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Breaking the cryptocurrency stigma: Epiphyte

28 October 2014

[Image: dec6cb3b-37b1-4a1a-a493-9b4f361c16d2.jpg]
"It's a sensitive space, people still associate it with criminality and dubious activities - like the internet in the early days"

When Finextra wrote a story about Epiphyte winning the Innotribe startup award - it was received with scepticism by some of our readers. When you're talking about cryptocurrencies and banks - you're bound to get people nervous.

In the shadow of last year's Mt. Gox exchange shutdown and the raid of online drugs haven, Silk Road, bitcoin has had a difficult time keeping its reputation clean and an even harder time getting banks interested in its potential.

I spoke to Edan Yago, CEO of Epiphyte about how his startup and software could change the way banks and their customers do business forever.

In short - Epiphyte started two years ago, as a technology that allows financial institutions to talk to crypto-financial networks. Using Epiphyte's cBridge technology, banks and institutions are able to integrate with cryptocurrencies over traditional protocols like Swift.

Despite the fearmongering around cryptocurrencies - authentication, KYC, security and risk are priorities for Epiphyte.

'The myth is that these transactions are anonymous, in actuality they are the most transparent and tracked transactions in the world'

says Edan. He goes on to explain the distributed ledger and how it maintains a complete history of every transaction performed and also how an individual, after being KYC'ed by a bank, can be tied to a transaction.

Epiphyte isn't just about bitcoin. It's about the power of the distributed ledger.

'We do this across all the different protocols, we don't know which protocol is going to win, or necessarily if one will. There's bitcoin, there's ripple, there's stellar, there's hyperledger - we integrate with all of them and do the heavy lifting for the backend.'

The benefits to banks is the speed of the transaction. It'll be close to real time and, crucially, it will work within the existing regulatory framework making it a far more attractive proposition to banks who must maintain a sensible relationship with the regulators.

The software generates sales contracts and protects the buyer from counterparty risk by providing payment upon successful completion of the trade. All of this takes place without the banks needing to be in possession of any cryptocurrency.

I sensed that aside from getting institutions to see the benefits of their technology, Epiphyte also had to battle against cryptocurrencies' image problem.

'The stigma against cryptocurrencies is something you still feel but it's not something we are necessarily plagued by - like the internet, initially it's new and scary - but kinks get worked out and over time people will realise the benefits to it and they'll seal up the vulnerabilities'

'There's no way you could utilise our technology for dark-web type activities - it is unquestionably the most traceable, most transparent financial system that has ever been devised,' adds Edan.

'The banks aren't built for it, it's not yet a core competency to know how to engage with smaller companies and certainly not innovative technologies'

'But with that said, we've turned it into a core competency of ours - we've spent a lot of time understanding what their needs, concerns and language was,' adds Edan.

What you might not know about Epiphyte is that it started life as a consultancy, mingling with banks, building relationships and learning how they work to be better poised when launching a product.

Now, Epiphyte is a team of eight. Edan, who previously spearheaded the virtual currency iniatives at Zynga, has recruited ex-Zynga product manager and current CTO of Dating Ring Katie Bambino to assist in development.

They've signed tier 1 banks (who still can't be named) and smaller, more innovative banks too with their sights set on further funding to go fully live.
With time and knowledge, the stigma surrounding cryptocurrencies is diminishing. Technologies like Epiphyte aren't just helping banks to benefit from a business opportunity, they're also enabling a cultural and mindset shift.

Read More Read More, Posted by: Stroopy

We’re excited to announce that we’ve launched a new, freeWooCommerce Stellar Gateway extension.

There are over three million people Stellar Facebook authorisations, but very few are selling via the Stellar protocol or in the Stellar cryptocurrency.

The WooCommerce Stellar Gateway is a way for non-developers to sell with Stellar.

If you can set up WordPress and WooCommerce, you can sell with Stellar.


Stellar has only been around since July 31, 2014 and it already has a whopping 3.4 million Facebook authorisations.

There are very few merchants offering a way for these 3 millionpeople to use their stellars. You can now become one of the first.


While it’s still early days, the Stellar dream—of having one protocol for transacting in all currencies—is becoming a reality as more gateways add support for new currencies to the Stellar network.

You can use the WooCommerce Stellar Extension to sell digital or physical goods (depending on your ability to ship) to people internationally and they can pay using their own currency (if they have setup trust lines for that currency).


Your transaction fees will also be virtually nothing as a merchant when you use the WooCommerce Stellar Extension, because each stellar transaction only burns 10 microstellars—or 0.00001 stellars. (It does this to prevent spam).

That’s certainly less than the transaction fees charged by most other payment gateways.


Check out our WooCommerce Stellar Gateway video for a demonstration of how to install and use the extension.

Want to try it out? Check out our snazzy online demo store.
All proceeds from the store will be donated to the Stellar Foundation.
If you want to contribute to the extension, join us on Github.
Please note: this post has been updated from its original version.

[img=63x0][/img]October 27th, 2014 Kirby Prickett

Read More Read More, Posted by: Stroopy
Stellar Forks and Decides to Create a New Consensus System.

[Image: stellar-price-rise.png]

Written by: Alberto Mata 2014/12/12 4:00 PM

On December 5, Stellar Executive Director Joyce Kim disclosed news of a ledger fork related to a failure of their consensus system. The consensus system used by both Stellar and Ripple have never been used at the scale Stellar is implementing, and the system failed to reach consensus causing a fork in the ledger. Stellar has about 140,000 active accounts per week, and over 3 million total accounts. The maximum number of total accounts the Stellar consensus mechanism has previously supported is 2.88 million.

“On Tuesday night, the nodes on the network began to disagree and caused a fork of the ledger. The majority of the network was on ledger chain A. At some point, the network decided to switch to ledger chain B…We are completing our review of the impact, but early reports indicate that the impact was not major.”
— Stellar Executive Director Joyce Kim

A few hours of transactions rolled back on chain A, and Stellar tried replaying them on chain B, but some transactions were not able to be replayed. Stellar is reaching out and offering assistance to gateways and exchanges that may have been affected by the consensus failure.
“We are still investigating the triggers for this consensus failure, but believe it is caused by the innate weaknesses of the Ripple/Stellar consensus system outlined above compounded by the number of accounts in the network. “
— Stellar Executive Director Joyce Kim

The risk of failure was predicted by Head of Stanford’s Secure Computing Group Professor David Mazières, and Stellar set out to create a new consensus mechanism. On September 18, a roadmap on Stellar’s github listed creating a new consensus algorithm as a milestone set for November 2014. The roadmap has since been updated, and the new consensus algorithm is currently being built. Stellar has mitigated the risk of ledger forks in the future by running only one validating node until the new consensus system is built.
Early Stellar roadmap outlines building new consensus algorithm by November.

“Given this real world occurrence of the consensus system’s previously theoretical risks, it is clear that we must prioritize the development of the new Stellar consensus algorithm and move away from the legacy consensus system to increase safety. The new Stellar consensus algorithm will not only be provably correct but also prioritize safety and fault tolerance over guaranteed termination. We believe this is a better choice since it is preferable for the system to pause than to enter divergent and contradictory states. ” 
— Stellar Executive Director Joyce Kim

Stellar is a gateway based network and a hard fork of Ripple that was launched in August 2014. Like Ripple, the Stellar protocol enables transactions in any currency pair for which gateways and market makers exist. For example, Alice can send 10 bitcoins to a gateway, the gateway will issue Alice a 10 bitcoin IOU on Stellar, and Alice can then choose to send 10 bitcoins worth of US dollars to Bob. Stellar will connect Alice to a market maker that accepts bitcoins and sells dollars, automatically execute the transaction, and deliver 10 bitcoins worth of USD to Bob. The effect is that Alice and Bob can use Stellar to instantly and globally transact in any currency pair.
What do you think about Stellar’s moves?

