Was SHA-256 cracked? Don’t buy into the retraction!

SHA-256 is a one way hashing algorithm. Cracking it would have tectonic implications for consumers, business and all aspects of government including the military.
 
It’s not the purpose of this post to explain encryption, AES or SHA-256, but here is a brief description of SHA-256. Normally, I place reference links in-line or at the end of a post. But let’s get this out of the way up front:
 
One day after Treadwell Stanton DuPont claimed that a secret project cracked SHA-256 more than one year ago, they back-tracked. Rescinding the original claim, they announced that an equipment flaw caused them to incorrectly conclude that they had algorithmically cracked SHA-256.
 
“All sectors can still sleep quietly tonight,” said CEO Mike Wallace. “Preliminary results in this cryptanalytic research led us to believe we were successful, but this flaw finally proved otherwise.”
 
Yeah, sure! Why not sell me that bridge in Brooklyn while you backtrack.

The new claim makes no sense at all—a retraction of an earlier claim about a discovery by a crack team of research scientists (pun intended). The clues offered in the original claim, which was issued just one day earlier, cast suspicion on the retraction. Something fishy is going on here. Who pressured DuPont into making the retraction—and for what purpose? Something smells rotten in Denmark!
Let’s deconstruct this mess by reviewing the basic facts:

  • A wall street, financial services firm proudly announces the solution to a de facto contest in math and logic
  • They succeeded in this achievement a year ago, but kept it secret until this week
  • One day later (with no challenge by outsiders),* they announce a flaw in the year-old solution

Waitacottenpickensec, Mr. DuPont!! The flaw (an ‘equipment issue’) was discovered a year after this equipment was configured and used—but only one day after you finally decide to disclose the discovery? Poppycock!

I am not given to conspiracy theories (a faked moon landing, suppressing perpetual motion technology, autism & vaccinations, etc)—But I recognize government pressure when I see it! Someone with guns and persuasion convinced DuPont to rescind the claim and point to a silly experimental error.

Consider the fallout, if SHA-256 were to suddenly lose public confidence…

  • A broken SHA-256 would wreak havoc on an entrenched market. SHA-256 is a foundational element in the encryption used by consumers & business
  • But for government, disclosing a crack to a ubiquitous standard that they previously discovered (or designed) would destroy a covert surveillance mechanism—because the market would move quickly to replace the compromised methodology.
I understand why DuPont would boast of an impressive technical feat. Cracking AES, SSL or SHA-256 has become an international contest with bragging rights. But, I cannot imagine a reason to wait one year before disclosing the achievement. This, alone, does not create a conundrum. Perhaps DuPont was truly concerned that it would undermine trust in everyday communications, financial transactions and identity/access verification…
 
But retracting the claim immediately after disclosing it makes no sense at all. There is only one rational explanation. The original claim undermines the interests of some entity that has the power or influence to demand a retraction. It’s difficult to look at this any other way.
 
What about the everyday business of TS DuPont?
 
If the purpose of the original announcement was to generate press for DuPont’s financial services, then they have succeeded. An old axiom says that any press is good press. In this case, I don’t think so! Despite the potential for increased name recognition (Who knew that any DuPont was into brokerage & financial services?) I am not likely to think positively of TS DuPont for my investment needs.
 

* The cryptographic community could not challenge DuPont’s original claim, because it was not accompanied by any explanation of tools, experimental technique or mathematical methodology. Recognizing that SHA-256 is baked into the global infrastructure: banking, commerce and communications, their opaque announcement was designed to protect the economy. Thank you, Mr. DuPont, for being so noble! 

Can Bitcoin transactions be made private?

The blockchain is public, yet a Bitcoin wallet can be created anonymously. So are Bitcoin transactions anonymous? Not at all…

Each transaction into and out of a wallet is a bread crumb. Following the trail is trivial. Every day, an army of armchair sleuths help the FBI. That’s how Silk Road was brought down.

The problem is that some of that money eventually interacts with the real world (a dentist is paid, a package shipped or a candy is purchased at a gas station). Even if the real-world transaction is 4 hops before or after hitting the “anonymous” wallet, it creates a forensic focal point. Next comes a tax man, an ex-spouse or a goon.

The first article linked below addresses the state of tumblers (aka “mixers”). They anonymize an open network by obfuscating the trail of bread crumbs.

Mixers/tumblers aren’t the only way to add a layer of privacy to Bitcoin transactions. The Lightning Network spec includes an optional 17-hop onion routing (just like TOR’s 4 step onion routing). I have not yet seen the feature expressed in wallets or services, but if implemented, it will be even more private and trustworthy than a mixer, because there is no middle party to trust (by you) or squeeze (by investigators). It has the potential to makes any crypto Bitcoin even more anonymous than cash.

Certain cryptocurrencies (not Bitcoin) have anonymity baked in by design. Monero, ZCash and Dash are privacy tokens that use very different approaches to eliminate the bread crumbs. Monero appears to have one distinct advantage: Like the TOR network, it is trustless. But there are benefits to each approach.

Spending Bitcoin in Person is Easy (What happens in background is elegant)

Today, I was co-host of an online cryptocurrency symposium—taking questions from hundreds of visitors. A common question goes something like this:

Can Bitcoin be used in person—or is it just for internet commerce?

Our panel had a moderator, and also an off-screen video director. As I cleared my throat in preparation to offer a response, a voice in my ear reminded me that it was not my turn. The director explained that another panelist would reply. It was a highly regarded analyst and educator in Australia. Realizing that that she was calling the shots, I deferred.

I was shocked as I listened to this far off colleague suggest that Bitcoin is not useful for in-person payments. I wonder how he explains this to the grocers, tailors, lawyers, theme parks and thousands of retailers who save millions of dollars each year by accepting bitcoin—all without risk of volatility and even if they demand to instantly convert sales revenue into Fiat currency.*

Of course it can be used in person, Numb-nut!
(I kept this thought to myself. I know better than
to criticize another panelist).

An in-person transaction, such as paying for a meal after consumption, is an ideal use scenario. It benefits everyone: The seller captures greater value and the buyer is unlikely to need bank-brokered arbitration. He only needs a receipt. He will never demand a 90-day return warranty, claim that he was shipped an empty box, nor complain about the amount charged.†

But this isn’t about my clueless colleague. It is about the ease of using Bitcoin in person and the interesting stuff that happens in the background. Let’s look at a simple purchase scenario — and then we’ll dig in to marvel at the settlement process. This is a true story, told in 7 bullets. It occurred in the summer of 2015—just 5 years after the very first use of bitcoin to purchase anything (Bitcoin Pizza Day was May 22, 2010).

  • It’s 2 AM on a moonlit Sunday morning. Driving from Boston to New York, I rehearse the Bitcoin presentation that I will deliver at a startup clinic hosted by LaGuardia Community College and the Cryptocurrency Standards Association. Wracked by hunger, I pull off the last exit in Connecticut and find the Darien Diner. Great food! My meal costs $12.
  • As I take one last bite of midnight quiche, I realize that I forgot my wallet! No cash; no driver’s license. Although I have a smartphone, it is brand new. I have not yet loaded it with credit cards. But I can access to my passwords and accounts.
  • I scope my surroundings. The waiter is the only one on the main floor. He is also the cashier. Seeing no other customers or staff, I figure that the owner or cook is in the kitchen; probably the only other person on site. I approach the cash register, hoping that the waiter will accept my apology—and trust that I will pay on my return trip in a few days. Before I launch into a poor-man’s excuse, I spot a placard shown below. Bitcoin is among the diner’s accepted payment methods. Pretty neat for 2015!
  • Bitcoin accepted hereI ask the cashier how I can pay with Bitcoin. His response catches me off-guard: “I have no ideaThey told me that you would know.” What?! Does this guy recognize me? Does he know that I am on my way to give a Bitcoin lecture? This seems very unlikely. Gradually, I understand what he means, and I know what to do…
  • I point my smartphone at the QR code (It’s taped to the cash register next to the words: “We accept Bitcoin”). In fact, this restaurant is fully on board. I am amazed to see that a display on the register offers a custom code that is encoded with the exact meal cost. That’s really cool! So, I shift my camera to that code.
  • Immediately, my wallet asks if I would like to add a tip. (It’s hosted by an online exchange, but an application wallet will also work). I add $3 and press SEND.
  • A thermal printer next to the till spits out a narrow receipt. At the very bottom, where it would typically say “Paid with MasterCard ending in −3862”, it says “Paid with Bitcoin”. The buzzing sound of that receipt printer tells the cashier that I am good to go. Good food in the tummy and a bill has been paid. Case closed; Return to car; Drive to New York. Note to self: Find other Bitcoin vendors on trip.

What Really Happened?

In the seconds between authorization and a printed receipt, fascinating things occurred around the world. Seriously Fascinating—just like magic! It is transforming the way payments work and—eventually—the way we view, understand and manage cash. ‡

  • When I clicked SEND, a limited subset of Bitcoin credentials was presented to a massively distributed, worldwide network of miners. In effect, I informed the bookkeepers that I wish to have $15 transferred to the restaurant’s public address.
  • Seconds later, the original credentials were voided (this solves the ‘double spend problem’) and a new transaction was added to public ledger that we call the blockchain. It now reflects my slightly reduced wealth.

But wait! It gets even more fascinating…

The “miners” that settled the transaction and provided the new Bitcoin credentials needn’t have any awareness that they just facilitated payment for a meal at a diner in Darien Connecticut. From their perspective, these individuals and large server farms in Iceland, China, Israel, and South Africa—and in college dorms spread across the world—are engaged in a massively distributed gaming competition. They are competing for rewards based on solving a math problem.

As you review that last paragraph, imagine the elegance of the global network. Imagine the power, robust nature, and benefit that comes from it’s redundant and decentralized architecture. Imagine the brilliance of an anonymous genius who goes by the name Satoshi. Imagine the incentive for disparate bookkeepers to play a critical role in balancing a world-wide ledger. Imagine that authorities cannot shut down the network or even slow down this global network. Imagine the trust that individuals, businesses, NGOs, banks and governments can put in a monetary supply and mechanisms of accounting. Imagine a world where this trust benefits everyone uniformly, fairly, and without a path to graft or inflation.

Bitcoin and the blockchain, introduced together, are not minor, incremental contributions to economics, bookkeeping, trust, and commerce. They are overwhelmingly significant contributions to the future of human society and every one of its institutions.


Notes / Caveats / Clarifications

† You may have heard that bitcoin transactions are immutable. This is a simplification. The public ledger is immutable, but transactions are reversible, if terms are clear to both parties. Just as with Ethereum, smart contracts are built into the technology. So are hooks to centralized mediation, if that’s what the agreement calls for. Charge-backs, refunds, warranty demands and other arbitration are all possible. These features are built into Bitcoin, but rarely used in this early era.

Most Bitcoin transactions today are payments; they are not charges. Although they do not typically accommodate bank-brokered returns, rescission and charge-backs, these are all possible, and often without requiring an authority to broker the dispute. But these traditional safeties or mitigation must be agreed upon in advance. No longer does the seller have all the power, or the buyer need to run to a credit card processor to complain. Sales are either immutable or brokered by a 2-party contract.

This is not your grand-daddy’s payment mechanism. It is so much more evolved!

‡ In 2017, Bitcoin went through a period of intense growing pain. Transactions became so slow and costly, that in person transactions became impossible, especially for any amount less than $500. If you needed a transaction to complete in less than an hour, you would need to enlist in a bidding contest. A quick confirmation could cost upwards of $30 US.

The restaurant payment related above was an on-chain transaction. Today, transactions that use the Lightning Network overlay may occur within a private channel apart from the blockchain. But ultimately, every change in bitcoin ownership results in an individual or aggregated entry onto the blockchain.

