A long needed statement about #Crypto…

There are 2 sub-topics that I think need addressing:

  1. The unending crypto scams.
  2. What crypto actually IS.

These are two mutually exclusive topics. NEITHER defines the OTHER.

What are MY credentials to be able to speak about this?

I’m a software engineer with many decades of experience. I’ve been involved in cryptocurrencies since 2014. I have used many of the crypto services and many of the cryptocurrencies. I have traded dozens of cryptocurrencies and currently hold many cryptocurrencies. I have created my own blockchain from scratch and my own cryptocurrency completely from scratch with code. I’ve created neural networks and have trained them on price histories of cryptocurrencies to build price prediction AI. I understand the technology from top to bottom at a fundamental level and I understand the use of it and the tools and services built around it. I also understand the political thought processes involved in the creation of BitCoin as I hold similar, if not exactly identical beliefs as well.

Let’s talk about the scams first:

While crypto offers many benefits to humanity, scammers know that people are interested AND that people think they can get rich quick with crypto. They know it’s still relatively new and that most people are uneducated about it. They use those 2 facts AGAINST unsuspecting people and cheat them out of their money. This is a HUGE problem that NEEDS to be both addressed AND dealt with.

HOWEVER! The same is true for Gold, Stocks, US Currency, and anything else involving people’s hard earned income. This has absolutely NOTHING to do with “crypto”. Humans are a greedy species and that greed will and does manifest around everything. Crypto is no exception. The greed and scams are a fault of the greedy and the criminals, not a fault of the financial tools.

The PROBLEM is NOT the object of investment. The PROBLEM is the greed of the scammers (and to an extent, the greed of the victims, but that’s another story for another time).

Gold, Silver, precious metals, cash, and crypto are ALL vehicles of financial transactions and investments (well, cash is NOT an investment since it’s DESIGNED to devalue over time). Do NOT make the mistake of getting angry at the financial instrument simply because there are bad people out there taking advantage of people’s lack of education about them.

Let’s talk about CRYPTO in its own right:

I’ll precede this topic by stating that crypto exists to liberate you from the corrupt financial system controlled by tyrants and greedy and corrupt politicians. It WILL NOT liberate you from greedy, corrupt individuals that will do everything in their power to trick you out of your holdings.

Let’s examine whether or not it’s living up to that dream:

A basic primer on what cryptocurrencies ARE and then, what they are NOT

What Cryptocurrencies ARE:

There are many cryptocurrencies and not all are implemented with exactly the same backend technologies. My description will be as basic and non-technical as I can get away with while still providing you the facts you need to understand it. This will be a challenge (for me, not you), so bear with me. The REASON it’s a challenge is because I’m a highly technical person and have created my own crypto from scratch with code, so I understand that when I talk about things of this nature to non-technical people, I, like all technical people, have a language gap between me and you. I’ll do my best though:

To understand crypto, we must first understand the system it’s designed to replace. It’s NOT designed to replace “money”. It’s designed to replace an entire corrupt and tyrannical financial system. This includes central banks, regular banks, credit cards, payment systems, all of which have denied services to people in recent years simply because of the individual’s political opinions. But THAT phenomenon has occurred SINCE the first cryptocurrency (#BitCoin) was invented. It was invented to protect your liberties from such tyranny, but at the time BitCoin was invented, we were in the middle of the 2008 housing collapse that destroyed the life savings of MILLIONS of Americans (and others around the world). One person, who to this day is still anonymous, decided enough was enough and designed a new currency that could NOT be controlled by a centralized authority. It was to provide the following functional differences from the current system:

  1. Impossible to forge the currency
  2. Impossible for your holdings to be confiscated by tyrants
  3. Impossible for your transactions to be blocked by tyrants
  4. Impossible for banks to hold or steal your money
  5. Impossible for central authorities to willy nilly devalue the currency by printing more

Notice that I did NOT mention “get rich quick”? That is not and was never a reason for cryptocurrencies.

How Things Are Going…

At the time of this writing, it’s September 2023. The BitCoin #whitepaper was released in January of 2009. It’s been 14 years. let’s examine each intended benefit and see how they’ve turned out so far.

1. Impossible to forge the currency

This has held up, at least for BitCoin and most cryptocurrencies. There have been thousands of cryptocurrencies created since the invention of BitCoin and some of those have been poorly designed and crypto was able to be forged. But not with the vast majority of them and most importantly, not with BitCoin. After 14 years and hundreds of thousands of white-hat hackers and actual bad guys trying to break it, it’s never happened.

Conclusion: SUCCESS!
For the remainder of this discussion, we’ll limit it to BitCoin since the nuances of the thousands of others are too many to cover. I may mention Ethereum, Monero, and stable coins, as those are notable and important to the discussion.

2. Impossible for holdings to be confiscated by tyrants

This too has held up. However, no doubt you’ve been blasted with stories of millions of dollars worth of crypto being confiscated by law enforcement or scammers or cryptocurrency exchanges going belly up. These are NOT cryptocurrency being confiscated by tyrants NOR BY ANYONE!

“WHY?” you ask?

Great question! The confusion comes from the poorly written articles about these events and lack of understanding of what actually happened. Let’s discuss the first big event: Mt. Gox. This was the first cryptocurrency exchange. An exchange is bridge between the current legacy financial system and crypto. An exchange is where you go to exchange dollars for crypto and vice versa, as well as crypto for crypto.

AN EXCHANGE IS NOT CRYPTO! IT’S A CENTRALIZED AND PRIVATELY OWNED AND CONTROLLED BANK!

Mt. Gox was an exchange. It’s a centralized business… a bank. People would sign up with it, give their personal information, open an account, put fiat currency into it, and use the bank’s software (their website) exchange dollars for crypto and vice versa. All this did was update records in a database in the bank’s records. The customer didn’t actually own any crypto. They just had records in a centralized database that said that user could withdraw certain amounts of crypto. As long as they failed to withdraw the crypto they were entitled to into their own, personal wallet, it was never their crypto. It was the bank’s crypto. Many people didn’t understand that and many still don’t to this day. If you “have crypto” in an exchange, do do NOT have crypto. You have an IOU from the bank.