Read More Read More, Posted by: Stroopy
"Stellar" New Crypto Currency August 27 2014

Found Video

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Multigateway: The First Decentralized Cryptocurrency Exchange

Nov 24, 2014 10:56 AM by Juan Galt

[Image: multigateway-the-first-decentralized-cry...change.png]
Disclosure: I own stake in a variety of the assets related to Supernet projects.

Soft launch of the Supernet v0 wallet was announced November 14th by James on the Slack channels with a cheerful:

Quote:“Supernet v0 launched yesterday, took everyone by surprise. gotta love decentralization :)” -JL777
Users of the Supernet may now withdraw Bitcoin, Litecoin, Peercoin and NXT directly out to Visa and Mastercards around the globe! Payouts are done in US dollars and local banks set fiat exchange rate. This is a server provided byCoinomat.

Users can also be relieved to trade on the first live decentralized crypto currency exchange!

The software is available for download at theMultigateway website and functions similar to the NXT wallet client, with the exception of some Supernet magic.

The Multigateway (MGW) is not only safer, but it may also be the cheapest. It charges no deposit fees and the withdrawal fees equal the minimum transaction fee per coin. Currently, users must convert their coin manually, be it Blackcoin or Dogecoin to NXT, in order to transfer to another crypto coin. But will soon change with InstantDEX which expected to allow 3 second or less conversions, programmable trade bots and much more!

Investors can invest in MGW, but the real ROI is expected from InstantDEX which will have competitive fee and leverage MGW’s minimal fees and tech.

Under the hood

MGW works by creating assets on top of NXT’s long standing decentralized asset exchange.

Coin assets such as mgwBTC are traded for deposits of Bitcoin, Blackcoin, Viacoin, etc. at a ratio of 1 to 1. MGW is a full reserve, decentralized exchange with live proof of solvency!

Deposited crypto currencies are stored on server clusters of 3. These are secured through multisignature transactions, where 2 out of 3 servers must agree for withdraws to occur.

Each server is monitored and secured by an independent party, partnered up with the Supernet.

The number of Multisignature parties is not limited by MGW, but by the the Bitcoin protocol.

According to JL777, core Bitcoin devs have coded multisignature transactions beyond m of 3 as non standard. This means miners and nodes need to compile these manually or enable this feature on their own accord, which most don’t. It is not enabled by default. This may be driven by concerns of blockchain bloating.

Because of this, it takes a long time for greater multisig transactions to be confirmed by the BTC network, which would not allow MGW to operate properly and would be the end of InstantDEX. If this was to change or if coins that have solved this problem were to join the MGW then further distributed clusters could be set up, and the possible combinations are stellar.

Though going from 1 out of 1 one key or a central trusted party, to 2 out of 3 may seem like not that much of a change, it is actually massive. Its the difference between a central point of failure and a network. It is perhaps the simplest differentiation between a centralized and decentralized model. However, collusion among parties is still a concern, which is why reputation may be essential to this experiment of multi signatures.

With that in mind, I will highlight the core parties that have stepped up to secure the core MGW cluster as of time of publishing.

MGW clusters

There are two MGW clusters. MGW#0 controls BTC, LTC, DRK, BTCD and VRC coins. This is the main Supernet cluster and is secured by Coinomat, team and Frohike.

Coinomat is an automatic crypto coin and fiat exchange that serves as a gateway from Visa and Mastercard to crypto currencies. It also provides instant conversions among various crypto currencies such as Bitcoin, Litecoin and Peercoin.

The second key holder of MGW#0 is “a group of 15 people between investors, advisors, developers and designers,” says abuelau, a Sr. Member of the NXT community, early adopter, and member of the team. is an NXT blockchain explorermobile wallet and web advertizment agency, fully powered by NXT.
MyNXT were motivated to join “after we saw the hacks on MtGox and Bter,” said abuelau, adding: “Every time I need to exchange NXT or other coins I am nervous with the possibility of losing my coins while they are at the exchange, so anything that helps make it more secure is welcome.”

Frohike is “a German unix server administrator. He specializes in server hardening and security. He’s been involved since June in the team… working with James and recently he joined SuperNET as server admin for the forum and websites,” said VanBreuk, Hero Member of the NXT community and general manager of the MGW development process.

I reached out to Frohike for comment but he did not reply but publishing time.

Unlike cluster number two, live proof of solvency for MGW#0 is not active yet, since they are migrating coins and assets to production servers. The website and api for this monitoring is expected to be available, soon according to VanBreuk.

The second cluster called MGW#2 is responsible for controlling Blackcoin, Viacoin and Dogecoin!

This one is secured by Cobaltsky, Hero Member of the NXT community, artist and developer. Along side Marcus03 Sr. Member who is also developing an NXT mobile wallet and Jeffdiesel, also a Hero Member.

Live proof of solvency for MGW#1 can be currently found here.

For more information on the progress of MGW clusters, follow the main NXT thread.

Decentralizing everything

Anyone can set up their own MGW cluster, as you would expect from a community focused on decentralization. However, for the time being, interested parties must reach out to JL777 or other core Supernet developers to be given access to the private repo. This might change in the future after the main development is finished.

Coin developers, businesses and individuals interested in joining the Supernet are welcome to reach out at the Supernet forums publicly or contact JL777 directly through a private message.

More blockchain technologies wanted!

The Supernet is putting out a call for innovative and active crypto coin communities. Its very difficult to be noticed and compete as a crypto coin these days; there’s over 500 coins on coinmarketcap and great coins may be getting lost among the masses.

The Supernet has some general standards by which to review coins. A solid answer to the question “What value can your crypto coin tech bring to customers?” may be all you need to join.

NXT Phasing

Keep in mind, however, that MGW is still in its beta stages. Compared to 1 out of 1 cold storage solutions for the average exchanges, or deposit accounts for bank like crypto coin organizations, MGW is many times more decentralized, both for its trading platform and its distributed multisignature servers.

However, until NXT releases its “Phased transactoins” feature, the NXT asset side of things will not support multisignature. This means that the coin assets that mirror each crypto coin are controlled manually and could be exploited by dumping them on the market.

MGW beta will end when phasing is live on the NXT network. Until than, each MGW key holder is responsible for a third of a hot wallet with relevant coin assets. The amount of coin assets on the hot wallet are the average expected volume per coin.

The remaining ‘unbound’ assets, which are not expected to be traded for the crypto currencies yet are currently being held in escrow by anon136’s renown escrow services.

Its time to take distributed finance to the next level, and the Supernet’s Multigateway has just raised the bar.

Read More Read More, Posted by: Stroopy
Paypal unit to 'embrace' Bitcoin crypto-currency
  • 9 September 2014
[Image: _77470961_023717911-1.jpg]
Braintree's work on bitcoins will make it easier for online retailers to take payments made in the virtual currency

Paypal subsidiary Braintree has started working on ways to process payments using the Bitcoin virtual currency.

The work is due to be completed within "the coming months", said Braintree boss Bill Ready in a conference speech.

It means that firms such as Uber and Airbnb, which use Braintree as a payment processor, will also be able to accept bitcoins.

So far, there is no indication that bitcoins will be accepted directly by Paypal and eBay.

Price crash

During his speech at the Techcrunch Disrupt conference in San Francisco, Mr Ready said Braintree's work should be seen as its "first foray" into using bitcoins.