* Crisis in late 2017 and 2018

Sadly, in researching this article, I learned that the Darien Diner no longer accepts Bitcoin. Problems with transaction cost and delays in late 2017 and early 2018 discouraged a great many retailers. No one purchasing a $12 meal will pay $30 in fees, and a cashier is not going to wait 2 hours to validate payment from a customer who has already eaten a meal and wants to hit the road.

That glitch sparked a terrible flight from retail adoption. Even now (Q3 of 2019), retail penetration is sharply off its peak. We are barely clawing our way back to the early adoption rate. Vendors lost faith, and many don’t yet realize that their POS investment can now be safely be reactivated. Lightning Network to the rescue!

The Next Crisis

Another crisis is looming, but it too will be solved.

Although the Bitcoin network is fast and inexpensive, the proof-of-work method used by miners to arrive at a distributed consensus consumes far too much power to scale. Mass adoption would consume more power than the world currently generates.

And here’s the kicker: The mining incentive ensures that any new, inexpensive energy that might be discovered in the future would be gobbled up by miners with no additional benefits to society (or even to the Bitcoin network). All the new, free (or cheap) power would be diverted away from homes, businesses, manufacturing and public works. The incentive for grabbing every cheap watt is very much like a cancerous growth.

Clearly, this is not sustainable. Bitcoin mining already uses more power than all of Argentina. But great minds are working on the problem and alternative methods of guaranteeing a fair, crowd-sourced accounting consensus are being tested, analyzed and debated. We will get through this complex problem, and hopefully—this time—without demoralizing a key factor in the tetrad: Consumers, developers, vendors & miners.

Should you toss out that dial-up modem?

Today, a reader asked me: “Is there any justification for keeping an external modem?

Of course, the word modem applies to current technologies, such as cable modems and ONT (the modem that connects a home or office to FIOS). But, I am pretty sure that this reader is asking about a POTS dial-up modem (POTS = Plain Old Telephone Service).*

Answer: It is safe to toss out this antique, save it for a museum, or let your 9 year old bring it to Show-&-Tell:

“My daddy used a Moh-dum. It’s how pre-historic humans got online in the Stone Age!! They called it America Online”.

Sometimes, a common tool passes into the realm of anachronism while it still sits in your tool box on your workbench. My daughter is already 18. Yet, she has never wound a watch, dialed a telephone (with a spring-loaded reciprocating dial), or tuned in a car radio. If it weren’t for an eclectic interest in the movie iRobot (Will Smith orders a pair of classic shoes from his grandfather’s era), I doubt that she would have ever experienced tying shoe laces.

But wait! Could a dial-up modem be useful when your lose Internet service—for example, during a storm or other service blackout? Not really. Who ya gonna call?!

If you have an urgent need to get online while your primary service is interrupted, you can create cell phone hotspot or ask a neighbor for temporary access to his WiFi signal. Holding onto your dial-up model is as useful as holding onto two tin cans connected by string. In most countries, you would have a hard time finding a modem that could answer your call at the other end!

If you are older than 35, then here is a friendly sound from your past (click YouTube image below). It is the sound of a dial-up modem connecting to a bulletin board or an internet gateway. If you used this type of modem, then you temporarily without phone service (unless you had an extra line of phone service). You even had to disable call waiting, so that the data connection was not interrupted.

* Incidentally, POTS is, itself, an extinct technology. Even if you have a twisted pair of copper wires entering your home and telephone jacks with red & green wires coming up from the cellar, it is very unlikely that this wire pair goes far beyond the phone pole outside your house. Your analog phone signal was converted from digital data far upstream and multiplexed with many of your neighbors into a high-speed data stream or onto a broadband carrier signal for distribution within your neighborhood and for long distance.

Instead of circuit switching your voice with the person you are talking to, telcos often use intranets and even the public internet, just like individual users with a VoIP SIP.


Modem Trivia

  • Dennis Hayes invented the PC modem. Hayes introduced a 300 bit per second modem in 1977 for $280. By the time that modems were being replaced by ASDL and direct connect cable services, the fastest 56,000 bps modems were often available for free after store rebate.
  • In the mid 1980s, new consumer modems bumped up data speed from 1200 bps to 2400 bps. Around that time, Hayes aired the first TV commercial for a computer component—rather than the computer itself (the Hayes modem). It was years before a 1991 TV commercial that promoted the brand and logo of an internal part (“Intel Inside”), rather than the product being advertised. Nutrasweet attempted the same ingredient branding at around the same time. Still later, in 1993, Intel introduced the Pentium CPU.

Hub, switch or router: Which do you need?

This article was originally an answer to a member of Quora, the Q&A site at which I am a columnist. I am active in bitcoin and computer networks.

The question:

I have a 2nd computer in a room with one network outlet. I prefer to use a network cable and not WiFi. I think that I need a“splitter”.

I realize that each device gets unique data. So it’s not as simple as adding a power strip with extra sockets. I have heard of hubs, switches and routers, but don’t know the difference. Which do I need. Will it cost an arm and a leg?

Answer

All you need is a very inexpensive switch. In fact, the best consumer model discounts for less than $15. I recommend one at the end of this answer, which also addresses your more general question.

So, what is the difference between a hub, switch and router? Let’s dig in…

1. Hub

A “hub” is a relic from the 1990s. Someone using that term today is probably referring to a switch.

In past decades, it was cheaper to use a single communications amplifier without dedicated circuit paths for each internal and external connection.

For example, if your maximum Ethernet speed is 100 Mbps, than this is all that is available to ALL conversations. So, even if someone wanted to backup to a local network device or stream from a disk drive attached to the router, they would be slowing down everyone — even the devices that are accessing the Internet.

2. Switch

But a switch is much better. It supports the maximum negotiated speed of each 2-way connection without slowing down any other connection. So, for example, if port 5 is connected to port 2, it does not impact port 7 which is connected to the WAN/Internet port.

Large models, like the 48-port unit shown here are typically managed switches and support Power-over-Ethernet. These costly enterprise features are not needed in a home or small office. In my opinion, the more important operational features have all become inexpensive and mainstream: auto-sense, auto negotiate, auto-fall back, jumbo frame, power save, and more.

3. Router

A “router” refers to the function that keeps track of packets entering and leaving your home or office. It ensures that returning packets get to the proper device. Some routers have only one WAN/Internet port and one LAN (local port). If the router has 4 or 8 ports, then it is really a router with an integrated switch.

If you have just one computer in your home and no wireless devices, the router connects directly between your cable modem (or fiber ONT) and the PC. If you have more than one computer, then you must either (a) have a switch (built-into the router or connected to the one LAN port), or (b) use the WiFi feature or add a Wireless Access Point (WAP).

Bonus Term: WAP

A WAP (wireless access point) is simply a WiFi radio. It’s just like an extra broadcast tower in your home. But, because it is wired directly to your router, it is *much* better than adding a WiFi or powerline repeater. It is also very inexpensive…

Popular consumer brands, like Linksys, D-Link, Netgear, Asus, TP-Link and Belkin, have all but abandoned this product segment. That’s because you can easily turn any old WiFi router into a WAP by turning off the DHCP feature. This allows the ‘main’ router to assign local IP addresses and handle packet routing. The 2nd router simply adds another radio spot to your home or office. Since the router function is much less expensive than the WiFi function, using a router does not add to the cost.

About Speed

In the early 1980s, there was a market war between various network standards and topologies. Most buyers realized that the once mighty Arcnet (created by Datapoint Corporation) was dying and that the winner would be either Token Ring (IBM) or Ethernet (created by Intel, Xerox & Digital Equipment).

Ethernet won that war with its hub-and-spoke topology and a speed of 10 Mbps.

It wan’t long until the speed was bumped up to 100 Mbps (called Fast Ethernet or “100base T”. Today, the sweet spot of price and performance is 1 Gbps. It’s 100 times faster than the original! There are still faster implementations at 10 or 100 Gbps, but these require professional cable installation, expensive gear and some very strict configuration requirements.

If your network might ever be used by multiple users or for video streaming (especially at 4K), be sure that you don’t accidentally purchase the older Fast Ethernet switch or router (or—heaven forbid—an old fashioned hub!). Just 3 or 4 years ago, you might have saved cash on the slower standard, but today, you can find gigabit switches and routers without paying a significant premium. In fact, reputable companies are not making 100 Mbps switches today. That would be like selling a 512 GB USB drive with USB 1 or 2. It just doesn’t make sense.


Now you know the difference between all three terms: Router, Hub (outdated) and Switch (often included with a router). And just for fun, you even know about another related device: WAP.

Incidentally, even if your router already has a 4 or 8-port switch, you may still need an additional switch. Consider these scenarios:

  • You have more than 4 wired devices
  • One of your cables goes from the cellar to an upstairs office. But, you have a few devices in that office. You can simply add a tiny switch. This is exactly what you need as your ‘splitter’.*
  • You wish to create a subnet to isolates your network devices and activities from another segment. This requires 2nd router instead of just a switch. Not to worry. Decent 4-port routers are available for under $30. In this case, you may not even care about the WiFi feature, which is the most expensive component of routers costing above $50.
* Switch Cost & Reputation

« I just purchased this Netgear GS305 for just $12.50. It’s a gigabit 5-port switch with terrific specs and reliability wrapped into a solid metal box. It sips very little electricity and the footprint is smaller than a slice of bread. I often see larger 8-port switches by Netgear and TP-Link discounted to $17. These are both very good consumer brands.

Is there an upper limit to future WiFi speed?

As with many recent posts, this was originally a reply to a member of Quora. I am a frequent columnist at this popular Q&A forum.

Is there a theoretical speed limit to
WiFi devices over the next 10 years?

Because of four recent practices,* it is difficult to predict an upper limit for future overall throughput:

  1. Channel bonding
  2. Beam steering (MIMO shaping and directing the antenna pattern)
  3. Mesh Networking (i.e. subdividing a service area into micro-cells). Residential examples: Google WiFi, Netgear Orbi or TP-Link Deco
  4. Ultra wideband or Ultra-high frequency: In 2017, both Netgear and Asus introduced routers with 802.11ad WiFi (‘WiFi AD’). Although it still not widely adopted, it adds a 60 GHz radio to the existing 2.4 and 5 GHz radios, supporting 7 Gbps network speed).

Note that none of these techniques demands a high output power per channel. They all use ‘tricks’ to achieve higher speeds. But the tricks are scaleable. There really is no upper limit to any of these techniques.

Mesh networks don’t increase overall bandwidth, but by reducing the signal power and service area (and having many more access points), there is more bandwidth available for each device.

The 60 GHz used by WiFi AD is so high, that it cannot pass through walls in a typical home—just within a room. On the other hand ultra-wideband transmission has been demonstrated and recently blessed by the FCC, but it is not yet a WiFi standard. With this method, it will be possible to send insanely high-speed, low power signals through walls to cover small areas.

How fast are ultra-wideband radios? How about terabytes per second, depending on distance? It’s difficult to imagine future applications that may need that speed. It dwarfs the real world data input capacity of our senses. Perhaps, someday, you will need to transfer the entire literature of all known civilizations into your brain under under 2 milliseconds. I suppose that it would be good for that purpose.


* I called these technologies “recent developments”. But actually, three of four practices have a long history in military, commercial and industrial applications.

a) Beam steering

Focusing an antenna pattern has been around for more than 75 years. Yagi TV antennas (popular in 1960s and 70s) are highly directional. Some TV broadcast towers are situated near the edge of a service area. They split their broadcast signal, through a phase delay and deliver the waveforms to an array of antenna. This allows them to steer the signal without any mechanical movement. Directional lasers or infrared beams are often used for communications.

b) Channel bonding (or reverse multiplexing)

I had an exceptional router in the 1990s that could combine backhaul services (not just switch from one to the other in case of a drop out). It boosted speed by distributing internet packets over three separate networks):2 separate cable services and an early cell phone modem.

c) Mesh/Cellular coverage

The ‘full-blown’ implementation was developed by Motorola in the 1980s to accommodate growth in the mobile telephone market. I am not aware of an earlier implementations that included graceful, real-time hand-off of a device in motion. Of course, hotels and large convention centers have used mesh networking for more than a decade.