To actually “OWN” crypto, you MUST move it from the entity that holds it to your own, personal wallet where YOU possess the private cryptographic keys. Once you do that, THEN and ONLY THEN do YOU own the crypto. It’s that private key that makes you the owner. Your crypto absolutely, positively, MATHEMATICALLY CANNOT move without the use of that private key.

Mt. Gox got hacked.

Let me repeat that: —===>>> Mt. Gox got hacked <<<===
BitCoin DID NOT GET HACKED!

Mt. Gox was a centralized bank with bugs in their software. Hackers discovered the security flaws and used it to steal about a hundred million or so dollars worth of BitCoin FROM Mt. Gox! Why? Because they were able to control Mt. Gox’s software and instruct it to use Mt. Gox’s private keys to move the crypto.

This was a failure of Mt. Gox to protect their private keys. BitCoin functioned as it should have. The hackers did NOT break the encryption of BitCoin. They effectively stole the combination of the bank’s vault.

Not a SINGLE CUSTOMER’S BitCoin was stolen!

“But HOW can you say that? None of them have ever recovered their BitCoin to this day!”

Ah, but they NEVER POSSESED THE BITCOIN! It was NEVER THEIRS! Why? Because they never cashed in on their IOUs from the Mt Gox bank. Once Mt. Gox was drained of Mt Gox’s BitCoin, they lacked the BitCoin necessary to honor the IOUs that people’s fiat currency was given to them to purchase. This was a failure of a central bank. This central bank defeats the purpose of BitCoin.

YOU DON’T OWN BITCOIN IF IT’S IN A CENTRALIZED BANK! YOU OWN AN IOU!

in case it isn’t obvious at this point; If you purchase cryptocurrency from a centralized exchange, you must immediately move it to your own personal wallet were YOU control the keys. If you don’t do that, YOU SIMPLY DO NOT OWN ANY CRYPTO!

With the explanation of WHO actually owns BitCoin, let’s move on. We’re still examining the dream of “2. Impossible for holdings to be confiscated by tyrants”…

With the explanation above in mind, you’ve certainly heard of governments “confiscating crypto from people” by forcing a crypto exchange to hand it over to the tyrants. This is identical, technologically, to the Mt. Gox breach. It’s simply the government doing it rather than a hacker, but by force instead of a hack. Once again, they took resources in possession of a centralized bank. They did NOT hack the BitCoin blockchain nor did they control the BitCoin network to take it. The user’s simply did not own any BitCoin. The centralized bank did and they handed it over to the tyrants. If the user’s had already moved their claimed crypto into their own wallets, the tyrants would never have been able to take it.

Conclusion: SUCCESS!
The BitCoin blockchain has never been hacked. As long as you hold your private keys securely, your BitCoin can’t be taken.

3. Impossible for your transactions to be blocked by tyrants

No doubt you’ve heard about the Obama administration’s scheme called “Operation choke point”, where they unconstitutionally strong armed banks from doing business with gun stores? They intimidated banks into closing the accounts of 100% legitimate American businesses that sold firearms to American citizens for their constitutionally protected second amendment rights to bear arms.

You’ve also heard of Justin Trudeau’s Canadian government that locked the bank accounts of tens of thousands (might have been more) of Canadians because he disagreed with them for protesting. Not only did he lock THEIR accounts, but hey ALSO locked the accounts of individual citizens that were NOT protesting, but simply donated to the cause. In addition to THAT, he also ordered an American funding organization, GoFundMe, to hand over all donations that AMERICANS had made to the cause. Fortunately, GoFundMe refused.

These are just 2 well known examples, but this happens every day to various degrees.

You’ve probably heard of a story recently in the news of the U.S. government going after a decentralized cryptocurrency mixer called “Tornado”. It allowed users to send a chosen amount of crypto to the mixer, give it multiple other crypto wallet addresses and it would take the crypto received from multiple other people, mix it up, and then send it out to the wallet addresses (think of a wallet address as a bank account number) specified by the users. This allowed the users to then own their crypto anonymously to achieve privacy in their transactions. Of course, the government has the tyrannical belief that they should know about every single transaction that ever takes places throughout all of humanity. They are wrong, but that doesn’t stop them from claiming otherwise. They ordered centralized exchanges to not honor any crypto that touched any of those wallets.

Did this block transactions?

Yes and no.

Yes in that if anyone that owned those wallets wanted to move their crypto into the exchanges, they were blocked.

No, in that the blockchain and the network was not blocking it. It was individuals choosing to not accept transactions from wallets the government told them not to. The owners of that crypt are still, to this day, able to transfer it to any wallet they want and to accept crypto from any other wallet. The attempt by the government to black list those wallets was embarrassingly stupid in that all a user had to do was spend 10 seconds creating a new wallet and moving their crypto to the non-blacklisted wallet.

Conclusion: SUCCESS! (with noted exceptions of individuals choosing to follow orders)

4. Impossible for banks to hold or steal your money

At first glance, knowing that exchanges are banks and can hold and steal your crypto, you might think that with dream was a failure. In fact, it’s quite the opposite.

Simply don’t give your crypto to a centralized bank. Problem solved.

Of course, the centralized exchange banks are necessary as they are the on and off ramps to and from crypto and fiat. But, not entirely. Also, if you claim your IOU immediately by moving your just purchased crypto into your personal wallet, you’re then safe. You can also acquire crypto in many other ways. For example, you can run your own cryptocurrency mining software that generates crypto for you. You can sell products and services by accepting crypto directly from the buyer into your own, personal crypto wallet, bypassing the centralized banks.

If your crypt is in your own wallet where you and ONLY YOU have the keys, then it is, indeed, impossible for any bank to hold or steal your crypto because they simply don’t possess it. In crypto, YOU are LITERALLY your own bank.

