January

2015

[235]PeteRizzoldquoBitcoinBowlMerchantsSeeTechrsquosBigPictureButFewSalesrdquoCoinDesk2

January2015

[236]KevinCollierldquoThegreatBitcoinexperimentthatfailedrdquoDailyDot2January2016

[237]

LinuxUserampDevelopera2007issueIrsquoveyettotrackdown(andStevedoesnrsquothave)

[238]sde1000btcmerchgithubio

[239]GarrickHilemanldquoStateofBitcoinandBlockchain2016BlockchainHitsCriticalMassrdquo

CoinDesk28January2016ldquoChineseyuandenominatedtradingrepresented95oftotalexchangevolumerdquo

[240]ldquoHowdoIverifyaUSbankaccountrdquoCoinbaseSupport(archive)

[241]LaurenRazavildquoTheStruggleBetweenBitcoinTradersandBritishBanksrdquoMotherboard13

January2015

[242]PaulSmithldquoACCCinvestigatingbanksrsquoclosureofbitcoincompaniesrsquoaccountsrdquoAustralian

FinancialReview19October2015

[243]CharlesBovairdldquoOnHighSeasofBitcoinTradingWhalesStillMakeWavesrdquoCoinDesk14

September2016

[244]JPBuntinxldquoGDAXBitcoinPriceBrieflyCrashestoUS$006afterSystemMaintenancerdquo

NewsBTC16April2017(archive)

[245]ldquoBitcoinbotsboughtmillionsinthelastdaysofMtGoxrdquoTheGuardian29May2014

[246]BobbyLeeldquoReminderChinesebitcoinspotexchangesOKCoinandHuobiarefakinga

majorityoftheirtradingvolumerdquoBitcoinFuturesGuide(blog)28March2016(archive)

[247]JustinaLeeandEmmaDaildquoBitcoinExtendsLossAfterChinarsquosCentralBankWarns

InvestorsrdquoBloomberg9January2017

[248]JorgeStolfildquoTradingvolumeatthemainChineseexchangessteadilydroppingforthelast10

daysShouldbezerotomorrowrdquoRedditrbuttcoin17January2017

[249]ldquoChinaBitcoinExchangesHaltWithdrawalsAfterPBOCTalksrdquoBloomberg10February

2017

[250]ldquoNigeriansEverythingyouneedtoknowabouttheMMMBitcoinscamrdquoNigeriaToday19

October2016(archive)

[251]egCoinDeskrsquosBitcoinPriceIndex

[252]Cryptowatchhttpscryptowatch

[253]DavidSharesldquoNewdetailsemergeaboutBitfinexrsquoshistoryamidhackingproberdquoBitcoincom

August32016(archive)

[254]eluxCommentonldquo[DailyDiscussion]SundayOctober042015rdquoRedditrbitcoinmarkets4

October2015

[255]ldquoBitfinexCompletesAlphaPointIntegrationrdquoAlphaPoint(pressrelease)28April2015


October2015

[257]UsingPay-to-ScriptHashwhichispartofBitcoinHowitworksatBitGoMikeBelshe

ldquoP2SHSafeAddressrdquoBitGo

[258]LuluYilunChenYujiNakamuraldquoHackedBitcoinExchangeSaysUsersMayShare$68

MillionLossrdquoBloomberg5August2016

[259]ldquoBitfinexInterimUpdaterdquoBitfinexblog6August2016(archive)

[260]EdmundedgarCommentonldquoBitfinexandWellsFargowhatdidBitfinexknowandwhendid

theyknowitrdquoRedditrbuttcoin15May2017

[261]ldquoBFXTokenTermsrdquoBitfinexAugust2016(archive)

[262]ldquoBFXMarginTradingIsLiverdquoBitfinexblog31August2016(archive)

[263]ldquoBFXtokentoiFinexequityconversionupdaterdquoBitfinexblog24September2016(archive)

[264]ldquoBitfinexRecoveryRightTokensrdquoBitfinexblog11October2016(archive)

[265]ldquoRRTExchangeTradingEnabledrdquoBitfinexblog11October2016(archive)

[266]ZaneTackettldquoBitfinexUpdateRegardingSecurityAuditFinancialAuditAndMorerdquo

Redditrbitcoinmarkets17August2016

[267]ldquoInterimupdaterdquoBitfinexblog17August2016asupdated4May2017(archive)

[268]GiancarloDevasinildquoMessagetotheindividualresponsiblefortheBitfinexsecurityincident

ofAugust22016rdquoBitfinexblog21October2016(archive)

[269]AndrewQuentsonldquoBitfinexrsquosHackedBitcoinsAreontheMove5RecoveryBounty

OfferedrdquoCryptoCoinsNews27January2017(archive)

[270]ldquo100RedemptionofOutstandingBFXTokensrdquoBitfinexAnnouncements3April2017

(archive)

[271]YujiNakamuraldquoInsideBitfinexrsquosComebackFroma$69MillionBitcoinHeistrdquoBloomberg