What is a ‘Paper Wallet’? Do I need one?

Like many other recent articles at Wild Duck, this post is structured as a question-and-answer. That’s because it was originally my reply to a member of Quora, a Q&A site at which I am a Bitcoin columnist.

What is a ‘Paper Wallet’

A paper wallet is the ultimate offline wallet. It simply means that the private address to your crypto wallet is printed on paper — either as a string of characters, a QR code, or a series of seed recovery words.

If you destroy any electronic copy of your original wallet (e.g. the private keys that give you access to your wealth), then hiding this piece of paper is very similar to hiding a bar of gold. The only way that someone can steal it or know the amount it represents is to get their eyes and hands on something physical. They would need to know that you tucked it into your mattress or behind a secret panel of your cellar wall.

In my opinion, a paper wallet, though secure, presents a big risk to the owner—even bigger than the potential for a hardware wallet to be hacked. We’ll get to this later.

Example of a Paper Wallet »

Here is a paper wallet printed onto a card [click to enlarge]. There are web sites that will help you print one with a new or existing wallet address. One popular site is BitAddress. [Warning!] After printing and storing the paper wallet in a place that you believe is secure, that you will not forget—and that your family can get to some day in the future)—delete all electronic copies of your original address (i.e. if you did not create a completely new wallet in the process).

More about Paper Wallets

Like other wallets (a software app, or a dedicated hardware device), your wallet contains private keys that access your wealth on the blockchain. But in the case of a paper wallet, it is made private and secure by hiding this slip of paper where no one can ever see it or peek at it online. Think of it as if you are hiding a valuable diamond.

A paper wallet cannot be hacked, unless it is within range of a camera. But the diamond analogy breaks down, because a paper wallet has other risks than hacking…

It can be lost, damaged in a flood or fire or chewed by termites or your dog. More likely, it can be forgotten for years. When your heirs finally discover it under the mattress or taped to the back of a painting, they are unlikely to recognize its purpose and simply throw it out.


Hosted Wallet: Complete Opposite of Paper Wallet

You didn’t ask for the other extreme wallet scenario. But this seems like a good time to discuss it.

When it comes to security -vs- convenience & recovery, an exchange-hosted wallet is at the other end of the spectrum. With this type of wallet, you do not control your private keys. In fact, your crypto isn’t even in a wallet dedicated to you. Instead, it is aggregated with assets of all other clients. You are trusting the exchange to track your stake via a traditional account relationship. When you spend or receive Bitcoin (or other cryptocurrency), the transaction occurs withing the exchange. It is not transmitted directly to a blockchain or Lightning Network.

Advantages of an exchange hosted wallet:

  1. A reputable, hosted exchange (there are very few)‡ implements and follows rigorous backup, security and disaster practices. These safety practices are probably more diligent, standardized and adhered to than whatever you would do with a software, hardware or paper wallet.
  2. A reputable, hosted exchange maintains your account information and instructions in their records and acts on these instructions. As with a traditional bank or broker, they pass wealth to your heirs or executor, if you provide the beneficiaries and instructions in your account profile.

With a personal wallet under your control, it is more likely that your relatives will not know about your wallet, lose it, or fail to distribute assets as you intended. This will change in the future, as multisig becomes standardized and easier for end-users to understand and use. But for now, a traditional custodian has an edge in transmitting wealth from one generation to the next.

Disadvantages of an exchange hosted wallet:

  1. Your money could be completely lost if the exchange does not practice very good security practices, is dishonest or becomes insolvent. (It happened with more than half of the exchanges during the first 5 years after Bitcoin was unveiled!). It is less likely today, but only if you choose your exchange carefully.‡
  2. With Bitcoin and most cryptocurrencies, transactions are never anonymous, nor even very private. That’s a myth. But with an exchange hosted wallet, your wealth and activities are even more exposed to outside scrutiny. That’s because reputable hosts are quick to comply with subpoenas, court orders, tax authorities and even local police investigations. They want to be seen as safe. To project this image, they are proactively compliant with oversight and proposed regulations.
  3. Your money can be frozen or seized by the exchange (for whatever policies they deem appropriate) or from authorities outside the exchange. Often, the reasons make no sense to individual clients affected. This happened to me very recently!
  4. Large computer based servers experience technical glitches—which often coincide with your most urgent need to access funds.

Extreme Caution Recommended

BitAddress has an excellent reputation and has never been the focus of suspicion. Their source code is written in a popular script and is short enough to enable scrutiny by many developers and analysts. Additionally, the creation of your wallet and printout can be performed completely offline (no internet connection). You can further enhance safety by performing the wallet creation and printout from a PC that will never be connected to the internet. (Yes! It is that important to use paranoid practices to avoid exposure of your private keys).

Despite the quality reputation and transparency, I do not currently recommend using BitAddress to create a paper wallet.

  1. At the time of publishing, BitAddress has a problem with their web security certificate. This makes it possible for your web traffic to be hijacked by a DNS spoof. (This Blog does not have a security certificate at all, but you are not using it to store or create confidential information).
  2. Unnecessary risk is introduced by merging the process of creating a new wallet with conversion into a physical printout. Look for a tool that is completely off-line and that enables you to create a QR code or seed words for a wallet address that you already own.

Once BitAddress fixes the problem with security, the following process will protect your private keys from interlopers:

  • Go to bitaddress.org
  • Switch the internet off
  • Save the HTML file in a USD device
  • Restart the computer with a bootable Linux Live CD
  • Make sure that you are offline and open the HTML file
  • Follow the rest on bitaddress.org to create a paper wallet

If you download another tool to create a paper wallet, search for one that is open source and vetted by thousands of developers, users and armchair detectives. Choose one that is hosted by SourceForge or GitHub and carefully read user forums and reviews.


‡ Why are their few reputable cryptocurrency exchanges?

Regulations pertaining to cryptocurrency exchanges are not yet uniform, nor even widely understood. Additionally, there is no Federal account insurance for your hosted wallet. (Currently, the market is too volatile and risky for traditional underwriters to step up).

But, a well-capitalized exchange with high-profile investors is likely to adhere to rigorous security practices and unscheduled audits with public transparency. These reputable exchanges also work hard to comply with federal and regional regulators, and they comply with money transmitter practices, such as KYC, AML and RICO.

In my opinion, very few exchanges meet these rigorous standards, especially in this early era—which is often compared to the Wild West. Two very reputable exchanges are Coinbase (San Francisco) and Bitstamp (Founded in Slovenia and incorporated in the UK; Now, they are based in Luxembourg).

These big, reputable services mitigate the risk of hacking and theft by keeping most client assets in a ‘cold storage vault’ (off line and powered down). Your wealth is only attached to the internet when requested and in the quantity that you need. The rest is never exposed. Your online purchase or transaction is made after you have received email and text messages about the status of your coins.


This is 4th in a series of articles on Bitcoin & cryptocurrency wallets:


Ellery Davies co-chairs CRYPSA, hosts the New York Bitcoin Event and is keynote speaker at Cryptocurrency Conferences. He sits on the New Money Systems board of Lifeboat Foundation. Book a presentation or blockchain consulting.

About the Fuss: Is Bitcoin really so important?

This afternoon, an automated bot at Quora suggested that I answer a reader question. Quora is essentially an “Ask the expert” web site. It is the world’s largest, cataloged and indexed Q&A repository.

This is the question I was asked to answer:

Some pundits believe Bitcoin is a fad, while others seem to feel that it is better than sliced bread. I like sliced bread.* Is Bitcoin really that cool? —Or is it just a lot of Geeky hype?

One other columnist answered before me. Normally, I pass on an invitation, if a question has already been answered. But in this case, the individual answering the question has yet to see the light. He has wandered into the Church of the Blockchain, but he just didn’t realize that the man sweeping the floor is the prophet.

Here then is my answer, regarding Bitcoin, the blockchain and sliced bread…

I respectfully disagree with Jim Euclid. He answered this question too. Perhaps it is arrogant of me to state with confidence that he will change his mind, if he is still around in another 30 or 40 years. So will everyone reading this.

Bitcoin and the blockchain were introduced together in a white paper by a quasi-anonymous developer in October 2008. He or they used a pseudonym, but communicated with a broad group of developers before and after unveiling the solution to an age old problem of math, logistics and cryptography.

Just over 1 year later, Bitcoin began moving between individual owners. And then it began to re-write the history of economics, bookkeeping, consensus, trust and the very democracy that is so precious to us. It is changing what we understand about so many things. But its true contributions have barely even begun.

Bitcoin is as ‘cool’ an invention as there can be. Like the steam engine, vacuum tube, automobile, television and the internet, it is radically transformative. Each of these inventions has (or will) contribute enormously to human progress and happiness.

The problem that Satoshi solved goes back to Aristotle and has profound social implications for the future of humanity. There is no poetic license or potential for overstating the importance of both Bitcoin and the blockchain. It will impact your life—probably in very positive ways—with a punch that matches the rise of agriculture, indoor plumbing or airline travel.

Sorry, Jim. I respect your opinion, but I see the future a bit more clearly than you. The internet is a vehicle. It is certainly important. But it is only the highway. Bitcoin is the marvel that the internet’s instant, inexpensive and ubiquitous communication was meant to spawn.

I have always felt pride over the fact that I was alive when man first landed on the moon. I was a child and I had nothing to do with that achievement—but somehow, I am gratified that this event intersected with my life.

Unlike the moon landing, Bitcoin has no Jules Verne or cave paintings from past generations yearning to conquer something that is tangible. We have only Aristotle’s insight that money was not yet perfect—and his recognition that issues of democracy and governance seem to have insurmountable impediments. But the problems that Bitcoin and the blockchain address are just as real as the moon overhead. And the solutions they will spawn are even more relevant to our civilization.

I have even more pride that I have witnessed the birth of decentralized, permissionless, distributed consensus—and specifically Bitcoin. It will impact my health, wealth and happiness even more than everything that NASA and space technology have spawned.

Am I smug that I recognized the importance of Bitcoin and the blockchain just 4 months after its unveiling? You bet I am! And even if Jim doesn’t recognize it yet, someday I will rub this fact in his face.

(Kidding…but it is personally comforting to be on the right side of history!)


* Note: In America, the expression “sliced bread” refers to something that is really clever, desirable and coveted. It is often paired with the word “since” like this: That new iPhone is the best thing since sliced bread.


Ellery Davies co-chairs CRYPSA, hosts the New York Bitcoin Event and is keynote speaker at Cryptocurrency Conferences. He sits on the New Money Systems board of Lifeboat Foundation. Book a presentation or blockchain consulting.

Can I Check Web Sites Visited by my Kids/Staff?

Early this morning, I was asked this question at Quora. It’s a pretty basic request of network administrators, including parents, schools and anyone who administers a public, sensitive or legally exposed WiFi hot spot.

Is there a quick and easy way to view, log, or otherwise monitor the web sites visited by people on your home or office network?

Yes. It’s free and and it is pretty easy to do.

It gets a bit trickier, if the individual on your network is using a VPN service that they have configured on their device.[1] A VPN does not stop you from logging their browsing, but all of their activity will point to the VPN address instead of the site that they are actually visiting. In that case, there is another way to monitor their activity. See note #1, below.

Before getting into this, I should mention that I believe that using covert methods to monitor a family member’s online activity is a terrible method of parenting. In my opinion, there are better ways to deal with the issue—parenting techniques that don’t undermine trust as they deal with safety.

I can think of at least three methods for logging the websites that people on your network visit. In the explanation below, we will focus on #2. For more information, dig into the notes at the bottom of this answer.