Conclusion: SUCCESS!

5. Impossible for central authorities to willy nilly devalue the currency by printing more

This one is the one that seems to be most misunderstood by the general public. And it’s because the average person does not understand the technology that makes up cryptocurrencies. They CONSTANTLY argue against crypto saying, “Well, crypto is made from thin air. They can just make more at any time!”

This is fundamentally and completely FALSE! Here’s why:

(Prepare for techno-talk. I’ll keep it as limited as possible)
BitCoin comes into existence in only 1 way: Complex software algorithms are used to hunt for special numbers in a huge universe of numbers. Once a special number is found, the computer that found it presents it to the whole BitCoin network. The network validates the number is in fact a genuine special number and rewards the finder with a certain amount of Bitcoin. Any validator that lies is kicked out of the network and black-listed. Any computer claiming to have found a special number and isn’t validated by the network is also black listed. It’s financially harmful to be dishonest in that network.

The amount of computation and searching for one of those special numbers is ENORMOUS. The BitCoin network is the most powerful supercomputer on the planet; leaps and bounds more powerful than any government supercomputer. A BitCoin represents the enormous amount of computational time AND power consumed to generate it. There is no central authority that can authorize more BitCoin. The network only allows the creation of new BitCoins when a miner finds one of these numbers and on average, the entire global BitCoin mining decentralized network finds only ONE about every 10 minutes. At the time of this writing in 9/2023, this number is rewarded by the network with the creation of 6.25 new BitCoins. Every 4 years, the network cuts that reward in half. At the next 4 year cycle, it will be cut down to 3.125.

This is designed specifically to prevent deflation of the value of the cryptocurrency and is a direct result of the central banks choosing willy nilly to print TRILLIONS of new dollars, intentionally devaluing all existing dollars. The BitCoin network software is also designed to stop producing new BitCoins once 21 million BiCoins have been generated. As of right now, nearly 20 million have already been created. But with the halving event of every 4 years, it will take another 140 years to mine that last 1 million BitCoins.

THERE WILL NEVER BE MORE THAN 21 MILLION BITCOINS

Conclusion: OVERWHELMING SUCCESS!

FINAL CONCLUSION

Don’t hate a financial asset and tool just because there are bad people in the world. 100% of all financial assets and tools have always been, are now, and will always be tools used by scammers too. An asset is not defined by the bad guys. It’s defined by it’s function.

Don’t let your previous anger at the scammers cloud your judgement on BitCoin. In fact, it’s to the tyrants advantage that you let it cloud your judgement, because they WANT you to remain in the tyrannical financial system where they are gaining more and more control over everything you can do with your own money. They’re desperately hoping that light bulb of awareness never turns on in your head.

Cryptocurrency is the key to your financial liberties. Don’t deny yourself and your family your freedoms because of your misunderstanding caused by scammers and propagandists that want you to remain in the system that THEY control.

BitCoin Just had its 2020 Halvening: Here’s what that means

What Happened?

Earlier today (2020-05-11), the amount of new BitCoins awarded to each minor that hits the jackpot of finding the right hash to validate the latest block of transactions now gets rewarded HALF the amount of BitCoin that they would have been awarded for each block mined for the last 4 years. For the last 4 years, up until earlier today, every block that was mined, 12.5 BitCoins were awarded to the miner that mined it. Now, and for the next 4 years, any minor that mines a block will be awarded only 6.25 BitCoins.

Why did that happen?

Creating new BitCoins is like printing money. It shouldn’t be done unless it has to because doing so floods the market with new coins and reduces the value of every coin already in existence. This is called “inflation”. But, the miners have to be incentivised to run their expensive hardware and burn through their expensive electricity, therefore, they are rewarded with a small amount of new coins. But, also built into the algorithm is a maximum limit of 21 million total BitCoins. There aren’t that many BitCoins yet, and this halvening algorithm is part of the reason why. By cutting in half, the reward, every 4 years (more specifically, every 210,000 blocks mined), it will take 144 or so years before the last BitCoin is mined.

What does this mean?

For miners, it means their income is cut in half… but only in the short term. BitCoin is deflationary by design, so the value of BitCoin has been and it is expected to continue to go up over time.

For consumers, it doesn’t mean much, at least not in the immediate future. The price of BitCoin has not been immediately effected by prior halvening events. For the most part, it should be business as usual.

For HODL’rs (people that Hold On for Dear Life… saving for the long term), it should reinforce the future value of their BitCoin.

For day traders, given prior halvenings that turned out to be non eventful, they probably won’t experience much of a difference either.

Conclusion:

For the most part, there’s more hype than action… every halvening, but the algorithm for the halvening is critically important for the long term viability of BitCoin.

Cryptotab browser is a total SCAM!

What IS CryptoTab Browser?

It’s a custom and closed source web browser that has a built in BitCoin miner.  That means it’ll run high intensity calculations on your CPU, burning electricity with the intent of creating new BitCoin.  By closed source, that means they’re not open source.  They do NOT make their source code available for inspection.

What it CLAIMS

It claims to make you money by mining BitCoin on your computer while you browse.  But this is misleading.

What it ACTUALLY does

In reality, when you create your account, likely from having clicked someone’s referral link, you’re software is now a slave to the person who owns the referral link.  While your computer burns through electricity that YOU are paying for, it’s giving a large portion of the tiny amount of BitCoin that your computer generates to the other person, not producing any profit for you at all.  Even if you got to keep all of the BitCoin that you mined, you’d STILL be losing way more money than you make.

It’s IMPOSSIBLE to be profitable mining BitCoin on a PC or a mobile device

A very, very long time ago, the complexity of BitCoin became too powerful for PCs to mine it and be profitable.  For years, the only way to make a profit mining BitCoin is to buy specialized hardware that can’t do anything other than mine BitCoin.  Those hardware devices cast at least $1,300 (USD) on the low end, run very loudly and hot.  And you’ll have to run one for about 6 months before you generate enough BitCoin to break even on the cost of the hardware.  There is NO PATH to mining profitably on a PC (unless you get your electricity for free!)