17May2017

[272]ldquoUSDWithdrawalsUpdaterdquoBitfinexAnnouncements12May2017(archive)

[273]ldquoPhilPotterlsquoSolvedrsquoBankingProblemsinthepastbylsquoShiftingrsquoCorporateentitieswnew

accountsrdquoExcerptfrom7-hourWhalepooliostreamof24April2017nowdeleted

[274]iFinexIncBFXNAIncBFXWWIncandTetherLimitedvsWellsFargoandCompany

WellsFargoBankNAUSDistrictCourtNorthernDistrictofCaliforniaNo17Civ1882

[275]StanHigginsldquoBitfinexWithdrawsLawsuitAgainstWellsFargordquoCoinDesk12April2017

[276]MarkKarpelegravesCommentonldquoMarkKarpelegravesofferscounselandconsolationtohisspiritual

brethrenatBitfinexrdquoRedditrbuttcoin9April2017(archive)

[277]ldquoPausingWireDepositstoBitfinexrdquoBitfinexAnnouncements17April2017(archive)

[278]ldquoOutflowstoCustomersrdquoBitfinexAnnouncements20April2017(archive)

[279]CoinDeskprice

[280]VoogruCommentonldquo[DailyDiscussion]TuesdayMay232017rdquoRedditrbitcoinmarkets23

May2017(archive)

[281]JosephYoungldquoSouthKoreanBitcoinExchangeSuffers$5MillionHackIssuesBitfinex-Like

TokensrdquoCryptoCoinsNews28April2017


BitcoinForumgtEconomygtMarketplacegtLendinggtLong-termoffers17August2012

(archive)

[283]UnclescroogeldquoUnclescrooge1-weekdepositprogramat2weekrdquoBitcointalkorgBitcoin

ForumgtEconomygtMarketplacegtLendinggtLong-termoffers13September2012(quotedarchive)

[284]AndrewQuentsonldquoBitfinexrsquosFounderSeeminglyTriedtoStartaPonziSchemerdquo

CryptocoinsNews8June2016(archive)

[285]httpfoldingstanfordedu

[286]ldquoDafuqCointhefirstmalwarecoinrdquoCryptocurrencyTimes(blog)4May2014(archive)

[287]ThecodethatinjectstherootkitisjawdroppinglyblatantandworthreadingRichielaldquoREAD

MENOWndashdafuqcoinisatrojanndashpooloperatorsexchangesbewarerdquoBitcointalkorgBitcoinForumgtAlternatecryptocurrenciesgtAltcoinDiscussion22April2014(archive)

[288]WikipediaDoge(meme)

[289]ClayMichaelGillespieldquoDogecoinLeadersPresentEvidencethatCEOofTroubledBitcoin

ExchangeMoolahIsLong-TimeScammerrdquoCryptoCoinsNews16October2014(archive)

[290]DuncanRileyldquoMintpalscammerRyanKennedyarrestedinUKovertheftof3700

BitcoinsrdquoSiliconAngle23February2015

[291]ldquoRyanKennedyconvictedofthreecountsofrapeagainstthreewomenrdquoCrownProsecution

Service(pressrelease)26May2016

[292]ldquoManchargedwithfraudandmoney-launderingrdquoAvonandSomersetConstabulary(press

release)29June2017

[293]JosephFrusetta(sporadicallyjoe)ldquoDogecoinOnTheMoonWersquoregoingtoreachthelunar

surfacenextyearrdquoRedditrdogecoin3August2016

[294]Mohlandldquo[Important]IrsquomtakingdogetipbottoaserverfarmupstaterdquoRedditrdogecoin8

May2017(archive)

[295]VitalikButerinldquoDagger-Hashimotordquo

[296]ldquoEthashDesignRationalerdquoEthereumWiki21March2015

[297]egOimieldquoBoughttoomanyGpusndashDelimmardquoRedditrethermining24June2017

(archive)

[298]ldquoEthereumAverageBlockSizeChartrdquoEtherscanio

[299]ldquoEthereumUncleCountAndRewardsChartrdquoEtherscanio

[300]1ldquogasrdquois000001ETHTransactionthroughputwillbegaslimitdividedbyblocktime

dividedby21000forasingletransactionThegaslimitisvariablebutiscurrentlyaround47000000So470000016seconds21000=1399transactionspersecond

[301]ldquoEthereumTransactionChartrdquoEtherscanio

[302]JosephYoungldquoEthereumLaunchesButLeakedChatSaysProjectNeedslsquoYearsMorersquordquo

CoinTelegraph1August2015(archive)

[303]egVladZamfirldquoAboutmytweetfromyesterdayhelliprdquo5March2017(archive)

[304]ldquoVitalikrsquosQuantumQuestrdquoBitcoinErrorLog(blog)16August2016(archive)

[305]JordanAshldquoWhyTuringMachinesareQuantumrdquoNoospheer(blog)4September2013ldquoIf

successfulitwillhaveapplicationsrangingfromcryptographytofinanceenergymedicalcareandbeyondrdquo(archive)