You can either…

  1. Configure your router to store logs of visited IP addresses [2]
  2. Set your router to use the DNS server at opendns.com, instead of the default server offered by your internet service provider. This involves a simple setting available in all routers. (Replace default DNS server addresses with 208.67.222.222 and 208.67.220.220)
  3. You can set up a proxy which redirects web traffic to one of the computers in your house or a third-party service. This is how the monitoring software for parents and custodial services monitor or block web traffic.

In the remainder of this quick tutorial, we focus on method #2..

Once you configure your router to use the two DNS servers at OpenDNS.com, create a free account on their web site. Then, enable the logging feature. It not only shows you visited domains, it maps them into actual domain names and subdomains—making it easy to search, sort or analyze traffic.

You can download a spreadsheets and sort by number of visits or by the domains visited. Logs are maintained for only two weeks. So, if you wish to maintain a history, you will need to visit OpenDNS and download them regularly. (Check their user forum. Someone has created a safe, single-line DOS command that downloads these activity logs to your PC).


[1] VPN, Onion Routing and Encryption

If an individual in your home or office is using a Virtual Private Network [VPN], they are effectively covering their tracks with method #3, above. You can see their connection to the VPN service, but that service is either trusted to destroy logs of visited web sites, or anonymize traffic, by routing it through a chain of users that have no way to back-trace and identify the requester’s address.

Since their traffic originates on your network, there are other things you can do to monitor their activities. For example, if they are not using end-to-end encryption, you can use method #3 yourself, to route data in and out through your own PC or service.

[2] Logging the IP address or domain of visited web sites is not a feature of all routers. I have three recent model routers — and only one of them has a feature to log traffic in and out of the network.

[3] OpenDNS cannot discriminate the individual device in your home or office that has accessed websites that it logs. The logs include the traffic for all HTTP access that originates through your internet service subscription.

But some remarkable feature of OpenDNS (other than it being completely free):

a) It speeds up your overall internet experience noticeably! Like Google’s free DNS service, it is more robust and more redundant than the default DNS settings recommended by your internet service provider.

b) It maps every IP address into a domain name. So when you log in to check your logs and statistics, you don’t need to figure what the numbers mean. You view a list that makes sense. You can even search for certain words or web sites.

c) It permits you to block websites based on a very rich set of 100 criteria, including violence, adult content, hate speech, etc.

d) It offers graphs of your network access including overall volume. An example is shown here:

Lack of standards prompts new Bitcoin wallet advice

This update is an adaptation of my recent answer to a Quora reader who was in a panic. She asked:

“What can I do after a hard drive crash?
How can I recover my cryptocurrency?”

In the past, I would address the immediate problem of course. (My answer below). But, to prepare for the next unfortunate event, I would recommend a wallet type based on the user’s unique experience, expertise and comfort zone. I would help the reader to weigh trade-offs of the most important criteria: Security, portability, convenience, and quick access to assets).

I had believed that some types of wallets were better for some individuals, but that they required a background in cryptography—or at least a discipline for meticulous practices. As CEO of the Cryptocurrency Standards Association, I had also believed that simple, unified, and popular standards would emerge very soon. I figured that this would enable users to practice safe-wallet maintenance in their own homes.

I was wrong. Most crypto wallets have not sufficiently evolved to counter the risks and complexities of everyday scenarios —not even for expert users. The problem isn’t the fault of any one vendor or hosted online service. It is that all of these gadgets, apps and services have not gotten together behind a single set of risk standards to a point where they become simple, standardized and compliant-friendly in the real world.

The lack of comprehensive standards and best practices dealing with total loss of access can bite anyone in the tush. Expertise and experience be d*mned. Today, I recommend only two types of wallets. All others are simply too risky to play a role in any financial portfolio. They set the stage for losing your wealth and health in so many plausible scenarios:

  • If your electronic device is lost, hacked, stolen or run over by a truck
  • If you become incapacitated or die
  • If you forget a secret, or where you stored it
  • If you have no idea what is “multisig” and don’t care to learn strange new practices
  • If an online cloud service or exchange goes dark or mysteriously disappears

Here is my answer to the reader who urgently needs to recover from a disk drive crash. After dealing with that crisis (it’s not at all pretty), I explain what do do in the future…


Question:How can I recover my cryptocurrency after a hard drive crash?

Bear in mind that your digital wallet doesn’t really hold wealth or coins. It holds a private key that lets you access your wealth on the blockchain. The key is like a password, but you cannot choose your own and it is too complex to remember. And so, you need a place to store it. That’s all a wallet really is.

If you stored this key on an electronic device (or in a software app or even on paper), but with no way to recover it—in case the device is lost, broken, hacked or stolen—then you are screwed! Your bitcoin still exists, but access to it has been lost forever.

Let’s be extra clear: If the device cannot be repaired or recovered, there is absolutely nothing you can do except lick your wounds and learn from your experience.

Now, let’s talk about next time…

A beautiful trait of crypto is that you can back up your wallet easily. The elegant and secure way to do this is by creating a list of 11 or more common dictionary words and placing this list where you and 2 or 3 trusted friends can always find it. The ability to generate this list of words is a Bitcoin standard. It greatly reduces the risk of lossbut only if you are aware of the feature, make use of it, and periodically practice asset recovery.*

But, we’re getting ahead of ourselves. Let’s back up, and describe the way to store your keys…

There are only two ways that you should stash cryptocurrency until we reach a day when standards, best practice and multisig escrow are second nature, trivial and understood by everyone.

You can either (1) trust a custodial exchange, or (2) use a hardware wallet. In a nod to smart phones and software apps, I will describe something that they are good for in these safety tips. But your go-to wallet should never be an app.

1. Trust a custodial exchange like Coinbase or Bitstamp

Despite what your Libertarian friends have told you (“It misses the whole point of owning crypto!”, don’t dismiss this option so quickly. A traditional bank/brokerage model offers several benefits which are important to some individuals. We’ll get to those in the bulleted list below.

Choose an exchange that is compliant (fully licensed and follows regulations for all activities). They must be well capitalized by reputable investors and subject to random, outside audit. The two mentioned above belong to this very small class of exchange-wallet services.

The exchange holds your crypto in their own offline vault and gives you access on demand through an account user interface using two-factor authentication. The process can be frustrating, if you lose your smart phone and haven’t prepared or practiced for such an inevitability. That’s because they must be absolutely certain that access is being made by you or someone that you have authorized

Why would anyone want a service to control their assets? There are good reasons:

  • Since their main business is acting as an exchange, broker or market maker, you can quickly shift assets into Fiat or other cryptocurrencies
  • Their meticulous record-keeping aids your own end-of-year tax reporting
  • A real person can help with confusing or unexpected circumstances
  • Just as with a bank or stockbroker, you can designate heirs, a spouse or co-owner, and your anticipated executor or a relative with power of attorney
  • A reputable custodian makes it difficult to accidentally lose access to wealth

But what about security standards? With all of the exchange failures, the lack of an insurance framework, and many that have simply lost or fled with customer assets, can you trust an exchange to implement security in the very best way?

Ultimately, a reputable exchange that practices security drills, subjects itself to outside audits and has investors with lots to loose is more likely than you to implement, update and rigorously practice safe methodology. This may change in the future, as standards and practices become more clear, unified and easier to follow. But for now, the traditional bank model makes sense for a great many users. I have owned Bitcoin for ten years, and I have only switched from Coinbase to method #2, below, in the last month.

2. Take control of your private keys

A hardware wallet, like the Trezor Model T (left) or Nano Ledger is the safest way to keep your private keys. A hardware wallet offers enhanced security, privacy, control. But it surrenders the advantages of a custodial relationship listed in the bullets above.

Upon configuring the wallet, you can generate a list of 11 or more seed words.* These allow you to completely recreate the wallet in a worst case scenario. Give this list to several scrupulous and indisputably trusted friends.

Some wallet vendors offer to engrave the seed words into steel so that it is likely to survive your house burning down or being run over by a snow plow. (Even better, some will send you a slab of steel and a set of hard metal slugs for each letter of the alphabet. This enables you to bang the words into metal yourself. No one except two or three trusted friends should ever have access to these words).

I prefer to hand-write the seed words, scan it, and then allow two trusted relatives (preferably younger) to encrypt the image and hide it with their preferred stenographic technique. Is this a complex process? Does it require periodic drills to ensure that the seed words can be found and that they still work. Yes, and Yes. Choosing to forgo a custodial relationship adds some cost and complexity to wallet maintenance & safety. With evolving standards and practices, this will change. But, we’re not there yet.

Think of the seed words as your master password to everything that is dear to you.if they become lost, forgotten or stolen, you will lose much more than your wealth. You will lose your child’s education, your marriage, retirement and health.

What about wallets on a computer or phone?

You would never pack all of your life savings, your stocks, bonds and home equity into your billfold before leaving for the grocery store. Likewise, there are no reasonable arguments for walking around with private keys to your wealth on a phone or tablet. These devices are constantly exposed to hazards, both physical and virtual. The same applies to a desktop PC. Even if you adhere to a scrupulous backup protocol, a software wallet exposes you to increased risk of loss, theft, and hacker attacks, especially social engineering cons.

If you need to make purchases or other transactions as you travel, carry an off-line hardware wallet or access keys from a mini-cloud wallet (hosted or your own). It contains a very small fraction of your wealth—the most you would need for impulse spending on a typical day. Anything more should never be attached to the internet.

Earlier, I promised to say something nice about software app wallets…

Sometimes, an app wallet can be very useful. Here is an example that helped me. It doesn’t change my recommendation to avoid them. It simply means that they may offer a specific function that you can still make use of when needed…

Assisting with the BCH / BSV Fork

On November 18, 2018, anyone holding Bitcoin Cash was theoretically entitled to an equivalent amount of Bitcoin Cash SV (it stands for “Satoshi Vision”). Although BSV had some highly visible supporters—notably Craig Steven Wright, who claimed to be the developer behind the pseudonym—it was not clear that it would generate sufficient interest to carry value and sustain a mining ecosystem of its own.

At the time, my BCH was stashed at Coinbase, and that exchange warned clients that they may not support the fork at all. That is, they might not create new online wallets and award users with BSV.

And so, I sent my BCH to a hardware wallet. At the time, I was just beginning to experiment with the new Trezor Model T.

But shortly after the fork, I learned that the Trezor didn’t support BSV. I wondered if there was still a way for me to fork my Bitcoin Cash? Since BSV has no replay protection, there were lots of doubts about the process for individual users to claim their new tokens.

I didn’t have time to deal with the issue for months. During that time, it became clear that the effort would be worthwhile. BSV was not as valuable as BCH, but it was still valued at hundreds of dollars per coin. Ignoring a future windfall makes no sense at all. Even Coinbase eventually announced a plan to give BSV to customers who kept their BCH with them. (This didn’t help me. My BCH was already in a Trezor wallet!).

It turns out that the solution was a bit tricky. It only works if the user has never received additional Bitcoin Cash into the wallet with pre-fork coins, if the later incoming BCH had already been forked. If even one post-fork BCH was sent to the wallet address, the entire BCH balance would be ineligible for forking—ever! And then, there is the replay problem. There was no formal protocol for achieving this. Oy!

Several application wallets found a clever work-around. I chose the Edge wallet (available on Android), because the process appears to be easy—and it was. All a user needs to do is (1) create a BCH wallet on their Android phone, and (2) send pre-fork BCH from a non-polluted wallet, like my Trezor. The sending wallet cannot be at an exchange service, like Coinbase, because these services aggregate user funds both at their facility and when they transmit to the blockchain.


* Seed words are recovery magic for a wallet that has been lost, stolen or destroyed.