If you mine on ANYTHING else, you’re GOING TO LOSE MONEY! Why? Because the amount of electricity you burn will cost you MORE than ANY infinitesimal amount of bitcoin you mine. Even if your electricity were free, the amount you can mine on a PC is virtually nothing. It also slows down your PC for everything else.

But wait! There’s MORE!  To make matters even WORSE, when you start mining with this browser, you don’t even get to keep all of the minimal amount of coin you mine. Even if you did, you’d already be at a loss, but it’s worse. Whoever’s link you clicked on to get the browser gets a portion of YOUR earnings! Earnings that are ALREADY in LOSS territory.

A Classic Ponzi Scheme

The ONLY way to “make money” with this is NOT by mining BitCoin, but by having LOTS of people sign up through your referral link.  THEY LOSE money by mining and lose even MORE by giving you the minuscule BitCoin THEY mine.

Stay away from CryptoTab Browser.

The Cryptography of a BlockChain

[Updated on 2019-09-11]

By now you’ve all heard of a blockchain and that it’s the backbone of cryptocurrencies like BitCoin, Ethereum, LiteCoin and others.  I’m not here to tell you that blockchains are the solution to every problem or that blockchains are the next best technology that everyone will use.  You’ve heard that 100 times.  I’m going to explain, in as simple and straightforward a way as possible HOW a blockchain is put together and how cryptography is central and core to the whole thing.

You’ll discover, on your own, that putting a couple of old ideas together creates something phenomenally more powerful than the individual parts summed together.

First, let’s list the parts:

  1. A simple transaction (a record showing a FROM address, a TO address, an amount being transferred, and a time stamp).
  2. A “block”, which is just a list of transactions.
  3. Hashing (the result of a complex math problem using the numbers of all the bytes of a file (or a block and/or a transaction record)), to uniquely identify a larger chunk of data.
  4. Encryption

That’s it!  No, really!  A block chain and a cryptocurrency contain no more than that.  Well, a cryptocurrency needs computers to do the calculations for the hashing and encryption, etc…, but they just build  and validate the block chain.

So, here is what a block chain is in a nutshell:

  1. Every transaction ever taken place since the creation of the blockchain.
    1. The list of transactions are divided into “blocks”.  If you create your own blockchain, you get to decide how big a block is and how many transactions are placed in a block.  In BitCoin, for example, a block used to be 1MB max (it was updated in August of 2017 to be bigger).  A new block is added to the blockchain every 10 minutes… at least, on BitCoin, it’s every 10 minutes.
    2. The transaction is digitally signed by the sender so the network can confirm the owner of the cryptocurrency is truly authorizing the transfer.
  2. Each transaction in the block has a hash that uniquely identifies the transaction.  No 2 transactions will ever have the same hash.
  3. Once all transactions for the next block are ready, the hash from the prior block is added to the new block and that hash, plus all the transactions, are hashed to create a final hash of the new block.
  4. Critically important:  That prior hash being added to the new block is what LINKS the new block back to the prior block!  That’s what makes it a “chain”.  Each new block references the old one and the new block’s hash is dependent on the old one, which was dependent on ITS older one, and so on, all the way back to the first “genesis” block.  The new hash is the way it is because of ALL the older hashes are the way they are.  If any single transaction anywhere in the blockchain were different, so would ALL the hashes be different following that one.

That’s it!  Really, that’s all there is.

But, some really important things have happened as a result of those simple pieces:

  • Every processing computer on that network has a full copy of the entire blockchain.
  • There’s no central blockchain server.  The blockchain exists ONLY on the hard drives of the machines of the volunteers.

That means a hacker can’t hack “the bitcoin server” and change records, because no such central server exists.  He’d have to hack into EVERY bitcoin node and change it.  (Well, he’d have to hack at least 51% of them).

Something else important happens with the technology:

  • When a BitCoin node computes the hash of a block, it doesn’t just compute the hash ONCE, it computes TRILLIONS and TRILLIONS of hashes.  A single, home laptop, would probably take years to compute that hash.  Why? The network won’t accept just any hash.  The hash produced MUST match a pre-defined pattern.  Specifically, it has to, by pure chance, come up with a hash that begins with a bunch of zeros.  The amount of zeros needed increases over time as computers get faster, to ensure that Moore’s law doesn’t overtake the network.  These hashing computations NEED to take a long time.  MANY BitCoin nodes are competing with each other to find that magical hash value.  The first one that finds it, submits it to multiple peers on the network for confirmation.  Confirmation is instant.  Once confirmed, the block is accepted into the blockchain and it’s distributed to every node on the network so they can all add it to their local copy of the blockchain.  And the computer that found the hash is awarded with 12.5 new BitCoins (worth about $92,000 at the time of this writing).  Those computers that spend all their time crunching numbers to produce those hashes are called “miners”.

So, why are miners required to compute all those useless hashes only to find yet another useless hash?  Because it has to cost the miners something to do it.  It’s too expensive to do that if there’s no reward, so a hacker is not going to waste their time doing it.  If a hacker tried to submit a false hash, the network would reject the false hash and would ban them from the network.  So, only hashes that actually went through the full AND EXPENSIVE computational process are accepted.

When a miner submits their hash, and it’s confirmed by other miners, that hash is a “proof of work”.

Again, WHY?

Aside from making it too expensive and mathematically improbable to submit false hashes, it makes it impossible to change records in the blockchain.  If you tried to change a record from 24 hours ago, you’d have to rehash it, then rehash the next block (because remember, the NEXT block has been hashed with the prior block’s hash… the one you’re CHANGING!).  You’d have to rehash EVERY block after the one you’re changing.  It takes about $1,000 worth of electricity to mine a block and thousands of specialized computers to get it done in time.  In a 24 hour period, there are 144 new blocks, so it would cost you $144,000 to rehash them all.  Every 10 minutes back in time of a transaction you’re trying to alter will cost you another $1,000 in electricity.