[306]O(sqrt(N))ratherthanO(N)perGroverrsquosalgorithmWhichisaprettygoodspeedupforas

longasnobodyelseknowsyouhaveaquantumcomputer

[307]VitalikButerinCommentonldquoWhydoesGregMaxwellandmanyothersfromBitcoinCore

notrespectVitalikrdquoRedditrbtc16August2016(archive)

[308]AmyCastorldquoEthereumlsquoTokensrsquoAreAlltheRageButWhatAreTheyAnywayrdquoCoinDesk

17June2017

[309]DigixDAO

[310]ldquoCrowdfundingWhitepaperrdquoTheGolemProjectNovember2016

[311]AlyssaHertigldquoICOInsanity$300MillionGnosisValuationSparksMarketReactionrdquo

CoinDesk25April2017

[312]Asurveyofthetop8ICOsatthetimeLyleCantorldquoATouroftheEthereumTokenBubblerdquo

18June2017(archive)

[313]egEminGuumlnSirerPhilDaianldquoBancorIsFlawedrdquoHackingDistributed(blog)19June

2017

[314]ldquoSNTCreationandStatusProjectCreationConditionsExplanatoryNoteampGovernance

Termsrdquostatusim(archive)

[315]EdanYagoldquoAdsonTaxisndashIsEOSiothePETScomofICOrdquoTwitter11July2017

[316]ldquoEOSIOTechnicalWhitePaperrdquoEOSIO(archive)

[317]RedLildquoEOSTriplesin2DaysMakingYunbiTopTierExchangeWithOver230kBTC

Volumerdquo8BTC3July2017

[318]ldquoFrequentlyAskedQuestionsrdquoEOSIO(archive)

[319]ldquoEOSTokenPurchaseAgreementrdquoEOSIO(archive)

[320]CoinHoarderldquoEOSndashAsynchronousSmartContractPlatform-(DanLarimerof

BitsharesSteem)rdquoBitcointalkorgBitcoinForumgtAlternatecryptocurrenciesgtAltcoinDiscussion6May2017(archive)

[321]ldquoDecentralizedcontentpublishingrdquopressone

[322]RedLildquoExchangesAlertsICOScamsandIllegalFundraisinginChinaPunishablebyDeathrdquo

8BTC26June2017

[323]Cindy23ldquoICOInvestorsLoseAllTheirMoneyWhenReadsaWhitepaperEncodedwith

Virusesrdquo8BTC30June2017

[324]StanHigginsldquoICOBluesStatusRaises$64Million(SoFar)ButLeavesBuyersWaitingrdquo

CoinDesk20June2017


chapter2ldquoTheSouth-SeaBubblerdquo

[326]httpsponzicowin

[327]JoshCincinnatildquoPonzICOLetrsquosJustCutToTheChaserdquo12May2017

[328]ldquoEthereumAccount0x1ce7986760ade2bf0f322f5ef39ce0de3bd0c82bInfordquoEtherscanio

[329]NickSzaboldquoSmartContractsrdquo1994(archive)

[330]NickSzaboldquoTowardsadigitalandprivatecommonlawrdquoUnenumerated(blog)13May

2007

[331]egSamarWarsildquoThisCompanyWantstoGiveYouaDivorceontheBlockchainrdquo

Motherboard30May2017

[332]AnextremeexampleAkinFernandezldquoAreyouaBitcoindenialistrdquoTheFinanser(blog)18

September2016(archive)

[333]egStephenTuallaterofTheDAOGianVolpicellildquoSmartContractsSoundBoringBut

TheyrsquoreMoreDisruptiveThanBitcoinrdquoMotherboard16February2015

[334]VitalikButerinldquoThinkingAboutSmartContractSecurityrdquoEthereumBlog19June2016

[335]MattLevineldquoCrossingtheRubiconandGaggingShkrelirdquoBloomberg5July2017

[336]MaximLottldquoNewtechpromisesgovernment-proofpredictionmarketsrdquoFoxNewsTech20

August2015

[337]SzabousedthisexampleinhisoriginalSmartContractspaperandreiterateditin

ldquoFormalizingandSecuringRelationshipsonPublicNetworksrdquoFirstMonday2(9)1September1997ISSN13960466

[338]NickSzaboldquoThedawnoftrustworthycomputingrdquoUnenumerated(blog)11December2014

[339]ForinstancethefamousShellshockexploitwasincompletelyopenandwidely-usedcodebut

wasnrsquotnoticeduntil25yearsafterthebughadbeenintroduced

[340]TheUnderhandedCContest

[341]TheUnderhandedSolidityCodingContestfordeceptivesmartcontractswithjudges

includingChristianReitwiessnercreatorofSolidity

[342]

ChristianReitwiessnerldquoSecurityAlertndashSolidityndashVariablescanbeoverwritteninstoragerdquoEthereumBlog1November2016

[343]KingoftheEtherldquoAnEthereumcontractlivingontheblockchainthatwillmakeyouaKing

orQueenmightgrantyourichesandwillimmortalizeyournamerdquo(archive)