The algorithm that maps a complex private key into an ordered list of English words is Bitcoin standard #BIP39 (it stands for Bitcoin Improvement Standard). The emergence of this standard reduces user risk greatly for compliant wallets. In the event of catastrophic loss, theft of destruction, it enables a user to recreate a wallet on their choice of competing platforms: gadgets, software apps, and even some hosted wallets.

If you opt for a hardware wallet that is owned and secured by you (as opposed to trusting an exchange as custodian of your crypto assets, just like a traditional bank), then make sure that your wallet offers BIP39 seed word recovery. Ignoring this safety standard puts you back at high-risk, and invalidates everything that this article conveys!


Ellery Davies co-chairs CRYPSA, hosts the New York Bitcoin Event and is keynote speaker at Cryptocurrency Conferences. He sits on the New Money Systems board of Lifeboat Foundation. Book a presentation or blockchain consulting.

Update: Building (and placing!) a Bitcoin ATM

A new section about Bitcoin ATM business models
has been added. Jump to “UPDATE – July 2019

The good news is that building a Bitcoin ATM is easy and less expensive than you might expect. But, offering or operating them engulfs the assembler in a regulatory minefield! It might just be worth sticking to selling bitcoin on PayPal (visit this website for more information on that). You might also wish to rethink your business model —especially user-demand scenarios. See our 2019 update at the bottom of this article.

A photo of various Bitcoin ATMs appears at the bottom of this article. My employer, Cryptocurrency Standards Association, shared start-up space at a New York incubator with the maker of a small, wall mounted ATM, like the models shown at top left.

What is Inside a Cryptocurrency ATM?

You could cobble together a Bitcoin ATM with just a cheap Android tablet, a camera, an internet connection, and [optional]: a secure cash drawer with a mechanism to count and dispense currency).* A receipt printer that can also generate a QR code is a nice touch, but you don’t really need one. You can use your screen for the coin transfer and email for a receipt.

Of course your programming and user interface makes all the difference in the world. And your ATM must interface with an exchange—yours or a 3rd party exchange.

If your plan is to sell Bitcoin and not exchange it for cash, then you don’t need a currency dispensing component at all. You only need a credit card swipe-reader and an RFI tap reader. Some models are smaller than a cookie and sell for under $30. They can be attractively embedded into your machine. In fact, some bank card processors offer them without cost.

I Have Built a Prototype. Now What?

Desktop ATM. No cash dispensed

Once you have a working prototype, you will need to test it with focus groups (alpha test) and at prospective public sites (beta test). You must also harden the production model against tamper and theft and find paying businesses or property owners, so that you can achieve economies of scale. (A reasonable business model requires that you produce dozens of devices each month).

Parts Cost: Bill of Materials

At scale, you can achieve a unit production cost of less than $200. But that’s for a desktop unit that does not accept or dispense cash. A high-quality and attractive machine that accepts cash and is free standing or ready for outdoor installation into a building exterior might cost you $650. You could sell these for $2,500 plus recurring fees to the property owner, depending on venue, or you might simply lease them, just as Xerox did in the early days of office copiers. (In a hotly competitive market, such as Las Vegas, you may need to pay a portion of your profits to the site, rather than profiting from ‘renting’ the ATM).

Regulations: A Threat to Your Business

But wait! Before you run off and create an ATM venture of your own, with visions of a 350% profit margin, all is not as easy as it seems!…

Cryptocurrency ATMs intersect with a minefield of regulatory licensing and compliance standards. In many regions, they are not even legal for placement in a public area.

In most countries (including all of USA), you must be a registered Money Transmitter. You will need separate state licensing and—since you are moving cash in or out of the banking system—you must be partnered with a federally chartered bank. You will also need to post a hefty insurance bond—perhaps even for each machine and each municipality in which it is placed! These laws convey liability to both your client (a property owner) and to you. Many courts will hold the manufacturer of financial or medical products accountable for ensuring that their customers are licensed and compliant with regulations. That is, you may not be able to legally sell your ATM to organizations that have not demonstrated that they qualify to operate one.

Why is There a Camera in my ATM?

In all cases, you must capture photographs of your user and their state-issued ID, because you are required to know your customer and adhere to a slew of anti-money laundering practices. For example, with transactions larger than $2,000 (from anyone who is not known to you and a regular client), you must generate a Suspicious Activity Report. For transactions larger than $10,000, you must comply with RICO (Racketeer Influenced and Corrupt Organizations Act). This requires a camera, interview, and reporting process. You will be generating forms with data supplied by your user and possibly even a real-time verification of the facts they provide.

If you wonder why you needn’t do these things this when buying or selling your own cryptocurrency, it is because: (a) You are trading your own assets and are not the custodian of customer accounts; and (b) You are a consumer. It is likely that the exchange is required to do all of these things.

With Regulations, Can Bitcoin ATMs Generate Profit?

For the reasons described above, the operational cost of deploying and operating an ATM network (or your equipment for sale or rent) is significantly higher than the up front hardware cost. When you add the need to protect your venture from legal claims arising from process glitches or users that claim they lost cash or Bitcoin, you may arrive at an operational cost that makes your business model unworkable.

Of course, Bitcoin ATMs are profitable in some cases. I have consulted with a few start ups that operate them successfully in Las Vegas casinos, a few airports and race tracks, and at large outdoor fairs. But, for everyday use, the heyday of ATMs is most likely 5 or 10 years off. Before this happens, we need a more uniform and functional regulatory & insurance framework, and a higher volume of users per ATM.

Check out various Bitcoin ATM models below. Few manufacturers turn a profit. In the end, it boils down to location (high volume sites with the right people) and location (legal jurisdiction).


* One ATM startup found inexpensive hardware for dispensing currency by recycling mechanisms from bill-change machines used in game arcades or in hotels next to vending machines. These machines are being discarded, because newer vending machines accept credit cards and smart phone payment. But again, if you only plan to accept a credit or debit instrument for Bitcoin, then you don’t need a cash counter or dispenser.

_____________

UPDATE – July 2019: ATM Business Model Requires Urgency

The economics of Bitcoin ATMs is thoroughly uncompelling, unless you own or administer a public area with high foot traffic. Even with lots of traffic, the business model has a problem…

Bitcoin is easily acquired and exchanged online—both legally and illegally. Often, I urgently need to find a bank ATM, especially when travelling. But, despite being an avid proponent and adopter of cryptocurrency, I can’t imagine needing a crypto ATM. Needing virtual exchange is rarely urgent, and there are better alternatives than standing in front of a machine. After all, we each have a better machine in our pockets.

Online trading is easier and safer than via ATM. Even user anonymity is better online than standing in a public place and using a kiosk equipped with a camera.

Therefore, the business model of placing equipment requires scenarios in which the needs of prospective clients have urgency. Urgency adds significant value to local service. But again, there is a problem…

The problem with using urgency to build a local delivery model for ATMs, is that Bitcoin is a virtual product. Even a seller or exchange in China can deliver an online money exchange instantly.

Consider this reverse analogy…

Suppose that you are responsible for setting up a video projector in a hotel ball-room. The conference is already in progress and hundreds of people are looking toward a blank movie screen. You suddenly discover that your video cable is defective and wireless options will not work . You need an HDMI cable and a thunderbolt adapter immediately. It must be at least 18 feet long and be a recent model to support the audio channels and resolution of your presentation.

QUICK—Find me an exact match!

The local Best Buy store has the cable in stock. It’s $89.99 and the store can have it at the front desk in the next 10 minutes. Your frugal partner finds the same cable online for $29.99 (2-day delivery) or $9.50 shipped from China (about 2 weeks).

Which do you choose? Is it just a cable that you need? No! The value that you require is a compatible cable in your hands within minutes — preferably from a local and experienced vendor, in case there is an installation or application problem.

In almost any scenario—even catering to impulse buyers—a Bitcoin ATM can’t match the value of someone delivering a compatible cable instantly. If it is a commodity that you are selling (Bitcoin is a commodity), then a profitable business model requires that you sell speed, convenience or privacy. Cryptocurrency ATMs lose on all three fronts.

That last paragraph above is my freebie to the next ATM vendor who seeks my consulting services. Test your model, before seeking help in penetrating a market that is tough to define and defend.


Ellery Davies co-chairs CRYPSA, hosts the New York Bitcoin Event and is keynote speaker at Cryptocurrency Conferences around the world. Book a presentation or consulting engagement.

 

Conference speakers: Get paid–or pay up!

This week I received an offer to speak at a big, blockchain expo in Switzerland. That’s what I do in a mid-life career transition—or at least, it’s what I aspire to do. Last year, I presented at conferences, workshops, corporate retreats and trade shows on four continents. It’s not yet a full time career. Often, I cannot find paid opportunities to present—and so I teach, write, consult or refine my presentation to keep it relevant.

I hate marketing my presentation, but I’ve done a pretty good job of creating an industry reputation. And so, most of these presentation gigs begin with an offer from the host or producer. But like most presentation offers, this one came with strings attached. (More accurately, a ball, chain and an anchor ware attached!). Below, I have pasted the original invitation that I received—and the conversation that is still in process today.

Surprise! — “Offers” to speak at conferences and expos are not offers at all. Sure, the show needs talented presenters. But their outreach is just a sales pitch. Rather than paying for talent, the owner or producer wants their talent to pay them.

And so, responding to such offers is a carefully crafted form of triage; it’s a bit like trying to revive a gunshot victim who has entered the emergency room without a heartbeat. My ability to earn money as a speaker is on life support, even before receiving an “offer”. Why is this?! Let’s dig in…


Do Conferences Pay for Speakers?

There are two types of speakers: Headliners and techies. But, sometimes the headliner is one of the techies. I prefer to classify speakers as Celebrity or Expert.

Celebrity speakers are bought to create buzz. They deliver the keynote address and they get big fees. But many conferences have no big celebrity. They are typically found at prominent trade shows or events that cater to a television audience. Think of Billy Crystal or Whoopi Goldberg at the Academy Awards – or Mikhail Gorbachev at a corporate or non-profit.

Celebrity speakers get big bucks. Hillary Clinton was never president, yet she pulls in $400,000 to appear at an industry event.

But, what about speakers who bring critical content? These individuals are the meat-and-potatoes of any conference. Along with customer prospects, this is what visitors pay for. If you compare a trade conference to a restaurant, expert speakers are both the chefs and the food itself. They prepare, refine, package and deliver a consumable. But, do they get paid for their work?

To understand the expert speaker, let’s go back to the celebrity speaker for just a moment. These well-compensated speakers are typically an athlete, entertainer, comedian or former politician. Often, their presentation is unrelated to the conference or show venue. Their presence is primarily to create buzz, entertain or ensure eyeballs. The hosts see value because the celebrity fills seats or increases TV audience. This brings in advertising dollars. Of course, having a former president or movie star launch your agriculture expo creates lasting memories which raises awareness of future events. Their value is clear. That is why you should check out the portfolio of clients found at the Sports Speakers 360 website.

But you are not an athlete, comedian or former president. If you are an astronomer, you are probably not Carl Sagan (he’s dead) or Neil deGrasse Tyson. You’re just a darn good expert with wit, charm and an ability to excite a tough audience and help them leave with new ideas.

If you have tried to market your charm and your live presentation, then you have probably come up against the ‘reverse-value’ gambit. It’s like getting punched in the face 3 times:

  1. Most conferences and shows do not pay their speakers
  2. Often, they do not cover the cost of travel or a hotel. But, it gets worse…
  3. They want each speaker to pay big money to appear on stage. I am routinely asked to pay $5000 or $10,000 for the privilege of exposure!

But wait! Aren’t industry experts and pundits the main entrée? After all, we develop and deliver the information that attendees consume. Some–like me–make a living from live presentations. We travel abroad in the hope of making a career from our nuggets of wisdom. We are the raw material of conferences, clinics, expos and trade shows. Why no respect?!

Show producers want the prospective speaker to believe that the show offers visibility and a chance to hawk a related organization, product, service—or a special interest, such as a new standard, perspective or political agenda. At the very least, they want you to accept that it gooses up your career résumé.