Braintree processes payments on mobiles and websites and said it would work with Bitcoin payments site Coinbase to process transactions carried out with the crypto-currency.

Bitcoins are a form of money that use unique numbers instead of notes and coins as a store of monetary value. In November 2013, the value of one bitcoin hit $1,000 (£620) but it has fallen sharply and now each one is worth about $470 (£290).

Braintree's work meant that tens of thousands of merchants would soon be able to accept the digital cash too, said Mr Ready.

Gil Luria, an analyst at Wedbush Securities, told Bloomberg that Braintree's announcement was a "very substantial development". He added that it might also speed up adoption by Paypal which would mean "millions of retailers will de facto be accepting bitcoin overnight".

Paypal spent about $800m (£500m) in September 2013 to buy Braintree, largely because of its role in mobile payment systems.

Braintree's announcement comes as Wired reports on an attempt to unmask Bitcoin creator Satoshi Nakamoto. The tech news site said a hacker has claimed to have take control of an email account known to be used by the reclusive inventor who has never revealed their true identity.

The hacker said they would supply information that would lead to the identification of Mr Nakamoto if they were paid 25 bitcoins (£7,300). Wired was sceptical of the claim to have information about Mr Nakamoto as little evidence was provided by the hacker for his assertion.

An earlier attempt to unmask Mr Nakamoto was made by Newsweek which claimed an American called Dorian Prentice Nakamoto was the elusive inventor. He denied being the creator and interest in the claim led to the real Satoshi Nakamoto issuing a short statement refuting any link with Dorian Nakamoto.

Read More Read More, Posted by: Stroopy
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SEPTEMBER 16, 2014

Last week the Bank of England published its Quarterly Bulletin, which contained two detailed papers on digital currencies. The Bank deserves credit for writing such a thoughtful review of this space, which was clearly the product of thorough and open-minded research.

One of the two papers titled Innovations in payment technologies and the emergence of digital currencies is noteworthy for pointing out the potential applications of decentralised crypto ledger systems for financial services. Given that I’m co-founder of a new company devoted to such applications, I’m delighted to see that a G10 central bank has the foresight to see this. There will be many points of intersection between private sector innovation here and the regulatory mandate of a central bank.

But you, my readers, are interested in the cutting edge of cryptonomics thinking, so I want to instead discuss the Bank’s second paper, The economics of digital currencies, because I take issue with parts of its analysis. In brief, I believe that the authors have incorrectly analysed the cost structure of digital currency systems and, as a result, incorrectly generalise some problems faced by digital currencies like Bitcoin to digital currencies in general.

The Costs of Mining and Transaction Fees
Ok, first a quick review of mining. We’ll assume the Bitcoin protocol as our template. The micro economics of mining are actually quite simple. To win the mining award (currently, a 25 bitcoin “coinbase” award + block’s TX fees), you have to solve a hash-based proof-of-work problem, which involves using a machine to compute the double sha256 hash of a block of TX over and over until you hit a value below a certain target, which is defined by the protocol’s current difficulty. Difficulty resets every 2016 blocks, increasing if the average duration between solved blocks is below 10 minutes, decreasing if the average duration is above 10 minutes. The scheme insures that average time between blocks approximates 10 minutes.
Now, the probability that a given hash “solves” the problem is precisely defined by difficulty. So, mining profitability is a function these four variables:

  • Current difficulty
  • The efficiency of mining (converting electricity into hashes)
  • The price of bitcoin (market value of mining award)
  • The price of electricity

The efficiency of mining really boils down to this simple ratio: GHs/kWh. How many Gigahashes per second can your hardware compute for a given unit of electricity (including electricity consumed in cooling the machines, etc).
And the dynamic reset of difficulty basically ensures that only those running machines with the highest GHs/kWh ratio and paying the lowest cost per kWh will mine in the long run, as everyone else will be mining unprofitably and drop out of the network. It’s almost a textbook model of perfect competition.
Now, what I think often gets missed here is that the costs of mining bitcoin are entirely a function of the price of bitcoin. If the price of bitcoin goes up, mining becomes profitable and more nodes join the network, which drives up difficulty making mining no longer profitable again. If the price goes down, mining becomes unprofitable at current difficulty, more nodes drop off the network, which drives difficulty down, making mining profitable again.
This dynamic is obscured by the fact that investments in mining hardware have driven GHs/kWh up relentlessly over the last few years, so difficulty rarely declines with bitcoin price, but the dynamic still applies: the price of bitcoin determines the cost of mining.
Failure to appreciate this fact leads to arguments like this one in the BoE paper:

Quote:[color=rgba(0, 0, 0, 0.4)]Moreover, to the extent that miners’ expected marginal revenue exceeds their expected marginal costs, miners’ costs are likely to increase over time. This should occur even if no additional people start to mine and independently from any increase in the number of transactions per block. This is because distributed systems involve a negative externality that causes overinvestment in computer hardware. The negative externality emerges because the expected marginal revenue of individual miners is increasing in the amount of computing power they personally deploy, but the difficulty of the problem they must each solve (and hence their marginal cost) is increasing in the total amount of computing power across the entire network. Individual miners do not take into account the negative effect on other miners of their investment in computing resources. Economic theory would therefore suggest that in equilibrium, all miners inefficiently overinvest in hardware but receive the same revenue as they would have without the extra investment.[/color]

Can you spot the error? It’s right there in the first sentence: “to the extent that miners’ expected marginal revenue exceeds their expected marginal costs, miners’ costs are likely to increase over time.” This is a fallacy of composition.
What we really have here is the familiar pattern of Knightian uncertainty faced by entrepreneurs. The miner must make a capital outlay in advance for his mining equipment (to get an edge over the competition with new kit delivering a higher GHs/kWh ratio), but he doesn’t know what the price of bitcoin will be once he starts winning blocks, nor does he know what the difficulty will be, which will be a function of Bitcoin price and the capital investment of his competitors.
Boom, bust.. it’s all the same, the fixed costs of mining hardware are internalised by the miner, those costs are not an externality as the author’s argue. The cost of mining will be dictated by the price of bitcoin, that is, the market value of the mining award, and difficulty reset enforces the long-run equilibrium condition whereby hashing costs = market value of mining award. Even changes in the variable costs of mining (the price of a kWh, basically), don’t change the long-run costs of mining, as an increase in electricity prices ceteris paribus should cause difficulty to decline and a decrease should cause difficulty to increase. The cost of mining a block will converge to the market value of the mining award.
I’m not an economist, but back in January I suspected that the economics profession would have trouble with this implication of the Bitcoin protocol, when I wrote:

Quote:[color=rgba(0, 0, 0, 0.4)]So the exchange value of the mining award determines the marginal costs rather than the other way round. An economist might find that pretty weird, but that is how it works.[/color]

And that is how it works. Economists are used to thinking in terms of prices (ephemeral market stuff) being a function of costs (stuff that is “material” and “real”, like a production function). But the way the Bitcoin protocol works, the hashing costs of the network are a function of the mining award’s market value. I’m not saying it’s a nice feature of the protocol. But it is what it is.
And that’s why all that investment in mining equipment is not a negative externality, at least from the perspective of mining costs.
But there is different way in which capital investment in mining equipment creates an externality, a way that the authors did not address.