[344]NickSzaboldquoAFormalLanguageforAnalyzingContractsrdquo2002(archive)

[345]NicolaAtzeiMassimoBartolettiTizianaCimolildquoAsurveyofattacksonEthereumsmart

contractsrdquo6thInternationalConferenceonPrinciplesofSecurityandTrust(POST)EuropeanJointConferencesonTheoryandPracticeofSoftwareApril2017

[346]MuneebAlildquoSolarstormAsecurityexploitwithEthereumrsquosSoliditylanguagenotjustthe

DAOrdquoBlockstackBlog21June2016

[347]ZikaiAlexWenandAndrewMillerldquoScanningLiveEthereumContractsforthelsquoUnchecked-

SendrsquoBugrdquoHackingDistributed(blog)16June2016ldquoUponinspectionnotoneoftheSolidityprogramsthatpassedourheuristiccheckactuallyappliedtherecommendedbest-practiceoftestingthecallstackdirectlyrdquo

[348]PeterVessenesldquoEthereumContractsAreGoingToBeCandyForHackersrdquoBlockchain

BitcoinandBusiness(blog)18May2016

[349]MartinHolstSwendeldquoEthereumcontractsecurityAnEthereumRouletterdquo14August2015

[350]EthererikldquoGovernMentalrsquos1100ETHjackpotpayoutisstuckbecauseitusestoomuchgasrdquo

Redditrethereum26April2016

[351]ldquoPostMortemInvestigation(Feb2016)rdquoKingoftheEther(archive)

[352]ldquoHiMynameisRubixiIrsquomanewEthereumDoublerNowmynewhomendashRubixitkrdquo

BitcointalkorgBitcoinForumgtAlternatecryptocurrenciesgtMarketplace(Altcoins)gtServiceAnnouncements(Altcoins)11April2016(archive)

[353]VitalikButerinldquoLiveexampleoflsquounderhandedsolidityrsquocodingonmainnetrdquoReddit

rethereum10April2016

[354]brockchainbrockshizeCommentonldquoAttackerhaswithdrawnallETCfromDarkDAOonthe

unforkedchainrdquoRedditrethereum25July2016

[355]TheDAOfrontpagearchiveof22June2016Yesthatrsquosafterthehack

[356]DinoMarkVladZamfirEminGuumlnSirerldquoACallforaTemporaryMoratoriumonTheDAOrdquo

HackingDistributed(blog)27May2016

[357]PeterVessenesldquoMoreEthereumAttacksRace-To-EmptyistheRealDealrdquoBlockchain

BitcoinandBusiness(blog)9June2016

[358]StephenTualldquoNoDAOfundsatriskfollowingtheEthereumsmartcontractlsquorecursivecallrsquo

bugdiscoveryrdquoblogslockit12June2016(archive)

[359]StephenTualldquoWhytheDAOrobbercouldverywellreturntheETHonJuly14thrdquoUrsium


[360]Therersquosanamusing(ifprobablyjusttrolling)openletterpurportedlyfromtheattackerposted

toPastebin(archive)thatmakesthisclaimexplicitly

[361]TjadenHessRiverKeeferEminGuumlnSirerldquoEthereumrsquosDAOWarsSoftForkisaPotential

DoSVectorrdquoHackingDistributed(blog)28June2016

[362]StephenTualldquoVitalikButerinGavinWoodAlexvanDeSandeVladZamfirannounced

amongstexceptionalDAOCuratorsrdquoblogslockit25April2016

[363]TracyAllowayldquoAnexperimentrdquo19January2017

[364]RichardWatersldquoBitcoin20givesthedreamersfocusmdashbutonlywithoutthehyperdquo

FinancialTimes4December2014

[365]EarliestsightingIrsquovefoundJPKoningldquoWhytheFedismorelikelytoadoptbitcoin

technologythankillitoffrdquo14April2013

[366]JeremyCuomoldquoMakingBlockchainReadyforBusinessIncreasetrustaccountabilityand

transparencyacrossyourbusinessnetworksrdquoIBM2016TheauthorlinkinthetextistoadeletedWikipediaarticle

[367]IcommendtoyouldquoIgnoringBlockchainIsCorporateSuicideWhyBlockchainisthebiggest

single threat to allCEOs fordestroyingcorporatevaluerdquo byNickAyton in analyst newsletterInnovationEnterprise (7July2016) (archive) In theseveralyears Irsquovebeen followingBitcoinandblockchains this is the singleworst andmost incoherentpieceof ldquoBlockchainrdquohype Irsquoveseen you definitely need to read it to inoculate yourself against the worst excesses of thisfoolishness