Can expert speakers get paid for preparation, packaging and pizazz? Do credentials and communication skills bring credibility to an event? Are we not a critical component of the draw? It certainly isn’t easy. So let’s explore the reason for this difficulty—and the method that I use to overcome it.

Here’s a quick Q&A related to the difficulty in marketing an expert, live presentation as a fair consulting relationship:

Can a non-celebrity academic or industry expert get
paid for expertise, preparation and delivery?
Answer: It’s damn hard!
Do credentials & credibility help to draw an audience? Yes, absolutely!
Do producers recognize content value? Do any start negotiations by offering payment? Rarely. They argue that a stage or audience represents bigger value than your expertise
How can the speaker get a conference to value experience, preparation, travel and presentation? Substantiate & defend the expert value; Participate in promotion

Each time that you solicit a conference or respond to outreach, be prepared for the reverse value gambit. The host or producer positions their stage as a product. No compensation for you. They hope that each speaker will view himself as a client, rather as an asset that produces and delivers expert content.

Solution: Don’t be discouraged. It is not a job offer, just a starting point—just a slick sales pitch. Your goal is to move the value exchange from below the water line to top-of-hill. You can do this, because without you, they do not have a product to offer their real clients.

The value exchange must be flipped and justified. As an expert speaker, you must turn the equation around by marketing your exceptional value to the producer.

MIT Bitcoin Expo with Andreas Antonopoulos

The conference producer has not factored in all that you do. Point out that your value is a critical component to success. Enumerate the things you bring to the table:

  • Expert content
  • Engaging & entertaining delivery
  • Availability to participate in market media interviews and guerrilla marketing
  • Increased likelihood to capture additional sponsors
  • Availability to participate in VIP mixers

All of these things counter a reverse-value proposition. Prepare to argue all of these points eloquently, with the very first hint of reverse value. It won’t work every time, but eventually, you will find producers that value talent and know how to leverage your expert presentation, your reputation and the value of putting you in contact with journalists, TV anchors, sponsors and VIP attendees.

So what about the negotiation that started in the Linked-In messages shown below? Will I present in Switzerland in March? I don’t yet know. That dialog has just begun. Sometimes, I am successful at reversing the value proposition and sometimes I am not. Last year, I was fairly compensated for presentations in South Africa, India, Canada and Dubai, where I gave the keynote speech. But for a larger fraction of opportunities, either my fee proposal is rejected, or the offer fails to meet my minimum requirement.

For now, I don’t get frustrated about accepting a low fraction of speaking gigs. Interest in Bitcoin, altcoins and especially the blockchain is growing rapidly. Although I can only flip a fraction of show producers, there are four or five big shows in my field—somewhere in world—every week. For now, I am happy to land just a few.

Of course, one can organize and host their own show. My business partner Manny and I produced, publicized and hosted The Bitcoin Event in New York. We formed the Cryptocurrency Standards Association, partnered with a university network, recruited our own speakers, and promoted the affair with incentives and office space from the New York state.

That was fun, but I prefer to deliver content and excite an audience from the stage, rather than organize, produce and host a conference. At this stage of my career, I want the certainty of a presentation gig that comes with an airline ticket and a hotel reservation.


Host: [Seeks to have me talk at his conference. But there’s a catch!]

Hello Ellery, Finance World Expo will take place in Zug, Switzerland on 6-7 of March 2019.

Our expo strives to bring you, C-level executives, Founders, and Advisers from the leading companies in the industry, as well as promising and innovative start-ups.

A wide range of speaking opportunities and round panels enable our Sponsor’s to predict and shape the future of Finance. Being a part of our Expo offers a great chance to present your ideas to the wide community and get worldwide brand exposure. Awards are given to the best projects in the categories will enable the Winners to flash in the Finance Sector.

Finally, our beautiful location with facilities and high-level services ensure a perfect atmosphere for networking.

Can I send you some more information?
Use this code for a -20% ticket discount: FWxxxxx

regards, ?ukasz Paszkiewicz
Co-Founder of Finance World Expo

_____________________________________

Me: [This is where I hint that the value exchange must be reveresed]

Hi ?ukasz,

I am available during March. I would be honored if you consider me a prospective speaker. I charge a fee for speaking at economics conferences, and am qualified to be a keynote. I can bring cryptocurrency and blockchain expertise to your conference in a way that your audience and other speakers will fully understand and many will embrace

~Ellery Davies, bitcoinreferee.com ? qualifications

_____________________________________

Host: [A horse trade begins. I must convince him that expertise has value. it is an asset—rather than a sales opportunity]

Ellery, Normally we charge for speaking. Here are our packages for presenters: https://financeworldexpo.com/sponsorship/ We can offer you 25% discount. Additionally if you can introduce us some partners we can offer you free seminar or place in a panel.

Best regards, ?ukasz, financeworldexpo.com
Next Step: Review your
Sponsorship Opportunity ? Subtle! It means he wants money

_____________________________________

Me: [Get host to request a quote] …

Yes, ?ukasz. I certainly understand that you normally charge your speakers. This is because your speakers seek value in promoting their product, company, ICO or consulting service.

On the other hand, I am more accurately your show talent. I will visit with local news and media before the show to help fill walk-in seats. I will give the audience something that excites them and makes them believe that the show was productive for both their employers and their personal careers. I will give a positive and long-lasting impression of Finance World Expo. In turn, it gives you something that you can take to the bank.

With other speakers (especially at a trade show, clinic or non-academic conference), visitors sometimes feel that they have paid money to be pitched. They can get a pitch at Amazon or Walmart — but at your expo, value comes from being enlightened. Value comes from getting up on their toes and passionately participating with the presenter.

I can do this. I can partner and create value, excitement and a strong impression that your expo exceeded expectations. My role at the event differs from other speakers. For example:

  • I am not selling anything. I will appear at your expo for the sole purpose of exciting and enlightening guests. That’s what I do.
  • I am a versatile speaker on blockchain, Bitcoin adoption, scaling, regulation, economics, banking and government. I motivate audiences.
  • Bitcoin/Blockchain credentials ? Do you stack up? Experts must invite comparison!
  • I have hosted and presented Bitcoin conferences, including The New York Bitcoin Event
  • In the past year, I was keynote or headliner at conferences on 4 continents.
  • I am moderator at the world’s largest Bitcoin community: 50,000 members at LinkedIN
  • As columnist & editor, I fill seats with press coverage: local TV interviews before your event

That’s my pitch. If you consider our exchange from this perspective, you may come to value your speaker as key content, a pull through tool, and a significant revenue opportunity. To add additional value, I will help you work with existing sponsors to cover my stipend. I can wear their shirt, hand out their bling, and talk to visitors about the value that they bring.

~Ellery

Learn the basics of a steering differential

If you have ever owned a matchbook car, you know that each pair of wheels are connected by an axle. In small toys, the axle is often a steel wire about the diameter of a paper clip.

But in a road car, connecting the wheels with a straight, rigid axle yields a terrible driving experience. Here is a fascinating video on the design and evolution of a steering differential. That’s the gear system that connects a drive shaft from the transmission to a split axle—allowing powered wheels to rotate at different speeds. This is necessary to accommodate turns and uneven terrain.

Without a differential, your tires won’t last long on dry pavement and they will wobble and feather during sharp turns. After all, the outside wheel is cornering a larger radius and so, it wants to turn at a higher speed.

With the exception of 3-wheelers, like the Polaris Slingshot) or the Campagna T-Rex (photo), differentials have been used on internal combustion autos, even in the 19th century. The mechanism was known to the ancient Greeks, and patented for use in steam-powered cars in 1827—long before gasoline engines. Even the Ford Model T had a differential gearbox. But not every 4-wheeled vehicle has a differential…

One Wheel and Rear-Wheel Drive

So, how do go karts, motorized toys and some very cheap cars deal with the need for opposing wheels to spin at different speeds? Answer: The engine is shunted to just one rear wheel, often using a chain drive. This leaves the other wheel free to spin at whatever speed is necessary. It also leaves the front wheels free to navigate turns without the complicated task of sending power through a steering linkage. Because the front wheels were not powered, they simply rotate freely on independent roller bearings at the end of a straight axle.

But one-wheel power lacks traction and skid control. And it becomes dangerous whenever one wheel has less grip on the terrain. That’s where a differential comes into play. Furthermore, rear-wheel drive tends to shove a vehicle into each bump and hill rather than pulling it up and over obstacles. In the past 40 years, most cars have been redesigned to power the front wheels rather than the rear wheels. This not only improves handling, it helps in snow and on uneven terrain.

Differential Design: Simple, elegant & efficient

This video was filmed in the 1937, as evidenced by a vintage, pre-war Chevy sedan. Although this educational film it was made more than 100 years after the differential was invented, I wonder how many additional innovations have been added since?

This video explains a differential. Set time to far left to add
3 minute preface explaining the problem with straight axles.

I’m not in the business of teaching auto mechanics. But if you have caught the bug, check out these additional drive train principles —

Will we all be using a Blockchain currency some day?

At Quora.com, I respond to quetions on Bitcoin and Cryptocurrency. Today, a reader asked “Will we all be using a blockchain-based currency some day?”.

This is an easy question to answer, but not for usual Geeky reasons: A capped supply, redundant bookkeeping, privacy & liberty or blind passion. No, these are all tangential reasons. But first, let’s be clear about the answer:

Yes, Virginia. We are all destined  to move,
eventually, to a blockchain based currency.

I am confident of this because of one enormous benefit that trumps all other considerations. Also, because of flawed arguments behind perceived negatives.

Let’s start by considering the list of reasons why many analysists and individuals expect cryptocurrencies to fail widespread adoption—especially as a currency:

  • It lacks ‘intrinsic value’, government backing or a promise of redemption
  • It facilitates crime
  • Privacy options interfere with legitimate tax enforcement
  • It is susceptible to hacks, scams, forgery, etc
  • It is inherently deflationary, and thus retards economic growth
  • It subverts a government’s right to control its own monetary policy

All statements are untrue, except the last two. My thoughts on each point are explained and justified in other articles—but let’s look at the two points that are partially true:

  1. Indeed, a capped blockchain-based cryptocurrency is deflationary, but this will not necessarily inhibit economic growth. In fact, it will greatly spur commerce, jobs and international trade.
  2. Yes, widespread adoption of a permissionless, open source, p2p cryptocurrency (not just as a payment instrument, but as the money itself), will decouple a government from its money supply, interest rates, and more. This independence combined with immutable trust is a very good thing for everyone, especially for government.

How so?

Legislators, treasuries and reserve boards will lose their ability to manipulate the supply and demand of money. That’s because the biggest spender of all no longer gets to define “What is money?” Each dollar spent must be collected from taxpayers or borrowed from creditors who honestly believe in a nation’s ability to repay. Ultimately, Money out = Money in. This is what balancing the books requires in every organization.

This last point leads to certainty that we will all be using a blockchain based cryptocurrency—and not one that is issued by a government, nor one that is backed by gold, the dollar, a redemption promise—or some other thing of value.

Just like the dollar today, the value arises from trust and a robust two sided network. So, which of these things would you rather trust?

a) The honesty, fiscal restraint and transparency of transient politicians beholden to their political base?

b) The honesty, fiscal restraint and transparency of an asset which is capped, immutable, auditable? —One that has a robust two sided network and is not gated by any authority or sanctioned banking infrastructure

Today, with the exception of the United States Congress, everyone must ultimately balance their books: Individuals, households, corporations, NGOs, churches, charities, clubs, cities, states and even other national governments. Put another way: Only the United States can create money without a requirement to honor, repay or demonstrate equivalency. This remarkable exclusion was made possible by the post World War II evolution of the dollar as a “reserve currency” and the fractional reserve method by which US banks create money out of thin air and then lend it with the illusion of government insurance as backing. (A risky pyramid scheme that is gradually unravelling).