Then, you’d have to somehow hack 51% of all bitcoin mining rigs and REPLACE ALL their local copies of the blockchain.

There simply is not enough computer power in the world to accomplish that task, not even if you add all the world’s supercomputers owned by the NSA, Oak Ridge National Laboratories, China, etc…  Because while you’re doing that, the bitcoin network (the fastest supercomputer on the planet), is still churning out new blocks every 10 minutes.  You’d need the combined computational power of the ENTIRE bitcoin network, PLUS MORE to catch up with them.

It’s no longer a hacking challenge, but a thermodynamic problem that you simply cannot do with current technology.  It’s expected that a quantum computer would eventually be able to do that, but the BitCoin developer teams are working on new algorithms safe from quantum exploitation.  Side note:  It’s believed that current AES encryption is likely quantum-safe.

THAT is why any record written to the blockchain is permanent and unalterable.  That was accomplished with extra hashing of blocks and distributing copies of the blockchain all over the network.

Back to Cryptography

Hashing:  Again, hashing is taking a string of bytes, pushing them through a particular algorithm, and producing a fixed length, unique string of bytes, always the same size (for the SHA256 hashing algorithm, the one that BitCoin uses, that’s 256 bits long or 32 bytes long), regardless of the size of the original string.  A hash is non-reversible.  That means that you CANNOT reverse a hash to recreate the original data that was used.  Think of it in the same way you think of the remainder to a division math problem.  For example, 13/5 = 2, with a remainder of 3.  But how many other divisions have a remainder of 3?  An infinite number of them.  So, if all you have is the remainder, you have no way to determine what the original 2 numbers were.  That’s kind of how a hashing works.

Important to cryptocurrency (and blockchains):  You must have a “wallet” to keep your cryptocurrency in.  That wallet is simply this:  You create a new public/private encryption key pair.  Your private key is generated from random numbers put through an algorithm.  Your public key is generated from your private key by putting it through another algorithm.  Your wallet address is simply a hash of your public key.  You can freely give people your public key and your wallet address.  Your address is what you want people to have so they can send you money.

Signing:  For more details on signing, please see:

Understanding Encryption

But here’s a short explanation:  When you encrypt data, you use the recipient’s PUBLIC key.  When they DECRYPT your message, they use their PRIVATE key.  But, if you want to PROVE that YOU sent the message, you’d also SIGN it.  That simply means that you encrypt with your PRIVATE key.  The recipient DECRYPTS it with your PUBLIC key.  Anything encrypted with your private key can be decrypted with your public key.  Since your public key is public and anyone can decrypt your data with it that you encrypted with your private key, it’s not considered “decryption”.  And since ONLY YOU can encrypt anything with your private key and your public key can’t decrypt ANYTHING NOT encrypted with your private key, then that proves YOU are the one that encrypted it.  You digitally “signed” it.  That’s how you prove you created the content.

When you transfer digital money on a blockchain,  you digitally sign your transaction to move money out of your “wallet” (again, your wallet address is a hash of your public key).

The network refuses to transfer money from one address to another unless the transaction is digitally signed by the “from” wallet address’s owner.

Encryption: You don’t really encrypt anything in most blockchains, but I’ll mention encryption here, just so it’s not ignored from the conversation.  But “signing” and “hashing” are considered subsets of the larger “encryption” concepts.

Benefits of all these pieces of technology put together:

  1. An immutable (unchangeable), public ledger.  You never have to worry about someone changing a past transaction.
  2. Decentralized.  There’s no single place that a hacker can attack and no single place a dishonest website owner can manipulate, and no single place for a tyrannical government to shut down, and no single company to go out of business, tacking everything with it.
  3. You are 100% in control of your own cryptocurrency.  No one, not EVEN the government can technologically steal your funds or stop you from sending or receiving money on the blockchain.
  4. It’s virtually unhackable, not even someone with resources as deep as say the NSA.

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IRS Hell for BitCoin Users

Summary

2018 is the first year U.S. citizens have to file taxes on their cryptocurrency activities for 2017.  The limited “rules” the IRS has published do not cover the majority of types of activities and the information needed to accurately file taxes is simply not available to non programmers and is excruciatingly difficult to acquire, even for programmers.

Tax “Guidance”

In 2014, the IRS published a somewhat vague guidance on how to report cryptocurrency taxes.  It essentially boils down to:

  1. How much did you buy? 
  2. How much did you sell?
  3. What’s the difference?
  4. Send in 30% of your profits.
  5. Determine fair market value on the day of your transactions.

Here’s the actual 2014 IRS tax guidance document.

Reality

Unfortunately, reality is much more complicated than that.  Here are the real-world things that we have no clear rules on:

  1. What if I bought some prior to 2017?
  2. When I sell some, which of the MANY prior purchasing transactions do I apply the price to?  The price is different for every transaction.
  3. What about mining?
  4. What about mining hardware prices?
  5. What about price of electricity?
  6. I bought & sold on more than one exchange.
  7. I moved crypto between exchanges.
  8. I converted crypto from one to another.
  9. Prices at the moment of each transaction are not available when converting between currencies.
  10. Which price would we use, even if we had it?  There’s no universal price on any crypto.  Each exchange has its own, moving price that changes by the second.
  11. What about when a cryptocurrency forks, like BitCoin to BitCoinCASH and BitCoinGold?
  12. They say to use the fair market value of the day to determine prices on transactions, but that’s of no use since the price can swing thousands of dollars within a day.

My Experience

Since 2014, I’ve bought and sold crypto hundreds of times.  On some days, I’ve made dozens of trades in a single day.  In addition to that, I have accounts on 4 exchanges and also mine Ethereum.  I also traded between cryptos like converting BitCoin to LiteCoin and LiteCoin to Ethereum & Ripple & IOTA, etc., and moved crypto between exchanges like CoinBase, Kraken, Bitfinex, & Bittrex, and to and from my personal wallets,  and gained some crypto during forks, and lost some due to CoinBase not giving me my Ethereum Classic.