Mining Centralisation
If there is a negative externality to the relentless quest to make mining a positive expected value lottery by investing in new gear that increases GHs/kWh, it’s that thenumber of mining nodes decreases as a result of this process. Mining becomes concentrated in fewer and fewer hands. To run a profitable mining operation, one must run machines with an above average GHs/kWh and below average electricity cost. This is specialised hardware with limited production runs and requiring a non-trivial capital outlay.
A network made up of a few large mining nodes is basically a centralised system with none of the benefits centralisation might bring. What Satoshi envisioned was a one-cpu-one-vote distributed system, people mining on commodity CPU or GPU hardware. That’s not what has evolved, and this is a serious problem for Bitcoin and other digital currencies with protocols designed along a similar pattern.
It might be tempting to think that the amortised cost of that hardware somehow gets baked into the cost of mining the network, as the author’s of the BoE paper do, but those costs are only faced by the miner. It may turn out that the ROI of the latest 28nm mining rigs is negative at current prices. Too bad for the miner who purchased it, but he’ll still mine if the variable costs (the electric bill) are less than the expected mining award. The market value of the hardware itself will decline to the point where the ROI is no longer negative.
And this Knightian boom/bust dynamic raises some questions about the future of mining investment. R&D in specialised mining gear can really go one of two ways. The first scenario is that there will continue to be an edge in capital investment in improving GHs/kWh, in which case capital investment in mining will continue to concentrate mining in few hands, a “bad” outcome.
The other scenario is that the gains from further optimisation’s reach a stage where they are too costly to be worth it and R&D switches to commoditizing the currently most efficient designs, in which case the centralising effects of mining investment go into reverse, a “good” outcome. Whichever way it goes, it is still the case that the mining costs of the network are determined by the market value of the mining award. That’s equilibrium.
So, if there is a negative externality inherent in Bitcoin mining, it is the negative externality of centralisation not of costs.

On the sustainability of low transaction fees
I want to focus on another dimension to this mining cost story. So far we have focused on the role that miners play in hashing blocks. But miners actually do two things: in addition to hashing blocks, they also perform transaction verification. The author’s of the BoE paper seem to conflate the two processes:

Quote:[color=rgba(0, 0, 0, 0.4)]Low transaction fees for digital currency payments are largely driven by a subsidy that is paid to transaction verifiers (miners) in the form of new currency. The size of this subsidy depends not only on the current price of the digital currency, but also on miners’ beliefs about the future price of the digital currency. Together with the greater competition between miners than exists within centralised payment systems, this extra revenue allows miners to accept transaction fees that are considerably below the expected marginal cost of successfully verifying a block of transactions.[/color]

It’s that last sentence I take issue with. The “marginal cost of successfully verifying a block of transactions” is the cost of running the scripts on each TX in the block and verifying the digital signatures. The computational costs here are tiny compared to the cost of hashing the block, which plays no role in TX verification whatsoever. Hashing is there to raise the cost of a Sybil attack, nothing more.
What’s confusing about cryptocurrency is that there are these two different costs, hashing and verification, and two different sources of paying for them: seigniorage (the coinbase award) and TX fees. How the pair of costs and revenues match up is a protocol design consideration.
RevenueProof-of-Work (SHA256 hash problem)
Coinbase (25 bitcoins)
Transaction verification
Transaction fees

In the case of Bitcoin, a miner has no control over the size of the coinbase award, but he does control which TX’s go into the block he’s currently hashing. So basic economic theory dictates that a miner will include a transaction if and only if the expected value of the TX’s fee is greater than his marginal cost of verifying that transaction. The costs due to proof-of-work do not come into the decision at all.
It makes sense to think of proof-of-work and TX verification as two separate subsystems with their own respective sources of financing: proof-of-work financed by coinbase and transaction verification financed by transaction fees. A digital currency protocol could follow this pattern and some do (Ethereum, for example). Bitcoin, however, is different. Its protocol dictates that the coinbase award halves every two years and never exceeds a cumulative total of 21m coins, which means that at some point both hashing costs and verification costs must be paid out of TX fees alone.
I’ve pointed out before that this aspect of Bitcoin’s protocol design is self-defeating in the long run. The market for media of exchange will gravitate towards those systems with the lowest transaction costs, and in the case of proof-of-work digital currencies, that means those protocols that forever subsidise hashing costs with the coin’s seigniorage (no supply cap). And even if that were not the case and Bitcoin remained the dominant digital currency, the protocol will need to change to incorporate a mandatory minimum fee that is sufficiently large to incentivise enough hashing to secure the network. I say “mandatory” because there is a collective action problem here in that an individual miner has no incentive to exclude a transaction whose fee exceeds his marginal verification costs, even if the aggregate effect of this rational behaviour is that the total TX fees are insufficient to support a hashing difficulty that secures the network.
Which brings me to the author’s bleak conclusion:

Quote:[color=rgba(0, 0, 0, 0.4)]The eventual supply of digital currencies is typically fixed, however, so that in the long run it will not be possible to sustain a subsidy to miners. Digital currencies with an ultimately fixed supply will then be forced to compete with other payment systems on the basis of costs. With their higher marginal costs, digital currencies will struggle to compete with centralised systems unless the number of miners falls, allowing the remaining miners to realise economies of scale. A significant risk to digital currencies’ sustained use as payment systems is therefore that they will not be able to compete on cost without degenerating — in the limiting case — to a monopoly miner, thereby defeating their original design goals and exposing them to risk of system-wide fraud.[/color]

This is only partly right, and partly right for the wrong reasons. First of all, it’s not digital currencies that face this problem, but a subset of them that, like Bitcoin, eventually require TX fees to shoulder the entire burden of incentivising proof-of-work. But that is an accidental rather than essential feature of digital currencies. So, the conclusion is only partly right because it does not apply to protocols that finance hashing costs with a perpetual coinbase award.
And right for the wrong reasons… this sentence “With their higher marginal costs, digital currencies will struggle to compete with centralised systems unless the number of miners falls, allowing the remaining miners to realise economies of scale” is wrong because the authors have conflated hashing and verification costs.
I’m not sure I get the “economies of scale” thing in transaction processing systems, but perhaps the author’s are thinking of the extreme redundancy that distributed systems require. Transaction verification in a distributed system is redundantly performed by every node, so if there are 5,000 nodes verifying nodes on the system, every TX is verified 5,000 times. Compared to a centralised system that only needs to verify a TX once, it would seem that there is a simple economy of scale linear in the number of nodes in system.
But a centralised system must do much more than verify TX, it must do lots of things that nodes on a distributed system do not have to worry about. The centralised system must protect the server(s) against error and attack, as a centralised system is by definition a system with a single point of failure. You don’t have to be a network security expert to appreciate that this is hostile and difficult technical territory. I can’t offer estimates on what these additional costs are, but what I do know is that they are a large multiple of transaction verification costs, and exponentially more complicated processes. TX verification–parsing the blockchain and doing a bunch of ECDSA signature verifications–is easy and cheap by comparison.
So it is by no means obvious that the total costs of TX verification are lower in a centralised system than in a decentralised or distributed one, and it may in fact be the other way round. But either way, we can say two things with confidence:

  • The costs of distributed TX verification are a small fraction of the fees charged by legacy payment systems. Unlike hashing, this is not a costly computation even when multiplied by a large number of verifying nodes.
  • The costs of distributed TX verification will decline over time with improvements in computational efficiency, bandwidth, etc.

But the one thing that distributed systems must do that centralised systems do not have to worry about is a mechanism for achieving consensus on the authoritative state of the ledger. For Bitcoin and many other digital currencies, this mechanism is hash-based proof-of-work, and it is crucial to appreciate the fact that verification and proof-of-work hashing are separate processes with independent cost functions.
And it may turn out that the proof-of-work blockchain isn’t the best mechanism for achieving consensus anyway. There are other decentralised consensus algorithms used in projects like Ripple, Stellar, and Hyperledger that do not rely on energy intensive hashing problems to achieve consensus.