But, imagine a nation that agrees upon a form of cash that arises from a “perfect” and fair natural resource. Imagine a future where no one—not even governments—can game the system. Imagine a future where creditors know that a debtor cannot print paper currency to settle debts. Imagine what can be accomplished if citizens truly respect their government because the government lives by the same accounting rules as everyone else.

A fair cryptocurrency (based on Satoshi’s open-source code and free for anyone to use, mine, or trade) is gold for the modern age. But unlike gold, the total quantity is clearly understood. It is portable, electronically transmittable (instant settlement without a clearing house), immutable—and a precious substance needn’t be assayed in the field.

And the biggest benefit arises as a byproduct directly of these properties: Cryptocurrency (and Bitcoin in particular) is remarkably good for government. All it takes for eventual success is an understanding of the mechanism, incremental improvement to safety and security practices and widespread trust that others will continue to value/covet your coins in the future. These are all achievable waypoints along the way to universal adoption.


Ellery Davies co-chairs CRYPSA, hosts the New York Bitcoin Event and is keynote speaker at Cryptocurrency Conferences. He is Top Writer at Quora and sits on the New Money Systems board of Lifeboat Foundation. Book a presentation or consulting.

You don’t understand Bitcoin because you think money is real

Maria Bustillos is founder of the blockchain supported publication, Popula. I stole the title of this post from her essay at Medium.com (linked below).* I hope that Maria considers it a tribute rather than title-plagiarism. Her article is blocked by a pay wall, so allow me to explain a concept that confounds even a Nobel Prize winning economist. My take on the issue is somewhat different than Ms. Bustillos.

The difficulty understanding or appreciating Bitcoin boils down to a misconception that the dollar is backed by something more tangible, such as gold, guns or the promise of redemption. Not only is this an illusion, but Bitcoin is backed by something far more tangible, intrinsic and durable.

The illusion that “real” value emanates from government coupled with a robust consumer economy has been woven into our DNA for millennia. But, the value we attribute to a Dollar, Euro, or Yuan is a result of conditioning rather than any intrinsic value. That same conditioning has led us to believe that there is something sane and inherent in a nation that controls its money supply and its monetary policy.

Most public works projects—power generation, space ships, or the telephone network—were controlled by government in the past. If not, they were regulated as a licensed monopoly. This creates a choke point, a lack of competition, and a gaping opportunity for inefficiency, mismanagement or graft. It defies a free market economy and it concentrates power in the hands of politicians. But, at one time, it seemed necessary.

You might assume that government controlled these industries because they relate to areas of critical infrastructure and public welfare. That’s part of it, but it’s not the real reason. In each sector, a distributed or free market solution was prevented due to technology limitations or issues of scaling and geography.

Government issued money exists because in the past, we had no mechanism to arrive at a consensus on the value of something that is portable, fungible, secure, anti-forgeable and easily transmitted. Not even Gold fits the bill (pun intended). Prior to 2009, the only thing that met the criteria for money in a modern society was government issued fiat. At least someone, somewhere said that this is money and that this is what we must use to pay our taxes.

Today, there is no more reason for a government to control its money supply than there is for it to control communication networks, space travel or package delivery services. Today, a free and competitive marketplace benefits all of these industries and even government itself. And here’s the kicker: No harm will come to a government that uses a completely trusted, transparent and decentralized currency, rather than firing up a printing press whenever a group of transient politicians spends beyond their means.

The economic order facilitated by the blockchain is not as radical as it seems. Aristotle lamented the lack of an accounting tool that we can now address via the clever combination of encryption and a communications network that is both instant and ubiquitous.

I am not smarter than the average bear, nor am I clairvoyant. Once in a while, I recognize a truth before the masses—and before its time. It’s time to clearly and succinctly illuminate business, banks, consumers, creditors and government:

  1. The value we attribute to the dollar is an illusion
    ..
  2. Bitcoin is not just fair and cost effective. It is tangible and durable. It is good for consumers and good for governments.

Bitcoin ushers in an era of accountability and more fairness. It does not facilitate crime, nor interfere with a government’s ability to tax, spend or enforce tax collection.

Bitcoin is a cryptocurrency with a firmly capped supply. Will it lead to deflation? Could governments lose control over their own monetary policy? Yes to both questions…

But, these are each good things. Capping the money supply and decoupling a nation from monetary policy not only eliminates inflation—it increases access to capital, retires debt more quickly, reassures creditors, imposes transparency and honesty—And it accelerates economic growth, rather than retarding commerce.

Dispelling three millennia of conditioning can be confusing and unsettling. I hate understanding something before my peers. Let’s please get ahead of the curve on this one. I want to enjoy the benefits of using real money in my lifetime.


Related Reading:

* I wrote the first article more than 7 years ago. It is a simple explanation of a geeky, new economic mechanism. Bitcoin had not yet entered mainstream media nor gained attention of Wall Street investors. But consider the similarity to Maria’s tutorial in the 2nd article. Perhaps Maria and I think alike!

Ric Edelman: Bitcoin will become asset class

Kudos to WallStreet analyst and advisor, Ric Edelman. He drank the Kool-Aid, he understands a profound sea change, and he sees the ducks starting to line up.

Check out the clearly articulated interview, below, with Bob Pisani at the New York Stock Exchange and legendary Wall Street advisor, Ric Edelman, (Not my term…That’s what CNBC anchor, Melissa Lee, calls him). Read between the lines, especially the last words in the video, below.

Ric Edleman has just joined Bitwise as both investor and advisor. This lends credibility and gravitas to the organization that created the world’s first cryptocurrency index fund. Bitwise benefits from Edelman’s affiliation, because the US has been slow (some would say “cautious”) in recognizing the facts on the ground: Cryptocurrency is already an asset class.

Edelman fully embraces a strong future for Bitcoin—not just as a currency or payment instrument, but as a legal and recognized asset class; one that is at the starting line of a wide open racetrack. He explains that the SEC sets a high bar for offering a Bitcoin ETF, but that this will be  achieved. It will pave the way for large institutions, pension funds, etc to allocate a portion of money under management for blockchain products.

At timestamp 3:39, Melissa asks Edelman “Why wait for an ETF?” and “If you believe this strongly, why not advise clients to invest a portion of assets into Bitcoin right now?

Edelman’s response is stunning. He explains that he is frustrated, because this is what he wants to advise. But, his firm is bound by the Investment Act of 1940—and so, they cannot tell a client “Go to Coinbase” or “Invest in a private fund such as Bitwise—that I am such a big fan of. We don’t have that ability in our practice.” [i.e. until the SEC recognizes Bitcoin as an asset].

In my opinion (and in the opinion of Edleman), SEC recognition of Bitcoin as an asset can’t be far off…

  • It’s already happening in other countries. Reputable exchanges and index funds exist today.
  • Unlike a traveler’s check or Amazon gift card, it is inherently a store of value, whether or not you believe that its value is intrinsic;
  • The IRS already considers it an asset for tax purposes (What an odd schism in definition & treatment!)
  • It is legal to pay staff in Bitcoin and use it to settle debts, for any recipient that accepts it. For employees and consultants, it is a wage or stipend, just like FIAT. They can convert into cash immediately—or retain crypto it to pay their own bills)

It’s not difficult to read between the lines. Edleman makes a clear recommendation, although he can not yet advise this—certainly not on the record. His personal forecast for long term adoption and appreciation, especially of Bitcoin, matches my own analysis. His new affiliation with Bitwise (a pretty bold move) demonstrates certain commitment.

This ends my analysis of Edelman’s strong endorsement. But it raises another important question:

If large financial institutions are likely to offer Bitcoin products and services—and if credible analysts & advisors are chomping at the bit to recommend this new asset class—shouldn’t we invest in Bitcoin now?!

Ironically, I do not recommend hording or investing in cryptocurrency, even as a collectable. Why?! Because of the big “Investment Catch-22”. I don’t discourage investing in Bitcoin because I fear that its value will lessen. It is for a completely different reason. And so, my advice against investing is half-hearted.

Currently, Bitcoin and altcoins are widely misunderstood. Many people have these false impressions…

  • It is not backed by anything
  • It interferes with tax collection
  • Cryptocurrency facilitates crime
  • Governments will never allow it
  • They do not convey compelling benefits over government-issued currency
  • They water down the overall money supply
  • Their deflationary nature threatens economic growth
  • They are easier to lose and subject to scams & hacking
  • They do not facilitate refunds, rescission, recourse and customer claims
  • They interfere with a government’s ability to control its monetary supply

All of this is untrue, except the last item—and that one is a tremendous benefit.

Additionally, blockchain currencies fluctuate widely in real market purchasing power, many altcoins and all ICOs are scams, and acceptance is far from being ubiquitous. Clearly, widespread adoption requires stability, infrastructure, trust and ubiquity.

This cannot happen until two things occur:

  1. The fraction of transactions in normal business and retail commerce (purchases, salaries, debt payment and settlement) must significantly dwarf the fraction that is driven by investors, hoarders and speculators.
  2. A significant number of established brands, services or retailers must begin publishing prices in Bitcoin and honoring those prices throughout a defined sale period (e.g. until the next catalog is published or until the next production run).

Things are beginning to change, but for such a positive and transormative mechanism, that change is frustratingly gradual.

A series of falling dominos is already in process. But, the end game is retarded by those of us who invest in Bitcoin, because we are removing a limited resource from circulation and contributing to volatility. We do this, because we realize that—in the long run—Bitcoin can only go up in value. Yet, our investment at such an early stage (before consumer adoption) makes the infant sick.


Ellery Davies co-chairs CRYPSA, hosts the New York Bitcoin Event and is keynote speaker at Cryptocurrency Conferences. He advises The Disruption Experience in Singapore, sits on the New Money Systems board of Lifeboat Foundation and is a top Bitcoin writer at Quora. Book a presentation or consulting engagement/.

Disruption Experience Nails It

The Disruption Experience this Friday in Singapore is a blockchain event with a difference. With apologies to the Buick commercial, this is not your grandfather’s conference

I know a few things about blockchain conferences. I produced and hosted the first Bitcoin Event in New York. My organization develops cryptocurrency standards and practices. We help banks and governments create policy and services. And as public speaker for a standards organization, I have delivered keynote presentations at conferences and Expos in Dubai, Gujarat India, Montreal and Tampa, New York and Boston.

Many individuals don’t yet realize that both Bitcoin and the blockchain are as significant as the automobile, the transistor and the Internet. I was fortunate to grasp Bitcoin and the blockchain early in its history. It is never boring to help others understand the blockchain.

And so, I am an evangelist for both a radically improved monetary system and a transformative tool. During the past eight years, I have honed the skill of converting even the most profound skeptic. Give me 45 minutes in front of any audience—technical, skeptical or even without any prior knowledge—and I will win them over. It’s what I do.

An Atypical Conference Venue

As Bitcoin and altcoins begin the process of education, adoption and normalization, the big expos and conference events have begun to splinter and specialize. Today, most blockchain events market their venue to specific market sectors or interests:

For me, Smart Contracts are one of the most exciting and potentially explosive opportunities. As a groupie and cheerleader, I am not alone. Catering to the Smart Contract community is rapidly becoming a big business. Until this week, I thought it was the conference venue that yielded the biggest thrills. That is, until I learned about the Disruption Experience…

Few widely promoted, well-funded events address the 600 pound elephant in the room: What’s the real potential of blockchain trust, blockchain economy or blockchain AI? Take me beyond tokens and currency (please!). How can an international event help us to realize the potential of a radical new approach to accounting, trust and arbitration? Let’s stop arguing about Bitcoin, Ethereum or ICOs…

How can we unleash the gorilla—and grease—
a fundamental change that benefits mankind,
while providing leapfrog technologies for us?