Over the past week, I’ve spent about 6-10 hours or so JUST on trying to gather what I understood would be needed for my tax accountant for cryptocurrency (not counting my usual taxes).  From the list above, you’ll get a rough idea of what I was going through to try to collect the information.

It’s 2018-03-31 and I finally finished my taxes.  Here’s how the day went:

I was woken up around 9:45 am this morning (I like to sleep late on Saturdays) by my tax accountant.  We spent a SOLID FIVE HOURS on the phone, trying to resolve everything (95% of that was related to cryptocurrencies).  This is their first year dealing with this.  I had to explain a lot about crypto and even the IRS’s rules.  She, apparently, had the same, uninformative PDF document from 2014 from the IRS too and just assumed it’d be as simple as they explain.  Reality is hugely different.

She wanted me to make it simple for her.  I wanted her to make it simple for ME.  That’s kind of why I’m paying her, right?  I spent hours gathering everything she could possibly need (minus the information that was just not feasible to get, but that we actually DO need).

It was simply not enough information, not just the lack of data that I didn’t have access to, but the lack of rules from the IRS.

Conclusion

The amount of effort trying to figure out just HOW to report my cryptocurrency transactions to the IRS was a nightmare and equals about the same amount of effort I spent throughout the year transacting and buying, learning, and setting up my Ethereum mining.  And it was significantly more frustrating than the actual crypto activities.

The IRS needs to get their act together, learn what it is we actually do, and come up with REALISTIC rules that we can actually perform.

After all the time and effort I spent preparing my taxes for my accounted, PLUS the amount of time we spent on the phone afterwords was insane and we STILL didn’t get everything.  We probably got about 85% of what was needed and I guarantee that what we reported was not right, but that was the best we could do.  I had tens of thousands of dollars in transactions.  With the limited information we had, she simply ended up using what I sent to her from the website CoinTracking.com, which is ONLY good for a SINGLE exchange.  So, I reported a $200 profit and paid taxes on that.  At least that is small, to keep my taxes down AND shows a “profit”, which should keep the IRS off my back, since I’m actually paying them something.  I was told that if I reported a loss, it would likely trigger an audit.

What?  Were you hoping to come here for a resolution to YOUR tax problems?  Sorry.  All I can offer is comfort that you’re not alone.  The IRS needs to get their act together and YOU need to click this link to contact your U.S. representative and explain to them the nightmare they’ve created for us.  Click the following link:

Find Your Representative

 

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Validating Digital PGP Signatures & Why it’s Important

Do you ever see the checksums, CRCs, SHA, or PGP signatures presented to you when you’re downloading a file?  Like this for example:

These are actually SUPER IMPORTANT!

What are those signatures?

They are, in a very very simplistic explanation, answers to a math function where the numbers given to the function are the bytes of the file you want to download.

Why are they important?

They are used to prove to you that the file you’re downloading hasn’t been tampered with.   HOW? you may ask?   Because only the valid, original file, with the original set of bytes in it could have produced that signature.  If you change just ONE byte in the entire file, no matter how big the file is, you’d get a DIFFERENT answer to the math function.

This is CRUCIALLY important for things like cryptocurrency wallets for cryptocurrencies like #BitCoin, #Ethereum, #LiteCoin, etc…  Hackers frequently publish TAMPERED versions of wallet software and if you install and run the hacker’s version, they’re going to steal ALL OF YOUR CRYPTO!  This has already happened many times.  Websites are compromised and hacked versions are put on their websites.

This brings up another important concept of signatures vs. the files they’re supposedly coming from:

A published signature is absolutely USELESS if it’s on the SAME website as the download file.  Why?  Because if a hacker compromises the download site, then you can’t trust anything on that site, including the signature.  You’ll find that MOST sites that publish a signature do so on one website, but the downloaded file is hosted on another website.  For BOTH the signature AND the file to be compromised by the same hacker, they’d have to hack BOTH of those websites, which is much more difficult.

How can I validate them?

You’ll need software on your computer that can compute the same types of signatures that the website publishes for their downloaded files.  In short, these are the steps (I’ll go into explicit detail shortly):

  1. Install some signature making and validating software onto your computer (Do this only once).
  2. Make note of the published signature for the file you’re about to download. (Do this for every download that offers it).
  3. Download the file (DO NOT EXECUTE IT!  It’s NOT trusted until you validate the signature!)
  4. Use the signature software to make or verify the signature of the downloaded file.
  5. If the signature checks out, the file is safe.  If it doesn’t, DELETE THE FILE!  DO NOT EXECUTE IT!

Detailed VALIDATION instructions:

Before you get overwhelmed, scroll to the bottom and see that once you’ve done all this once, future validations are really simple…. Just those 4 steps at the bottom.  But for now, you’ll need to go through this more lengthy setup process.

In this tutorial, we’ll be dealing with a downloadable executable file that offers a public PGP signature for you to validate against.  You should know that there are many forms of signatures that an author could choose to publish.  Other than PGP, there are SHA1, SHA256, SHA512, MD5 (which has been broken), and several others.  These are the most popular ones.

We’ll be downloading and validating a popular BitCoin wallet app.  For this type of app, it’s critical to validate the downloaded file against the published signature.

Yes!  This looks very involved, but the good news is that most of these steps are only needed to be done ONCE EVER.  Since this is your first time, there are many steps to get new things installed and set up right.  Subsequent verification will be much simpler and I’ll provide a list of steps to do after you have everything set up.

First, install some PGP key software on your computer.