Proof-of-Work as “manufactured scarcity”
Now that proof-of-work is liberated from the misconception that it is somehow behind TX verification we can bring some really interesting economic properties of proof-of-work into relief.
As long as there is long-term growth in demand for the coin and the coinbase award is perpetual, seigniorage should be more than sufficient to cover the costs of proof-of-work. That idea alone is, I think, really interesting. Here’s what I mean.
There is a long-standing objection to private fiat money schemes advocated by Hayekand others that goes something like this. Media of exchange are near-substitutes. (This maybe false assumption, but lets go with it and set aside the economics of network effects, etc.) And the marginal costs of producing the media are almost zero, so if a privately produced fiat money is a success, the seigniorage that accrues to the issuer will be substantial. This will invite more and more competition producing more and more media of exchange. Invoke that near-substitutes assumption and, bingo, privately produced money gets driven down to the marginal cost of its production, which is basically zero. Privately produced money is impossible because of free market competition and the the near-zero marginal cost of producing it.
In my opinion, the most important innovation of hash-based proof-of-work isn’t its solution to the problem of distributed consensus, for which there are arguably better solutions. Rather, the real innovation is the way in which this energy intensive defence against the Sybil attack makes the marginal cost of proof-of-work fiat money meaningfully non-zero, refuting the argument above. The scheme’s seigniorage doesn’t really accrue to anyone. Instead, it gets burned up in hashing blocks, where the marginal cost of producing a new set of coins equals the cost of solving the hash problem on the block that brings the new coins into existence. There is no coin “issuer”, scarcity comes into existence ex nihilo.
And this “seigniorage burning” isn’t a complete waste, as my metaphor might suggest and an economist will wrongly suspect as “inefficient”, for it has the side-effect of bootstrapping a solution to the distributed consensus problem and thereby creating a distributed payment system on which the value can be transferred (a coin can’t be scarce if it can be double spent). After all, shouldn’t seigniorage be spent on a public good? I think that this is conceptually beautiful, and it deserves to be a chapter in the micro foundations of money economics, whatever its ultimate fate ends up being. The first credible scheme for credibly rationing the supply of privately produced fiat currency.
The dominant narrative to-date has been that digital currencies like Bitcoin have value because of the utility of the distributed payments system combined with an (eventually) fixed coin supply. I think that the latter belief is unfounded. It’s not the fixed supply of a coin that makes it scarce, but rather the marginal cost of producing the coin that makes it so.
There can be demand for coin because of the expectation that it will be demanded more in future and therefore increase in price (speculative demand), and there can be demand for coin because you want to hold a coin balance to facilitate transactions (transactional demand). A coin may embody demand from both sources, but the former implies the latter or else the coin’s value rests on some sort of “greater fool” phenomena.
The entire history of monetary thinking can probably be told from the perspective of the tension between these two sources of demand, the tension created by a single object embodying the properties of both store-of-value and medium-of-exchange. The pursuit of purchasing power stability in this object isn’t some hubristic policy ideal like the taming of the business cycle or full employment. It is intrinsic to the very idea of money.
A volatile medium-of-exchange is a poor medium-of-exchange, and it is almost inconceivable that a free market would ever converge on a unit of account where the numeraire of all exchange was among the most volatile of assets. Just consider the cost of extracting relative prices in that scenario! We’d have to develop an alternative unit-of-account, which is another way of saying the market would never select such a coin as the unit-of-account in the first place. Trade requires a reliable measuring stick.
This is my favourite paragraph from the BoE paper:

Quote:[color=rgba(0, 0, 0, 0.4)]In order to address a need to respond to variation in demand, a more flexible rule would be required. For example, the growth rate of the currency supply could be adjusted to respond to transaction volumes in (close to) real time. Alternatively, a decentralised voting system could be developed. Finally, variant schemes could embrace existing monetary systems by seeking to match official broad money data or to target a fixed exchange rate, although this would require the abandonment of part of the schemes’ original ideology.[/color]

A more flexible money supply rule behind digital currencies is required. After all, even commodity money has a somewhat elastic supply function. If the price of gold hovers above the marginal cost of pulling gold out of the ground, more gold supply will hit the market. Digital currency with a deterministic money supply function is not a feature but a limitation of early, first designs. And a capped supply function like Bitcoin’s is a bug on microeconomic grounds alone, as we discussed above.
But there’s no reason to jump to the conclusion that the “original ideology” must be abandoned in order to implement certain stability schemes. For example, the coinbase award could be made a function of difficulty deflated by the change in GHs/kWh (improvements in hardware efficiency). Such a scheme would keep the coin price of a kWh roughly constant. A fixed exchange rate without abandoning the “original ideology”. Ok, it’s not a complete proposal, but you get the point. We’ve barely scratched the surface of this technology.
One of the (many) ways in which fiat money is weird and counter-intuitive is how it has value in the first place. The stock and bond markets have value because of the NPV of expected future income flows. But the aggregate value of the money stock is like value created out of nothing. It’s the value of pure liquidity.
So I want to offer a variation on the trust-less theme here: nobody can be trusted with the seigniorage generated from this value.

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Read More Read More, Posted by: Stroopy
How Consensus Algorithms Solve Issues with Bitcoin's Proof of Work

Daniel Cawrey (@danielcawrey) | Published on September 11, 2014 at 11:12 BST
[Image: proofofworkfeat-600x370.jpg]
It used to be that bitcoin mining was a community affair, but the process of confirming bitcoin transactions now requires an immense amount of hashing power specific to the SHA-256 mining algorithm.

As a result, the amount of electricity required to process and verify transactions has reached an immense scale.

In the early days, when the first users like the late Hal Finney began experimenting with bitcoin, users could just open the early bitcoin client and let their CPU whir away, creating bitcoins for fractions of a penny. By contrast, mining now requires tens of thousands of dollars in equipment, electricity and optional hosting expenses.

As a result, those who have significant financial resources have come to dominate the bitcoin mining space. Mining today is embodied by the emergence of enterprise-style, datacenter-hosted mining operations.

Jackson Palmer, who created the scrypt algorithm-based, proof-of-work altcoin dogecoin, is not overly positive on the prospect of mining overall, particularly in regards to the energy consumption.

He told CoinDesk:

Quote:“I'm quite openly against [proof of work] mining as the future of digital currencies based on the amount of energy it wastes, and damage it does to the environment – without giving anything back apart from making the fiat rich richer.”
One possible solution that has already been deployed in the digital currency ecosystem shifts away from proof of work, but still embodies the principles of a non-centralized systems.

The big technology race 

A major issue that plagues mining today – but may not receive much attention – is that the application-specific integrated circuits (ASICs) for SHA-256 or scrypt mining are only capable of one process.

ASICs can mine digital currency and confirm transactions, but once they are rendered obsolete by next-generation mining gear, the equipment quickly loses its value.
While most components in mining gear are recyclable, the turnaround from product creation to product demise in this industry is a short.
[Image: hashrate.jpg]
In order to mine competitively, there is a constant race to build and obtain more powerful equipment.

There’s nothing wrong with a little competition, but the race to build better miners has seen the rise of enormous operational costs. As a result, many miners are locked into long-term return-on-investment (ROI) schemes that are susceptible to any significant changes to bitcoin's exchange value.
A decline in the price of bitcoin could diminish the incentive for many miners to participate. While this wouldn't lead to any immediate disruptions, the long-term health of the decentralized network could be put at risk as only the well-financed mining outfits could continue working.
[Image: minersrev.jpg]

Given these threats, is there an alternative to proof-of-work systems that hash out cryptographic problems and, all the while, use up excessive amounts of money and natural resources?

While there have been a number of proposals to use proof of work for good use, such as for solving prime numbers or promoting personal health, these may not be the ideal solution either.