AytonspendsthefirstthirdofthearticlerepeatinghowdevastatingBlockchainwillbetobusiness thesecondthirdmaking technicallygarbledormeaninglessunsubstantiatedclaimsabout the future and the last third on a list of predictionsmany of which have already been

shownunfeasibleandthreeorfourofwhichareliterallyoutofrsquo80scyberpunksciencefictionasif he read too much William Gibson as a lad and thinks Blockchain will make Mona LisaOverdrive real ndash ldquoaugmented reality usingVR and holographic systemswill feed off sensorylayers thatwill sit on theLedgerofThingsconnecting theworldrdquopresumablyvisible toyournewZeiss-Ikoneyeballs

ldquoSomeoneaskedmewhatEthereumwashellipMyresponselsquoImaginegivingtheInternetadoseofViagraandincreasingthedoseeachdayrsquohellipTheBlockchainAgeishererdquo

Iknowofonecasewhereanon-technicalmanagerinadvertentlysentthislinkaroundtheir company they quickly realised how relentlessly terrible everything about blockchainsactually is ndash anyonewhorsquos survived in businesswhere sales people exist doesnrsquot need to be atechietonoticetherersquossomethingdeeplywrongandlackinginblockchainhypendashbutthearticlehadby then caught the attention of uppermanagementThemanager found themselves in thepositionofdesignatedexpertandhavingtoquellthisideamostlybyaprocessoftranslatingwhynone of this could ever work into sober and considered business speak from the originalprofanity-lacedscreaming

[368]RodgerOatesRaghavasureshSamudralaldquoIndustrialisationofDistributedLedgerTechnology

inBankingandFinancialServicesrdquoTechUK20June2016

[369]Proofsofconcept

[370]AgoodsurveyoftheblockchaininrelationtothisJimGrecoldquoWallStreetLovesthe

BlockchainrdquoTabbForum2June2017(archive)

[371]OliverRalphldquoReinsurersturntoblockchaintechnologyrdquoFinancialTimes16May2016

[372]egldquoHowtofindoutwhoownsapropertyorapieceoflandrdquoLandandpropertyblogHM

LandRegistry10October2013

[373]IzabellaKaminskaldquoTunablockchainsandChileanSeabassrdquoFTAlphaville(blog)Financial

Times6September2016

[374]ldquoFromshoretoplateTrackingtunaontheblockchainrdquoProvenance15July2016

[375]MattLevineldquoExecutivePayandBloodTroublerdquoBloombergView11July2016

[376]TheonlyusefulpastworkonthisIrsquovefoundldquoDistributedLedgerTechnologyamp

CybersecurityImprovinginformationsecurityinthefinancialsectorrdquoEuropeanUnionAgencyforNetworkandInformationSecurity18January2017MyonlyqualmsarethatitusesasreferencesZeroHedgeandBreitbartNews

[377]VitalikButerinldquoOnPublicandPrivateBlockchainsrdquoEthereumBlog7August2015

[378]

IzabellaKaminskaldquoExposingthelsquoIfwecallitablockchainperhapsitwonrsquotbedeemedacartelrsquotacticrdquoFTAlphaville(blog)FinancialTimes11May2015

[379]IzabellaKaminskaldquoIntroducingthelsquomutualiseddatabasersquordquoFTAlphaville(blog)Financial

Times6October2016

[380]IzabellaKaminskaldquoBlockchainsWherewersquoregoingwedonrsquotneedblockchainsrdquoFT

Alphaville(blog)FinancialTimes26August2016

[381]ldquoBitcoinVentureCapitalrdquoCoinDesk9February2017(archiveofthatversion)

[382]egDavidKaaretldquoIsYourFirmReadyforBlockchain-BasedTradeProcessingrdquo

MarkLogicblog5December2016(archive)

[383]JamesEyersldquoASXbuildsblockchainforAustralianequitiesrdquoSydneyMorningHerald22

January2016

[384]JackieRangeldquoNewAustralianSecuritiesExchangechiefdefendsblockchainplansrdquo

FinancialTimes5September2016

[385]ChanticleerldquoBlockchainoptionforASXclearinginlimbordquoAustralianFinancialReview12

January2017

[386]CliveBoultonldquoBanksfindblockchainhardtoputintopractice[alsosupplychain]rdquo

Hyperledger-Requirements-WG(mailinglist)12September2016(archive)

[387]VirajKamatldquoQuestionsontheNextConsensusArchitecturerdquoHyperledgertechnical-discuss

(mailinglist)1September2016(archive)

[388]KadhimShubberldquoBanksfindblockchainhardtoputintopracticerdquoFinancialTimes12

September2016

[389]RichardLumbAccentureldquoDownsideofBitcoinALedgerThatCanrsquotBeCorrectedrdquo

Dealbook(blog)NewYorkTimes9September2016

[390]MorganGreyldquoAzureBlockchainasaServiceUpdate5rdquoMicrosoftAzureblog29February

2016(archive)

[391]PeteRizzoldquoLinuxIBMShareBoldVisionforHyperledgerProjectaBlockchainFabricfor

BusinessrdquoCoinDesk11February2016

[392]

ldquoProjectsrdquoHyperledgerorg

[393]DigitalAssetldquoMovingHyperledgertotheLinuxFoundationrdquo2016

[394]IntelCorporationldquoSawtoothLakeDocsIntroductionrdquo2016(archive)