  1. Install gpg4win from here: https://gpg4win.org/
    1. It will install a few utilities and a GUI app that will hold all of your PGP keys and certificates. (You don’t need to understand what those are at this point).
  2. Skip this step if you already have a public/private PGP key pair.  Create public/private keys for your own e-mail address.  You’ll need this later and it has other benefits such as being able to send and receive encrypted e-mail on any e-mail system.  See: STICK IT TO THE NSA: HOW TO ENCRYPT YOUR WEBMAIL
    1. Open the “File” menu and choose “New Key Pair”.
    2. On the box that opens, choose “Create a personal OpenPGP key pair”.
    3. Enter your name and e-mail address, then click “Advanced Settings…” and on the top 2 drop downs, change it to 4096 bits.  That’ll make your key orders of magnitude stronger.  If you want, feel free to check “Authentication” and “Valid until” and pick a date.  I recommend 1 year into the future.  If you choose a date, your key will not be trusted by anyone after that day.
    4. Click [OK], then [Next], then [Create].
    5. It’ll prompt you for a password.  To use your private key, you’ll need this password, so DO NOT LOSE IT!!!!!  Go ahead and enter it.
    6. After taking a few moments (and it WILL take a few moments), you’ll have a key pair.  If you want others to be able to send you encrypted data, I recommend clicking the button “Upload Public Key To Directory Service…”.  People will be able to look up your public key via your name or e-mail address.  But, it’s not needed for validating signatures, which is the primary purpose of this article.  Now, click [Finish].
    7. You’ll now have a new, certified key in your key ring.  PROTECT YOUR PRIVATE KEY WITH YOUR LIFE!!!!

If you’re interested in more details about what they private/public key pair is that you created, please see.  It’s not necessary to know all of that for this article, but it will clear up some confusion, if you have any.

Now, let’s do an actual Verification!

  1. Go to https://electrum.org/#download and view that page.  (Note, if you have the know-how and the means to download and build from the source code, ALWAYS do that rather than downloading a pre-built executable!)  Notice the signature links next to every download option?  THAT’S what we’re working with in this article.
  2. Click the Windows Installer and download it.  DO NOT RUN IT!  In the folder in which you downloaded the file, you’ll see a file named something like electrum-3.1.0-setup.exe.  As you can see, I’ve downloaded prior versions of the file too.  Notice that some of the files DON’T have “.exe” at the end?  We’ll fix that shortly.
  3. Back on the web page, click the signature next to “Windows Installer”.  You’ll see something that looks like this in your browser:
    1. -----BEGIN PGP SIGNATURE-----
      
      iQIcBAABCgAGBQJanWcrAAoJECvVgkt/lHDm/a8P/iyHkc+2zkaL2JpbhBMEnPE3
      qf21G0xOmkq9x9bfnKhCT1WYbpJrkjbeSCUSlfENbpjpud+ANCDNLA16n4T9eVPL
      0VrrejOTtH37OwJUI35v5asqmT6N4XcuokY+D2f0uSjd4Pnh+SQP9D5NAk0/1DeH
      WgtEfTKYfiPHzl6NJ3XcVjdMNl2H536OwFZx0x4u0nsdFoAvZgHIA/rrSWxMkN+C
      AbMtTd0pGqPYo5gJnHaoYkxbDIvq/CXRgaHFp0arPaKkYSwqkG/Q7KC1z1zbFLcq
      gD2z9tkj3toBzyCUNrmbmmGd491T6XbZujtiFYbjNhyMBjuBBR4V1sae/mzXoFDb
      LW3wwl8OsrnQlFfSN/NbqEFPSUIbFl5rFpK/LgV3YId7kbujXukKxfTHDce2OsjP
      U7a8QrUm7C3MTz4zAlgWWDwN3rioEzlfebe1qCQxI4hAu7vglOE+cW3UKJVh7zyM
      J21KKKzIO1EZz91t8EfHYrJMWL7Yl3/orgDOEjM2t1IAEm5znAzO0uBujBykgLXV
      A0mF3CP1/Vt+Wosc1aRn7+rzMH1nPpOiEoXYDALASc1mXnNA4oS3/vK9BtzJtZJm
      1jG/Zc+ubB7ybUjKP6e9Z0O8eGX2sWdaqPZCXm2ZNpRidPV6S0Y4mVuoPWb1CIg2
      wJlzoxNsCRk4Ox7qOv6e
      =cof+
      -----END PGP SIGNATURE-----
  4. Click anywhere on the text and hit [Ctrl]+[A] to select all of that text, then [Ctrl]+[C] to copy it.  Or you can select all the text with your mouse and copy it.  You’ll be pasting it into a text file shortly.
    1. DO NOT COPY THE PGP SIGNATURE FROM MY ARTICLE TEXT!!!
  5. Open the folder to where you downloaded the Windows Installer file.  It should be named something like electrum-3.1.0-setup.exe.  Obviously, if you’re reading this in the future, there will likely be a newer version.  This is the latest version at the time of this writing.
    1. Right-click on any empty, white space in the folder and choose “New”, then “Text Document”.  A new, empty text file will be created.  Ignore the extra menu items I have.  I’m a developer and have extra features installed that you might not.
  6. Now hit enter to open the empty text file and paste the PGP key into it (from step 3.1 above, you should have the text in your copy buffer (or “clipboard”) still).  Hit [Ctrl]+[V].  This will paste the text you already had copied from 3.1 above into the text file.  Now hit [Ctrl]+[S] to save it.  And finally CLOSE notepad (or whatever text editor you’re using).
  7. Now rename the text file to exactly the same name as the downloaded electrum exe file, but with “.pgp” added to the end of the filename.  In my case, I rename the text file to electrum-3.1.0-setup.exe.pgp
  8. Now, let’s fix that problem where the file types (also called “file extensions”) are hidden.  While looking at the filename that you downloaded in Windows Explorer, open the “View” menu or tab.  On the right hand side (you might have to resize the window to something bigger to see it), open the “Options” drop down and choose “Change folder and search options”.
  9. On the “Folder Options” that opens up, click on the “View” tab and check OFF (or UN-check) the box “Hide extensions for known file types”, then click “OK”.  It should NOT have a check-mark in it.
    1. You’ll see the files changed from this…
    2. to this…  (again, these are MY files, you may have more or fewer and certainly different files in your downloads folder).
      1. It’s VERY important that you see the FULL filenames.  Before this, the electrum-3.1.0-setup.exe.pgp file looked like it it was named electrum-3.1.0-setup.exe and as you can see, there’s actually ANOTHER file that actually has that name.  Why Microsoft hides these by default is beyond me.   All it does is create confusion is severely increases the risk of hackers tricking you into launching a malicious program when you think you’re opening a safe text file or a picture file.
  10. LET’S DO IT! Let’s make an attempt to actually verify the PGP signature of the file.  Spoiler alert:  It won’t work, but that’s OK.  It will walk us through what we need to do.  Right click your newly created and renamed file that you added “.pgp” to the end of the filename on.  In my example, it will be electrum-3.1.0-setup.exe.pgp , and then choose “More GpgEX options”, then “Verify”.
  11. The verification process will complete as verified, but not fully verified…
    1. Here’s what’s going on.  The EXE file DID verify against the PGP signature, but the signature, itself, is not known to be trusted.  At least, your verification software you’re using (called Kleopatra) does not know the signature to be from a trustworthy source.  You’ll have to TELL IT that you trust that author’s key.  Once you do that, Kleopatra will fully verify everything produced from that author, signed with his same keys.  Click the “Search” button.  This will search on several public PGP key stores on the internet for one that contains that PGP key you have from that author.
      1. It SHOULD find a key from ThomasV@gmx.de after a minute or so…
      2. Click his e-mail address and then click the “Import” button.  That will import his public PGP key into your PGP keyring.  This will make it available for future use by you to validate new versions of this app and others from the same author.  You won’t have to go through all of these steps again for future downloads from him.
  12. Now we need to CERTIFY his signature.  This simply means we’re going to tell our local install of Kleopatra that we TRUST the key from ThomasV.  Open your start menu and find Kleopatra and launch it.
    1. It will show you all the public and private PGP keys you have installed.  Here’s what MINE looks like.  Yours may have only the one key from ThomasV and your own key.  (I’ve blurred my personal keys).
  13. Now, we’ll certify ThomasV’s key.  Right click his key (anywhere on the line with his e-mail address in it) and choose “Certify…”
  14. Check ALL the boxes on the “Certify Certificate” dialog box that pops up, then click “Next”.
  15. Now you need to tell it which of YOUR keys you want to certify it with.  It should show you all your keys that you already installed for yourself.  Select the one you wish to use to validate.  It’s not critical which one you choose, but I recommend choosing the latest one of yours that’s not expired and is associated with your most used e-mail address.  And select “Certify only for myself”, then click “Certify”.  (I’ve blurred all my personal signatures).
    1. You’ll see the following once Kleopatra has marked his certificate as validated by your own key.  We do this to make the software validation work.  Most of these steps are a one-time deal.  You will not repeat all of these every time you want to validate a signature on software.
      1. Click [Finish] and you’ll see your list of installed keys and see that his key is now marked as “certified”.  This is good.  This will REDUCE the number of steps to validate software from him in the future.
  16. Now, one more time, let’s right-click the electrum-3.1.0-setup.exe.pgp file you created, choose “More GpgEX options”, then “Verify”.  This time, you’ll get FULL VERIFICATION!