Solution in the pipeline?

A possible solution to issues related to proof of work may come from an academic paperpublished by Miguel Castro and Barbara Liskov from MIT in 1999 presenting the concept of Practical Byzantine Fault Tolerance (PBFT).

PBFT is a system initially devised for low-latency storage systems – something that could be applicable in digital asset-based platforms that don't require a large amount of throughput, but do demand many transactions.

Daniel Feichtinger, co-founder of a startup called Hyperledger that utilizes PBFT, explains how its distributed system works:

Quote:“Each node publishes a public key. Any message coming through the node is signed by the node to verify its format. Once enough responses that are identical are reached, then you can agree that is a valid transaction.”

That agreement constitutes what is known as 'consensus'. Just as bitcoin uses a decentralized system in order to confirm transactions without the need for a trusted third party, PBFT relies on the sheer number of nodes in order to confirm trust. As a result, hashing power is not required in this process.

“When you interact with multiple parties, you need some sort of consensus mechanism to ensure everyone has got the right records,” said Dan O’Prey, the second co-founder at Hyperledger.

Consensus already at work
Consensus-based transaction mechanisms have been on the market for some time. Ripple Labs utilizes this approach as part of its underlying protocol, based on the concept of PBFT.

[Image: unlconnectivityrequired.jpg]

Ripple Labs portraying strong (bottom schematic) node connectivity in its system. Source: Ripple Consensus white paper

Ripple Labs recently released a white paper on its consensus algorithm that points out theByzantine Generals problem of communicating over an unreliable link, something PBFT is intended to solve.

The white paper states:

Quote:“It is provable that no solution to the Byzantine Generals problem (which already assumes synchronicity, and known participants) can tolerate more than (n−1)/3 byzantine faults, or 33% of the network acting maliciously.”
[Image: unlconsensusthwarting.jpg]The likelihood of a group conspiring to take down the Ripple network decreases based on number of nodes on the list (UNL). Source: Ripple white paper

As a fork of Ripple, the Stripe-backed digital currency Stellar, founded by Jed McCaleb, also encompasses these same ideals. The idea, as shown in the graphics above, is that for every node added to a network's Universal Nodes List, the stronger the system becomes.

Yet there is a key weakness to this kind of structure – the source of incentive – and it is a fair question to ask. Unlike mining, what incentive exists for individuals or entities to host nodes?

Both Ripple and Stellar, along with Hyperledger, believe that there will be enough stakeholders to support PBFT-based transaction systems.

Hyperledger's approach

The Hyperledger project allows developers to create their own digital assets with a distributed ledger powered by nodes built on the principle of PBFT.

The system could be used to digitally back a real asset (such as a house), create new coins, or form a fault-tolerant system of consensus. Hyperledger co-founder Feichtinger said, using the latter application, his company's platform could even be used for advanced IT systems.

He explained:

Quote:“If you were Amazon running a distributed file system for AWS [Amazon Web Services] in your datacenter, [you] want to ensure an error is not going to corrupt AWS [and] you don’t need incentive. You run the nodes that you want, [using] a consensus system.”
[Image: hyperledgerdistributed.jpg]

Hyperledger prefers a distributed model rather than bitcoin's decentralized one. Source: Hyperledger

The idea for Hyperledger’s use of PBFT goes beyond asset-based systems. It takes the idea of an algorithm for consensus and uses it to distribute all sorts of technical solutions – not just the low latency, high-speed file storage solution it was originally built to provide.

This might be a good method of testing the power of nodes that do not use incentive to develop their strength. What will happen without such rewards? Systems like Hyperledger aim to find out.

“If you use Byzantine Fault Tolerance, ideally [corruption] problems are contained. The other nodes can realize [a] node is misbehaving, and not respond to its messages,” Feichtinger said.

Consensus as a service

There could be value in providing consensus-as-a-service in the way that cloud providers sell software-as-a-service or infrastructure-as-a-service. In the case of Ripple and Stellar, consensus becomes a medium of value exchange.

Feichtinger explained:

Quote:“Much like Google run their own DNS servers – it’s in their interest to have healthy DNS. It means they get to serve up their ads quicker. I think DNS is good example for this low-level protocol. Increasing the health of the system."

Given the fact that consensus-based transaction systems are still in the experimental phase (much like the whole of digital currency), expect to see additional solutions like these to appear on the market. Whether they prove to be a viable replacement to proof of work systems will come down to one thing: if they are used or not.

Palmer, whose dogecoin creation relies on auxiliary proof of work (or 'merge mining') to secure its network, added there needs to be new and concrete solutions like Hyperledger and Stellar. These, along with Ripple, he believes, can help grow the digital asset ecosystem as a whole.

He concluded:

Quote:“Exciting times [are] ahead. It's great to see real innovation in the digital currency space rather than more Kool-Aid drinking.”

Read More Read More, Posted by: Grimm
Stellar: Good Points And Some Glitches

Posted by admin on 13 September 2014, 

[Image: shootst.jpg]
A new crypto currency and decentralized exchange platform STELLAR has been launched on 31 July 2014.

It is run as a non-profit. It was created by Stripe CEO Collison and Ripple co-founder McCaleb. It has received $3 million in initial funding from Stripe.

Some good points about Stellar:

  • Non-profit: some people say that Stellar is expected to be “Ripple with the Evil taken out”.
    • They promote donations to charities in a variety of ways.

  • Stellar is a major innovation with distinct characteristics and is very far from being yet another altcoin.
    • It is based on bitcoin and Ripple source code which is expected to be well understood (in fact it is now clear that it inhered some serious problems).

  • It is luring subscribers and users in many different ways mostly through small monetary incentives.
    • 95% of all coins will be given away (but not exactly for free, see below).
    • Stellars will be also given to ANYONE who has bitcoins (10%) or Ripple (1%), based on the data in the blockchain at a certain moment. This is very clever: it will get Stellar a lot of new users.

  • They promise to release a paper showing that Stellar is secure.
    • Unlike bitcoin they DO CARE about cryptographic security. Very recently in July 2014 they decided to go for an elliptic curve Curve25519 which is currently not suspected of having a backdoor.

  • They seem to be focused on fast transactions (not like bitcoin). They say: “Every few seconds, the servers tally up the most recent batch of transactions and verify that their ledgers are in sync”. Their consensus algorithm is called Firmeza.
  • They support accounts in ANY currency, fiat or crypto.
      This is achieved through multiple Gateway companies which hold these assets for you (like existing bitcoin exchanges or small independent banks).

      Later people exchange cryptographic IOU underwritten by these parties.

    • In fact this is super dangerous and could be potentially illegal. Not only because this could behacked. There is a major question of regulation and banking licence. Both Stellar and individual users are now facing an enormous challenge to know which Gateway companies can be trusted. For example criminals could set up these companies. Then they will run with our money (recall MtGox).

  • There is no mining in Stellar, it is purely based on trusting Stellar and independent Gateway companies.

Read More Read More, Posted by: Grimm
Stripe Backs Non-Profit Decentralized Payment Network Stellar, From Mt. Gox’s Original Creator

Posted Jul 31, 2014 by Kim-Mai Cutler

[Image: stellar.jpg?w=1029]
There’s Bitcoin, the asset and hedge against fiat currencies and the politics of their central banks.

And then there’s Bitcoin, a fundamental innovation around a distributed public ledger of transactions. Many crypto-currencies try to split or play with the distinction between the two.

An early attempt was the Ripple, from OpenCoin. But the team behind that startup split. Co-founder and Mt. Gox creator Jed McCaleb left to go work on other stealth projects.