[395]ChainCoreDocsldquoOperatingablockchainrdquo

[396]VisaIncldquoVisaB2BConnectNewkidontheblockchainVisaandChaintobringimproved

internationalB2BpaymentstomarketrdquoOctober2016

[397]RichardGendalBrownldquoIntroducingR3CordatradeADistributedLedgerDesignedfor

FinancialServicesrdquoR3Blog5April2016ldquoNoticesomeofthekeythingsfirstlywearenotbuildingablockchainrdquo(archive)

[398]ldquoDistributedledgertechnologyBlackettreviewrdquoGovernmentOfficeforScience19January

2016

[399]GO-ScienceldquoBlockchaintechnologyrdquoYouTube19January2016

[400]MikeMasnickldquoHowASCAPTakesMoneyFromSuccessfulIndieArtistsAndGivesItTo

GiantRockStarsrdquoTechDirt26March2012

[401]OliviaBrownldquoASCAPrsquosLivePerformanceRoyaltiesNoLongerReservedForTopTouring

ActsrdquoFutureofMusicCoalition9October2012

[402]BenSisarioldquoGoingtotheEndsoftheEarthtoGettheMostOutofMusicrdquoNewYorkTimes

8June2015

[403]WikipediaSonyBMGcopyprotectionrootkitscandal

[404]ldquoFairMusicTransparencyandPaymentFlowsintheMusicIndustryrdquoRethinkMusic

BerkleeInstituteforCreativeEntrepreneurshipJuly2015

[405]ChrisCookeldquoPRSconfirmsGlobalRepertoireDatabaselsquocannotrsquomoveforwardpledgesto

findlsquoalternativewaysrsquordquoCompleteMusicUpdate10July2014

[406]egAndyEdwardsldquoTheUKmusicindustrytriedtoagreealsquotransparencycodersquofor

streamingroyaltiesItcollapsedndashherersquoswhyrdquoMusicBusinessWorldwide26February2017

[407]

Therersquosafamoussayingconcerningmushroomsanddistributinginformation

[408]GeorgeHowardldquoImogenHeaprsquosMyceliaAnArtistsrsquoApproachforaFairTradeMusic

BusinessInspiredbyBlockchainrdquoForbes(contributorblog)17July2015(archive)

[409]ImogenHeapldquoWhatBlockchainCanDofortheMusicIndustryrdquoDemosQuarterly8

Spring2016(archive)IrsquovealsohadreportsofdiscussionswiththepeoplebehindtheldquoTinyHumanrdquoinitiativeandamusicalecosystemwiththefunctionalityIdescribeasldquospywarerdquoisabsolutelytheintention(AlsotheydislikeBandcamp)

[410]ScreenshotofpayoutsasofAugust2016uploadedbyme6November2016

[411]ScreenshotoftheUjoMusicpurchasepageforldquoTinyHumanrdquowhenIclickedldquoDownloadrdquoin

August2016ldquoPurchasingisdisabledfornowsorryrdquo

[412]egHatchingAmazingldquoPart1HowwetriedtobuyImogenHeaprsquossongonEthereumrdquo24

January2016(archive)

[413]EverettRosenfieldldquoCompanyleavesNewYorkprotestinglsquoBitLicensersquordquoCNBC11June

2015

[414]andrewkeysldquoPurchaseImogenHeaprsquoslsquoTinyHumanrsquowithEtheronConsenSysprojectUjo

thedecentralizedpeer-to-peermusicplatformrdquoRedditrethereum3October2015

[415]ldquoEmergingfromtheSilencerdquoUjoMusicblog29August2016(archive)

[416]BenRatliffldquoIsBandcamptheHolyGrailofOnlineRecordStoresrdquoNewYorkTimes19

August2016

[417]HoraceDedluldquoiTunesusersspendingattherateof$40yrrdquoAsymco12May2013(archive)

[418]StuartDredgeldquoSpotifynowprocesseslsquonearly1bnstreamseverydayrsquordquoMusicAlly22July

2015

[419]ldquoMusicontheBlockchainrdquoBlockchainforCreativeIndustriesResearchClusterMiddlesex

UniversityJuly2016

[420]PetterEricsonPeterHarrisElizabethLarcombeTuroPekariKellySnookAndrewDubber

ldquoMTFLabsBlockchainrdquo23August2016

[421]JeremySilverldquoBlockchainortheChaingangrdquoCREATeWorkingPaperSeriesMay2016

DOI105281zenodo51326

[422]ldquoTheBlockchainChangeeverythingforeverrdquoFurtherfieldOctober2016Transcriptvideo

AnotherthatwouldgreatlybenefitfrombeingnarratedbyPhilomenaCunk

[423]JohnLahrldquoBerkleersquosOpenMusicInitiativerdquoMusicBusinessJournalBerkleeCollegeof

MusicSeptember2016

[424]GideonGottfriedldquoHowlsquotheBlockchainrsquoCouldActuallyChangetheMusicIndustryrdquo

Billboard5August2015

[425]KevinCruzldquoPeerTracksParadigmShiftInMusicWorldrdquoBitcoinMagazine22October