—At least, that’s my spin on the potential of an unusually practical venue.

That question is slated to be answered on Friday at a big event in Singapore. And get this—It is modestly called a “Sneak Peak”. This is what I have been waiting for. The Disruption Experience premiers on September 28 at the V Hotel Lavender in Singapore. But don’t show up at the door. This event requires advance registration. (I do not offer a web link, because I hate being a conference huckster. If you plan to be in the area at the end of this week, then Google the event yourself).

What’s the big deal?

The Disruption Experience team is populated by blockchain developers, educators and trainers who take issue with existing events that focus on monetization. The purity of intention was overrun by greed. And so, they set out to form an event with a more altruistic purpose: Build technology, relationships, mechanisms and educational tools that better mankind. The focus at this event and the conferences that follow is to educate, expose and innovate. The focus is squarely on disruptive technology.

With their team of blockchain innovators focused on benefits and progress, I suspect that attendees will get what we have been searching for: Education, investment opportunities, an edge on new technologies and job opportunities.

Cusp of a Breakout Year

As an analogy, consider the race to understand Bitcoin and consider the engines & motors.

Bitcoin and the blockchain were introduced simultaneously in a 2009 whitepaper. It’s a bit like explaining the engine and the automobile together—for the very first time. One is a technology with a myriad of applications and the potential to drive innovation. The other is an app. Sure, it’s useful and important, but it’s just an app.

For 8 years, Bitcoin was a radical and contentious concept. Of course, there was the mystery of Satoshi and an effort to pinpoint his or her identity. And, a great debate raged about the legitimacy and value of decentralized, ethereal money. But, the interest was reflected primarily on the pages of Wired Magazine or at Geek-fests. Bitcoin was complex and costly to incorporate into everyday purchases and there were questions and gross misconceptions about hacking, regulation, taxes, criminal activity. The combined audience of adopters, academics, miners and geeks was limited.

That changed last year. With serious talk of exchange traded funds, a futures and derivatives market began to take shape. A critical operational bottleneck was addressed. Ultimately, 2017 was a breakout year for Bitcoin. You may not be using it today, but the smart money is betting that it will enhance your life tomorrow—at least behind the scenes.

Likewise, 2019 is likely to be the breakout year for blockchain applications, careers, products and—perhaps most importantly—public awareness, understanding and appreciation. Just as motors and engines are not limited to automobiles, the blockchain has far more potential than serving as an engine for decentralized cash. It is too important to be just a footnote to disruptive economics. It will disrupt everything. And we are the beneficiaries.

What is Interesting at The Disruption Experience?

The Friday event in Singapore covers many things. The presentations and tutorials that quicken my pulse relate to:

  • AI
  • Smart Contracts
  • Serious insight into blockchain mechanics, applications, adoption, scalability and politics
  • There’s even an exciting development in ICOs…

If you read my columns or follow my blog, then you know I am not keen on initial coin offerings (ICOs). That’s putting it mildly. They are almost all scams. But a rare exception is the Tempow ecosystem which encompasses three functional tokens. Stop by their exhibit and meet the officers of a sound economic mechanism that facilitates decentralized trading while overcoming the efficiency paradox.

What can I do at Disruption Experience?

The September 28 event is a preview for January’s Inaugural Event.

  • Listen and learn what Disruption is all about
  • Experience the first Virtual Reality Expo
  • Get to know the speakers and founders of Disruption
  • Hear about the Disruption Utility Token (DSRPT Token)
  • Meet the Disruption Team
  • See Disruption Expos

… and much, much more.

If you get to the big event, be sure to find the organizer and host, Coach Mark Davis. Tell him that I sent you. His passion and boundless enthusiasm for the blockchain and especially for transformative disruption is quite infectious.

Related reading:


Ellery Davies co-chairs CRYPSA, hosts the New York Bitcoin Event and is keynote speaker at Cryptocurrency Conferences. He sits on the New Money Systems board of Lifeboat Foundation and is a top Bitcoin writer at Quora. Book a presentation or consulting engagement. He is also an unpaid advisor to The Disruption Experience.

ISS hole: We will look back on Sept 2018

Someday, people across the world will look back on September 2018, much like we look back on the terror attacks of 9/11 or the safe return of Apollo 13 in 1970. They are touchstone moments in world history. For Americans, they are as indelible as Pearl Harbor, the assassination of John F. Kennedy or the first moon landing.

So, what happened just now? The month isn’t even half over, and the only events we hear about on the news atre related to Hurricane Florence and Paul Manafort. (In case you live under a rock or are reading this many years hence, the hurricane made landfall on the coast of the Carolinas, and the lobbyist / political consultant / lawyer / Trump campaign chairman pled guilty to charges and has agreed to cooperate in the continuing Mueller investigation).

No—I am not referring to either event on the USA east coast. I am referring to a saga unfolding 254 miles above the Earth—specifically a Whodunit mystery aboard the International Space Station (ISS). NASA hasn’t seen this level of tawdry intrigue since astronaut Lisa Marie Nowak attacked a rival for another astronaut’s affection—driving across the country in a diaper to confront her love interest.

So What is the Big Deal This Week?!

It didn’t begin as a big deal—and perhaps this is why mainstream news services are slow to pick up on the latest information. But now, in my opinion, it is a very big deal.

A small hole was discovered on a Russian Soyuz spacecraft (a lifeboat) attached to the International Space Station. That hole, about the size of a pea, resulted in the slow decompression of atmosphere. The air that our astronauts breathe was leaking out of ISS and into the void of space.

So far, the story is unremarkable. Ground scientists issued two comfort statements about the apparent accident. They addressed the possible cause and the potential risk:

  1. This small hole could have occurred on the ground (during construction). Alternatively, it could be the result of a micro-meteorite or even man-made space debris. Perhaps a fleck of varnish peeled off of a satellite and collided at high speed with the massive, orbiting space station. No problem. The ISS and each commuter spacecraft that dock with it are designed to sustain collisions with small particles—even ones that punch a pea-sized hole through the hull.
  2. Air pressure in the ISS and in each spacecraft is only 1 atmosphere. This type of small leak could effectively be stemmed by simply applying duct tape.

The initial news event was interesting to space buffs, but it didn’t seem to present a significant threat to our astronauts, nor require a massive technical response. You may recall that duct tape played a critical role in getting the Apollo 13 astronauts safely back to Earth almost 50 years ago. The crisis that they faced was far worse. The solution required extensive impromptu engineering both in Houston and up in the spacecraft. What an awesome historical echo and footnote to an event that captured the hearts and minds of so many people back in 1970.

But the story does not end with a piece of duct tape. In fact, it just got much more interesting…

After a few days, NASA revealed that the hole was intentionally drilled, and the deed probably occurred while the ship was docked at the space station. Since there is no log of activity with tools in this section of the laboratory, it strongly suggests an act of sabotage by one of the astronauts on board.

And now, we have some new information: Guided by ground engineers, astronauts fished an endoscope through the hole to inspect the outside of the spacecraft. Guess what?! That same drill bit damaged the meteorite shield which stands 15 mm beyond the pressurized hull of the spacecraft. This will add significant risk to anyone traveling back to earth in the damaged ship.

One theory is that a member of the crew wanted to create the conditions to more quickly return to Earth. Now, that return trip may present and elevated risk to occupants.
This story has not yet concluded, of course. It will likely conclude with tragedy or triumph. In the better scenario, no one will die—but successful return and reentry will be followed by a criminal conviction or court martial. I am having difficulty envisioning an alternate outcome.
Read about it here. The story is unfolding, but the details are utterly fascinating.

Drone Assassination Attempt Foreshadows Future Events

Until this past year, consumer drones carried tiny ultralight cameras, but they just didn’t have the energy or the reserve to carry much else. They certainly could not deliver much of a product or payload. They flew for  15 minutes, lacked the capacity to carry excess weight, and had short range.

But market demand sparks innovation. Amazon and Domino’s Pizza are experimenting with drone delivery. The improvements needed to serve these needs are quickly bubbling down to unlicensed weekend pilots. Hexacopters with 4K cameras, gimbals and retracting landing gear are available for under $400. Tiny foldable drones with 720p cameras are available for $35. Some models don’t even need a pilot on a joystick. You can preprogram the flight path to reach any target using GPS, or you can guide them by making gestures with your hand. The drone actually looks back over its shoulder and responds to your hand-waving commands.

Lance Ulanoff is a cartoonist and robotics fantech expert. But he shares a lot in common with Wild Ducks. He is an eclectic journalist and social media commentator.

This month he began publishing at Medium.com, and I’m glad he did! Lance has a knack for going beyond the Who, What, Why. Even in a short article, he explains the social implications. He provokes us to recognize why it matters.

Lance breaks down the recent attempt to assassinate Venezuela’s president with a drone delivered explosive and raises our social antennae. This news event ushers in a grim technology era. Ulanoff points out that in a short time, it has become inexpensive and fairly easy to send an explosive directly into a national monument like the Statue of Liberty.

Photos: Venezuela President, Nicolás Maduro, reacts to incoming drone. Although the assassination attempt failed, others on the ground were injured.

How Will Bitcoin Work When Mining Rewards Run Out?

Let us frame the question, by reviewing what miners really do…

Miners play a critical role in the Bitcoin network. Their activity (searching for a nonce) results in assembling an immutable string of blocks that corroborate and log the universal transaction record. They are the distributed bookkeepers that replace old-school banks in recording and vouching for everyone’s purchase or savings.

From the perspective of a miner, there is no obvious connection between their activity and the worldwide network of bitcoin transactions and record keeping. They are simply playing an online game and competing against thousands of other miners in an effort to solve a complex and ongoing math problem. As they arrive at answers to small pieces of the problem, they are rewarded with bitcoin, which can be easily translated into any currency.

What is the Problem?

One day, mining for rewards will no longer be possible. The fundamental architecture of Bitcoin guarantees that mining will end. The pool of rewards that were held in abeyance as incentives is small and will run out in 2140—about 120 years from now. So, this raises the question: How will we incentivize miners when there is no more reward? (Actually, they won’t really be miners anymore…They will more accurately be bookkeepers or ‘validators’)

Is there a Solution?

Fortunately, there are many ways to offer incentives to those who validate transactions and maintain the books. Here are just a few:

  1. There is a current mechanism in which transactions bid for priority (speed of validation). Today, this mechanism augments the mining reward—particularly during periods of network performance. For example, the extra payments rose to $30 and more for individual transactions just before lightning network was adopted. In the future, it could replace the reward as the basis of a reward system.
  2. At the 2015 MIT Bitcoin Expo, Andreas Antonopoulos proposed a reputation ranking & reward system based on gaming theory. The ideal is that would result in a sufficient reward to maintain continuous network operation. Reputation points are not just a bragging point, but is likely to translate into real-world gravitas and financial opportunities.
  3. I believe that, one day, every user will be a micro-miner, and this will address the issue of incentives. For example, if users can avoid all mining fees by validating one transaction for every 10 of their own, we might see the widespread adoption of wallets that are full or partial nodes, rather than limited to the function of key storage.In this vision, micro mining will be achieved on a phone, a wristwatch, or a linked device at home. It will not result in an escalating race for increased power consumption…

I believe in this last solution and I have proposed it as the path forward at crypto/blockchain conferences.

Today, this idea seems implausible, because of the memory and computational requirements for running a full node. But, there have been big advancements in the effort to support micro-mining—which does not require such resources. Additionally, it is likely that the current proof-of-work mechanism used to arrive at a distributed consensus will be replaced by another mechanism that does not result in a competition to see who can consume the most electricity.

More about the sunset of mining incentives:


Ellery Davies co-chairs CRYPSA, hosts the New York Bitcoin Event and is keynote speaker at Cryptocurrency Conferences. He sits on the New Money Systems board of Lifeboat Foundation. Book a presentation or consulting engagement.