Now he’s re-appeared again with a new non-profit called Stellar, that’s being backed by Stripe. Joyce Kim, who founded a company that OpenCoin acquired called SimpleHoney, is also leading the non-profit.

The similarities are obvious. Stellar is a decentralized protocol for sending and receiving money in any pair of currencies. It’s not exactly a competitor to Bitcoin; it’s meant to facilitate transactions in all kinds of currencies from the majors like the yen, dollar and euro to other emerging-market fiat currencies.

That protocol is paired with a crypto-currency called the Stellar. They’re starting out with a fixed amount of Stellars that they’re freely gifting to new users. This is very different from Bitcoin, which must be mined through machines solving complex cryptographic problems in exchange for small amounts of the currency awarded at fixed time intervals.

Kim has argued in the past that this is a more egalitarian approach. Mining means that only people with high technical skill or the capital to operate now-expensive mining hardware get access to new Bitcoin. But Stellar is distributing half of its initial amount to anyone who will sign-up for it through the program. Stripe is getting 2 percent of Stellars in existence in exchange for $3 million.

A quarter of the Stellars will go to non-profits via an ‘increased access’ program, while another 20 percent will go to existing Bitcoin holders based on a snapshot of the blockchain on a specific date in the future. The remaining 5 percent will go toward operational costs. If the value of Stellar’s payment network increases, so will the value of the Stellars that the non-profit holds.

Also, unlike Bitcoin, the Stellar economy has a built-in inflation rate of 1 percent indefinitely.
Stellar’s board has Stripe co-founder Patrick Collison, Khosla VC and former Square COOKeith Rabois along with McCaleb on the board. Also advising the non-profit are security expert Dan Kaminsky, Joi Ito, Ronaldo Lemos, Linda Stone, Y Combinator’s Sam Altman, AngelList’s Naval Ravikant, Jackson Palmer, Greg Stein, and WordPress’ Matt Mullenweg.

Read More Read More, Posted by: Grimm
Stripe takes on bitcoin with rival digital currency Stellar

Payments firm founded by John and Patrick Collison invests $3m in cryptocurrency

Tue, Aug 5, 2014, 01:40
[img=620x0]!/image/image.jpg_gen/derivatives/box_620_330/image.jpg[/img]John and Patrick Collison, co-founders of Stripe, outside their offices in Palo Alto, California. Their digital currency will, unlike bitcoin, support traditional currencies such as dollars, sterling and the euro.


Irish-founded payments company Stripe has upped the ante in the battle to bring digital currency into mainstream use, investing $3 million in the launch of a challenger to bitcoin.
The start-up, founded by Limerick brothers John and Patrick Collison, has backed a currency and decentralised payment network called Stellar.
Stellar aims to make digital currency mainstream, something that bitcoin has not managed to do thus far. Bitcoin is still the dominant digital currency globally. But unlike bitcoin, Stellar will support traditional currencies such as dollars, sterling and the euro.
Stripe said there would initially be 100 billion stellar, of which 95 per cent would be doled out for free, in an attempt to introduce more people to the idea of cryptocurrencies. New coins will later be added at a rate of 1 per cent per year.
San Francisco-based Stripe has invested $3 million in Stellar in return for 2 per cent of all stellars. It said the digital currency’s value will be determined by the market.
If any company has the cash to back a new digital currency, it’s Stripe. In January of this year, the company raised $80 million in Series C funding, valuing it at $1.75 billion.
Stellar’s board boasts an impressive line-up including Stripe co-founder Patrick Collison (pictured), former Paypal exec Keith Rabois, Y Combinator partner Sam Altman and Wordpress founder Matt Mullenweg. It can thus rightly tout itself as a serious competitor to bitcoin.

Read More Read More, Posted by: Grimm
Quote:[Image: 1434916652.514734-michael-carney_pandodaily.png]By Michael Carney, written onAugust 5, 2014

[Image: hurdles-fall_featured.jpg]
Last week Ripple Labs and Mt. Gox founder Jed McCaleb introduced a new crypto-currency and payments protocol called Stellar that looks to build on the foundation of bitcoin and Ripple’s XRP while correcting what many perceive to be several design flaws in each. The open-source, non-profit project is backed by Stripe CEO Patrick Collison and Khosla Ventures partner and former Square and Paypal exec Keith Rabois, and counts professor David Mazières among its lead developers.
Like bitcoin, Stellar is based on a decentralized public ledger or blockchain that records transactions. Like Ripple, and its native currency XRP, the Stellar platform and the currency by the same name (aka, STR) are meant first and foremost to be a payments railway rather than a transactional currency. Thus, the platform allows users to convert between STR and fiat currencies (dollars, euros, et al) as well as other crypto-currencies (like bitcoin).
Where Stellar differs from these predecessors is that unlike bitcoin, the Stellar ledger is maintained by a select number of “gateway” institutions, rather than individual miners -- in this case, banks and financial firms. It’s not quite the fully-decentralized vision that Bitcoin creator Satoshi Nakamoto described, but it’s not as if any central authority has the ability to print (or mine) any additional currency, or unilaterally remove any from circulation to create inflationary or deflationary pressure.
And unlike Ripple, 95 percent of the total 100 billion STR are being given away for free to early adopters, gateways, and philanthropic organizations promoting economic development. Stripe, for example “contributed” $3 million to fund development of the project and in return received 2 percent of all stellar coins (2 billion STR). By contrast, Ripple has earned criticism – including from McCaleb, who left the company amid this dissatisfaction – for holding onto the bulk of its XRP currency and using it for fundraising and other company purposes.
So far, so good. TBI Daily creator Ryan Selkis, for example, crowned McCaleb“the reigning champion for the ‘I've got the best vision for bitcoin’ award,” and called Stellar “banking 2.0.”
But Stellar hasn’t been without its challenges in what are still the protocol’s very early days. Early adopters have been met with delays and server errors in opening accounts and receiving their $10 free Stellar coins – in exchange for linking an account to Facebook, verifying an email address, and completing an initial transfer. Many observers have also complained that Stellar’s distribution model is arbitrary and unfair, when compared to mining.
One user, Everett Forth, managed to game the system and amass more than 2 million STR in just 24 hours – several hundred times the number allotted to each users. Forth simply paid overseas Mechanical Turks a nominal amount to open accounts in their own name and transfer their free coins to his account. Unaware or unimpressed about the notional future value of these purely digital assets, it apparently wasn’t a hard sell – until word got out and the prices started to rise. I’m sure this is not what McCaleb and crew had in mind, but then again it’s very much the free market “working.”
At current exchange rates, 1000 STR is worth approximately $2.34. Put another way. 250,000 STR is equivalent to one bitcoin. This makes Forth’s haul worth a somewhat underwhelming $4,680 at today’s rates, but not too bad for a few hours work and a few dollars in outsourcing fees. Moreover, if Stellar becomes a meaningful platform and currency, this value could conceivably grow significantly. Stripe’s coins, for what it’s worth, hold a theoretical value of $4.68 million, more than 50 percent above its cash contribution.
Stellar is just getting out of the starting blocks so some manner of stumbling is to be expected. But the volume of discussion on crypto-currency forums suggests that it's at least capture the attention of this early adopter community. If McCaleb’s track record of skating to where the puck is headed in the crypto world holds true, then this will be but a small footnote in the grand scheme of things. It’s not that hard to start a new currency, but creating one that survives into adulthood is another matter entirely.

Read More Read More, Posted by: Grimm

  As of August 11th, you will be able to trade Stellar on through the STR/BTC trading pair. Stellar, which has been the topic of considerable hype since its release, is expected to be added to many of the major crypto exchanges in the near future. Stellar bulls hope for increased buying pressure around these additions.