2014(archive)

[426]BenjiRogersldquoHowBlockchainCanChangetheMusicIndustry(Part2)rdquoRethinkMusic

BerkleeInstituteforCreativeEnterprise24February2016

[427]RhianJonesldquoRevelatorgets$25mfundingledbyExigentCapitalrdquoMusicBusiness

Worldwide30August2016

[428]ldquoTAONetworkPartnersWithBoogieShackMusicGrouptoOfferBlockchainSolutionrdquoTAO

Network(pressrelease)22August2016

[429]ZachLeBeauldquoAnatomyofSingularDTVrsquosCODE(CentrallyOrganizedDistributedEntity)rdquo


[430]ldquoSNGLSCreationandS-DTVCODESmartProjectCreationConditionsExplanatoryNoteamp

GovernanceTermsrdquoSingularDTVSeptember2016(archive)

[431]ldquoTheSingularDTV(S-DTV)CODESummaryOverviewForaBlockchainFilmampTelevision

EntertainmentStudioampDistributionPortalwithaSmartContractRightsManagementPlatformrdquoSingularDTV22July2016(archive)

[432]ZachLeBeauldquoAnEthereumJourneytoDecentralizeAllThingsFromtheDAOtotheCODE

(CentrallyOrganizedDistributedEntity)rdquo11July2016(archive)

[433]TimInghamldquoSpotifyrevenuestopped$3bnin2016withlossesabove$330mndashreportrdquo

MusicBusinessWorldwide18May2017

[434]FulltextinvariousformatsonProjectGutenberg

A Bitcoin FAQ

Introduction

Chapter 1 What is a bitcoin

Why Bitcoin

What you have when you have ldquoa bitcoinrdquo

The blockchain

Secured by waste Proof of Work

Chapter 2 The Bitcoin ideology

Libertarianism and cyberlibertarianism

Pre-Bitcoin anonymous payment channels

The prehistory of cryptocurrencies

The conspiracy theory economics of Bitcoin

Austrian economics

Chapter 3 The incredible promises of Bitcoin

Decentralised Secured by math

Anonymous

Instant No fees

No chargebacks

Be your own bank

Better than Visa PayPal or Western Union

Remittances

Bank the unbanked

Economic equality

The supply is limited The price can only go up

But Bitcoin saved Venezuela

When the economy collapses Bitcoin will save you

You can use Bitcoin to buy drugs on the Internet

Chapter 4 Early Bitcoin the rise to the first bubble

The tulip bulb era

The art of the steal

Pirateat40 Bitcoin Savings amp Trust

Bitcoin exchanges keep your money in a sock under someone elsersquos bed

The rise and fall of Mt Gox

Drugs and the Darknet The Silk Road

Chapter 5 How Bitcoin mining centralised

The firetrap era

Abusing your hashpower for fun and profit

Chapter 6 Who is Satoshi Nakamoto

Searching for Satoshi

Dorian Nakamoto

Professor Dr Dr Craig Wright Nakamoto Dundee Thatrsquos not a signature

Chapter 7 Spending bitcoins in 2017

Bitcoin is full the transaction clog

Bitcoin for drugs welcome to the darknet

Ransomware

Non-illegal goods and services

Case study Individual Pubs

Chapter 8 Trading bitcoins in 2017 the second crypto bubble

How to get bitcoins

From the first bubble to the second

Bitfinex the hack the bank block and the second bubble

Chapter 9 Altcoins

Litecoin

Dogecoin

Ethereum

Buterinrsquos quantum quest

ICOs magic beans and bubble machines

Chapter 10 Smart contracts stupid humans

Dr Strangelove but on the blockchain

So who wants smart contracts anyway

Legal code is not computer code

The oracle problem garbage in garbage out

Immutability make your mistakes unfixable

Immutability the enemy of good software engineering

Ethereum smart contracts in practice

The DAO the steadfast iron will of unstoppable code

Chapter 11 Business bafflegab but on the Blockchain

What can Blockchain do for me

But all these companies are using Blockchain now

Blockchains wonrsquot clean up your data for you

Six questions to ask your blockchain salesman

Security threat models

Permissioned blockchains

Beneficiaries of business Blockchain

Non-beneficiaries of business Blockchain

ldquoBlockchainrdquo products you can buy

UK Government Office for Science ldquoDistributed Ledger Technology beyond block chainrdquo

