Why Bitcoin matters (Marc Andreessen in NYT, 21 Jan 2014) – A mysterious new technology emerges, seemingly out of nowhere, but actually the result of two decades of intense research and development by nearly anonymous researchers. Political idealists project visions of liberation and revolution onto it; establishment elites heap contempt and scorn on it. On the other hand, technologists – nerds – are transfixed by it. They see within it enormous potential and spend their nights and weekends tinkering with it. Eventually mainstream products, companies and industries emerge to commercialize it; its effects become profound; and later, many people wonder why its powerful promise wasn’t more obvious from the start. What technology am I talking about? Personal computers in 1975, the Internet in 1993, and – I believe – Bitcoin in 2014. * * * [ Polley : very, very interesting. I’m confused though by the Bitcoin mining motivation issues – as Bitcoin transactions increase (possibly thru micropayments), this’ll require an explosion in block-ledger verification processing (by so-called “miners”). But, if the Bitcoin algorithm in fact has a finite number of possible coins (21 million), won’t miners sometime lose the incentive to do the verification work?] [ Polley : I’ve decided I should know more about Bitcoin, and so am installing the MultiBit.app on my Mac and creating an account—#notstraightforward]

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Image courtesy of techinasia.com/bitcoin-illegal-thailand/cdn.btcpedia.com.

FinCEN issues Bitcoin-friendly ruling for miners (CoinText, 27 Dec 2013) – The US Department of Treasury, Financial Crimes Enforcement Network ( FinCEN ) has issues ruling that clears up an issue for Bitcoin mining. The issue involves whether someone who mines Bitcoins for themselves can trade them for cash at an exchange or spend them directly without being classified as a Money Services Business (MSB) and register with FinCEN. Many miners were concerned that the rules would require compliance with extensive regulations (see Jerry Brito, FinCEN explicitly stated in a personal letter that bitcoin miners need to register with FinCEN ). The rules could require miners to have things like an auditor on staff making it impossible for individuals to mine Bitcoins and stay within the regulations. Atlantic City Bitcoin operates several ASICs miners at its facility in New Jersey and asked FinCEN to clarify the rules. The owner of AC Bitcoin is a former federal employee who worked on anti-terrorism and security programs and took early retirement to work on Bitcoin. According to the formal Administrative Ruling miners do not have to register with FinCEN as previously thought as long as they mine for themselves. AC Bitcoin had frequent contact with FinCEN staff and pointed out that if FinCEN had required miners to register they would need to comply with the “Administrative Procedures Act” which would require them to consider public comments before making the requirement.

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How the Bitcoin protocol actually works (by Michael Nielsen and recommended by Bruce Schneier, 6 Dec 2013) – Many thousands of articles have been written purporting to explain Bitcoin, the online, peer-to-peer currency. Most of those articles give a hand-wavy account of the underlying cryptographic protocol, omitting many details. Even those articles which delve deeper often gloss over crucial points. My aim in this post is to explain the major ideas behind the Bitcoin protocol in a clear, easily comprehensible way. We’ll start from first principles, build up to a broad theoretical understanding of how the protocol works, and then dig down into the nitty-gritty, examining the raw data in a Bitcoin transaction. Understanding the protocol in this detailed way is hard work. It is tempting instead to take Bitcoin as given, and to engage in speculation about how to get rich with Bitcoin, whether Bitcoin is a bubble, whether Bitcoin might one day mean the end of taxation, and so on. That’s fun, but severely limits your understanding. Understanding the details of the Bitcoin protocol opens up otherwise inaccessible vistas.

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Image courtesy of techinasia.com/bitcoin-illegal-thailand/cdn.btcpedia.com.