The Poloniex news has put traders in a bullish mood towards Stellar, sending the price up more than 20% during its first day on the exchange. Prices have continued to rise in the early hours of the 12th.

Read More Read More, Posted by: Grimm
What is Stellar?

Stellar was announced on 2014-08-14 for sending and receiving money in any pair of currencies and released a white paper on their new consensus algorithm in 2015.

Quote:[Image: main-thumb-312265-50-dtrxgezfacbpsgcadta...vphnp.jpeg]
Mattias Petter Johansson, Cryptocurrency fetishist

I can't believe I'm answering this before Brian Roemmele. He must be sick or something. 

Stellar is an open system for sending and receiving money in any pair of currencies (such as USD, GBP or NOK). 

Now, I know that this space is getting crowded and that your grandmother's Norfolk Terrier started his own new altcoin yesterday, but there are three things that, put together, really sets Stellar apart:

1. Almost free. Unlike Forex and similar solutions, Stellar is extremely cheap ($0.000000027 per transaction as of writing).

2. Fast. Unlike Bitcoin, Stellar transfers are completed and verified within seconds. 

3. Strong backing. Like Bitcoin, Stellar is open source and not owned by anyone. But unlike other open solutions, it has a very strong backing behind it. The Stellar Foundation (, has really strong names among its board and advisors including Mozilla foundation board members, the CEO of WordPress, CTO and CEOs of Stripe, the ex-COO of Square and senior exec at PayPal, the director of MIT Media Lab, the director of Apache Software Foundaton and a co-founder of Dogecoin to boot. In addition, to get things running, the payment companyStripe bought 2% of the Stellars for $3 million. 

How does paying someone with Stellar work?
First, you need to put some money into your Stellar account - to do this, you'll need the help of a Gateway. Let's say that you look around, and find that most of your friends seem to use Gateway Banana. 
[Image: main-qimg-94b8517749085584e7a9881e354fad..._webp=true]
Yes, the naming was just an excuse to use that picture, thanks for asking!

So you give Gateway Banana 200 USD, and in return they issue you credit for 200 USD on the Stellar network. These 200 USD credits from Banana Gateway is now under your control, and you can now transfer them to other parties in the Stellar system without involving Gateway Banana.

[Image: main-qimg-0e5a5f6155f7802cfe48616a054ae7..._webp=true]

Think of the Stellar network is a huge, decentralized ledger that is extremely tamper proof. Everyone can see the ledger and verify that it's correct at all times. In this enourmous public ledger, Gateway Banana has just declared that it owes you 200 USD. This is actually what money is on the Stellar network - a big, huge mesh of credit. In fact, this is what normal money is too - money is debt!

Anyway, on to the fun stuff - buying crap! Let's say that you've just stumbled across the works of the fantastic Swedish artist Simon Stålenhag, and you want to buy one of his paintings - this one, in particular:

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Let's say that Simon accepts payments via Stellar, so in the checkout process, you send him 100 USD credits for the painting, he receives it, and can cash them out at his own, local gateway, Swedish Gateway. Banana Gateway now only owes you 100 USD. Payment done! 

But how does that work under the hood of Stellar? 
First of all, 100 USD were split out from your 200 USD Banana Gateway credits. Stellar then proceeded to find a trust line to Simon. Trust lines? What? Ooops, sorry! Before I go on, I need to explain what trust is in the Stellar network.

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I omitted one step back there. Before Banana Gateway could send you money, you had to use the Stellar client to trust Gateway Banana.  This means that you tell the whole Stellar network that you trust credit issued by Gateway Banana. I.e., you proclaim that when Gateway Banana gives you 20 USD credits, you consider that credit to be as good as money, because you trust that Gateway Banana is good for it. You can only be sentcredits issued by gateways that you trust - this is the foundation of the entire system.

Back to transferring money to Simon. Stellar now needs to find a trust line. You see, Simon doesn't trust Banana Gateway, so it's not possible to directly send him credits issued by Banana Gateway. In fact, he only trusts Swedish gateway, which you do not trust, because honestly, who trusts Swedes, right? If Swedish Gateway trusted Banana Gateway, they could have acted as a middle-man and accepted the Banana Gateway USD credits and given Simon Swedish Gateway credits in its stead. However, in this convoluted example we like to keep things extremely cumbersome, so Swedish Gateway doesn't trust your Banana Gateway. But both Swedish Gateway and Banana gateway trusts French Gateway! Boom - trust chain found! Your Stellar clients sends 100 USD,Banana to French Gateway, which issues 100 USD,French credits, to Swedish Gateway, which finally issues 100USD,Swedish credits to Simon. 

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All the above happens automatically within a few seconds, and it's not something that you need to concern yourself with as a user of the system, any more than you need to concern yourself with the (way more complicated and expensive) world of international bank transfers when you wire money to your daugher on her road trip in Bangladesh. 

What are Stellars?
The Stellar network is primarily a tool to transfer normal, existing currencies, but it also introduces with its own currency - Stellars. Unlike normal currencies traded, Stellars has value on its own and does not need to involve gateways in the transfer. But unlike Bitcoin, Stellars are not intended to be used as a means for payment in itself, instead it's meant as a last-resort-middleman for conversion when you cannot find a trust chain. Unlike Bitcoin, it's not mined - instead, 100 billions were created on genesis and the Stellar foundation is mandated to give 95% of them away, distributed between random people, existing Bitcoin and Ripple holders, and nonprofits. The remaining 5% will be kept for operational costs of the foundation. 

Unlike Bitcoin, Stellars are inflationary at a rate of 1% per year, to promote spending. A funky aspect of this is that it's not automatically the Stellar Foundation that receives this inflation - instead, everyone votes (the more Stellars you have, the more votes you have) about what accounts should receive the inflation. This little detail opens up for some potentially absurd fundraisers and business ideas - I imagine potential vote campaigns by Matthew Inman (BearLove Good.  Cancer Bad) to funnel all Stellar inflation to National Wildlife Federation. 

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Read More Read More, Posted by: Grimm
Jed McCaleb's Stellar Project Gives Away Free Digital Currency Through Facebook
  • By Anthony CuthbertsonAugust 1, 2014 10:01 BST
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Stellar will be initially offered freely to both individuals and charities.

Jed McCaleb, the founder of MtGox and Ripple, has launched a new project designed to encourage the wider adoption of digital currencies through the free distribution of a new altcoin.
Stellar, which had previously been referred to as the 'secret bitcoin project', offers a decentralised gateway for digital currency-to-fiat currency transfers, as well as also featuring its own internal digital currency called stellar.

According to the Wall Street Journal, Stellar will operate with an open-source protocol much like Ripple, meaning the software can be accessed and improved upon by anybody.

McCaleb formerly co-founded the cryptocurrency payment network Ripple Labs, but left the company last year after disagreements with the company's management.

A significant difference to Ripple is that 95% of Stellar's 100 billion pre-mined coins will be given away for free at the outset. This overcomes previous criticisms from some cryptocurrency enthusiasts that Ripple was a pre-mined scam.

Half of the 95 billion coins initially released will be freely available to any applicant to place an order through Facebook.

Non-profit organisations and charities involved in cryptocurrency and economic development will be the recipient of the other half of the first batch of stellar.

Joyce Kim, executive director of the Stellar Development Foundation, said in a statement that other digital currencies "eliminate most of the world" by requiring those who want to get hold of them to either put money in or mine for it.
By offering a cost-free alternative, Kim hopes that many more people will be introduced to the world of cryptocurrencies.

Read More Read More, Posted by: Grimm


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