Chapter 12 Case study Why you canrsquot put the music industry on a blockchain

The rights management quagmire

Getting paid for your song

The record industryrsquos loss of control and the streaming apocalypse

Berklee Rethink and blockchain dreams

Imogen Heap ldquoTiny Humanrdquo Total sales $13320

Why blockchains are a bad fit for music

Attempts to make sense of the hype

Other musical blockchain initiatives

SingularDTV

Summary

Conclusion

Further reading

Glossary

Acknowledgements

About the author

Index

Attackofthe50Foot

Blockchain

BitcoinBlockchainEthereumandSmartContracts

DavidGerard

















Notes

ABitcoinFAQ





Introduction

















WhyBitcoin














Theblockchain


















pushingpolitics



ndashRogerVer8








































Austrianeconomics




















Anonymous



InstantNofees




Nochargebacks






Beyourownbank









Remittances




Banktheunbanked




Economicequality




























Thetulipbulbera



















Theartofthesteal


































































ndashRogerVer108




































Thefiretrapera




























SearchingforSatoshi








DorianNakamoto










































































KarenBoyd2017




Ransomware














































Howtogetbitcoins






transactions



























































Chapter9Altcoins








Litecoin



Dogecoin












Ethereum








































































































































































































































































































SingularDTV











Summary



Conclusion









Furtherreading






Glossary


























































Acknowledgements







Index




















Notes[1]




















[12]





(archive)









Story23April2013


















September2014



perdayrdquo



AnnualReportrdquop2












January2009






September2015






2017




(blog)3July2015


5May2013






May2010(archive)



March2013






















[69]







(archive)



TexasNo13-00416






Reuters21July2016




Krugerrandsrdquo











(archive)


February2016



















August2014






27February2014













Guardian19April2013










Gawker1June2011








1February2015


October2014


2014






Wired12January2016



2013


2014









December2016












June2014(archive)




released






(archive)(video)











[154]































11December2015





January2016






















Twitter30June2017




News9January2017







2015(archive)




October2015

















Secure18July2016






2016




Reuters18May2017


2016












September2014









list8January2014


21February2014




June2015









27December2014


2015


January2015


[237]







January2015




September2016











2017








October2015



October2015





















(archive)


17May2017











[279]CoinDeskprice


May2017(archive)





(archive)

















release)29June2017




May2017(archive)




(archive)

















17June2017

[309]DigixDAO



CoinDesk25April2017


18June2017(archive)


2017













8BTC26June2017




CoinDesk20June2017








2007










August2015









[342]




























































Times6September2016






[378]



Times6October2016







January2016




January2017






September2016




2016(archive)



[392]










2016







8June2015








[407]












2015





August2016



2015


UniversityJuly2016








MusicSeptember2016




2014(archive)


















A Bitcoin FAQ

Introduction


Why Bitcoin


The blockchain







Austrian economics



Anonymous

Instant No fees

No chargebacks

Be your own bank


Remittances

Bank the unbanked

Economic equality






The tulip bulb era







The firetrap era




Dorian Nakamoto





Ransomware




How to get bitcoins



Chapter 9 Altcoins

Litecoin

Dogecoin

Ethereum
































SingularDTV

Summary

Conclusion

Further reading

Glossary

Acknowledgements

About the author

Index

















Notes

ABitcoinFAQ





Introduction

















WhyBitcoin














Theblockchain


















pushingpolitics



ndashRogerVer8








































Austrianeconomics




















Anonymous



InstantNofees




Nochargebacks






Beyourownbank









Remittances




Banktheunbanked




Economicequality




























Thetulipbulbera



















Theartofthesteal


































































ndashRogerVer108




































Thefiretrapera




























SearchingforSatoshi








DorianNakamoto










































































KarenBoyd2017




Ransomware














































Howtogetbitcoins






transactions



























































Chapter9Altcoins








Litecoin



Dogecoin












Ethereum








































































































































































































































































































SingularDTV











Summary



Conclusion









Furtherreading






Glossary


























































Acknowledgements







Index




















Notes[1]




















[12]





(archive)









Story23April2013


















September2014



perdayrdquo



AnnualReportrdquop2












January2009






September2015






2017




(blog)3July2015


5May2013






May2010(archive)



March2013






















[69]







(archive)



TexasNo13-00416






Reuters21July2016




Krugerrandsrdquo











(archive)


February2016



















August2014






27February2014













Guardian19April2013










Gawker1June2011








1February2015


October2014


2014






Wired12January2016



2013


2014









December2016












June2014(archive)




released






(archive)(video)











[154]































11December2015





January2016






















Twitter30June2017




News9January2017







2015(archive)




October2015

















Secure18July2016






2016




Reuters18May2017


2016












September2014









list8January2014


21February2014




June2015









27December2014


2015


January2015


[237]







January2015




September2016











2017








October2015



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[279]CoinDeskprice


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release)29June2017




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Times6September2016






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2014(archive)


















A Bitcoin FAQ

Introduction


Why Bitcoin


The blockchain







Austrian economics



Anonymous

Instant No fees

No chargebacks

Be your own bank


Remittances

Bank the unbanked

Economic equality






The tulip bulb era







The firetrap era




Dorian Nakamoto





Ransomware




How to get bitcoins



Chapter 9 Altcoins

Litecoin

Dogecoin

Ethereum
































SingularDTV

Summary

Conclusion

Further reading

Glossary

Acknowledgements

About the author

Index

Attack of the 50 Foot Blockchain: Bitcoin, Blockchain, Ethereum & Smart Contracts

Documents

Transcript of Attack of the 50 Foot Blockchain: Bitcoin, Blockchain, Ethereum & Smart Contracts