Congratulations!  You’ve now validated that the Electrum BitCoin wallet software is safe, unmodified, and from the original author.  It is safe to install.  Please note, this was NOT an article about installing the Electrum BitCoin software.  It was an example of how to validate software signatures from ANY software you download (as long as the author provides you validation signatures).  We could have used countless other apps to do the same thing.

It’s MUCH easier the second time!

Yes, I know.  That was quite a lot of work to do.  But that’s only because you’re new to this AND you had to install, configure, and create lots of new things.  Now that you’ve done it once, doing it again will be much less effort.

From now on, all you do is the following:

  1. Get the PGP signature of the file you want to download and save it into a text file.
  2. Download the file you want.
  3. Rename your PGP signature file to exactly the same name as the file you download, but with “.pgp” appended to the end of the file name.
  4. Right-click that pgp file, choose “More GpgEX options” -> “Verify”, and it’ll either validate or report that it’s not valid.

That’s it!  And getting newer versions of the app will be the same 4 steps.

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How I Protect Myself Against Ransomware

Ransomware

What is RansomWare?

Ransomware is probably the worst kind of malware you can get infected with.  After it gets into your system, it secretly encrypts all your disk drives in the background.  Once it’s done, it notifies you that all your files are encrypted and locked and demands an exorbitant amount of money to be transferred to the thieves (usually via BitCoin) in order to receive the decryption key and sometimes they take your money and never give you the key.  The longer you wait, the higher the ransom, until after about 3 days, they delete your key and your files are gone forever.

Things that do NOT work:

  • Encrypting your hard drive.  While it’s good practice to encrypt your hard drive, this does absolutely NOTHING to protect against Ransomware.  It may protect you from external people snooping your data, but if ransomware gets installed on your machine, it has access to your drive while it’s unencrypted, and can then encrypt it with its own keys.
  • Backups created using the same PC.  Why would having a backup NOT work against ransomware?  Because again, the ransomware can see and write to your backup drive if it’s accessible from your same PC and it will encrypt that too!

How I’m protecting myself against Ransomware

  • I have 2 drives on my main PC:  A boot drive that contains Windows and the installed applications, and an external, high capacity hard drive where ALL my data goes, INCLUDING my Windows Desktop, and all the special windows folders like desktop, documents, pictures, videos, downloads, etc…
  • My boot drive and my external drive are both encrypted (not really a help against Ransomware… just thought I’d mention that they’re encrypted).
  • I have a second drive of equal capacity as my data drive and it’s hooked up to an older Linux laptop.
  • On host, Windows PC, I created a user account named “Backup” (could be named anything) with read only access to my main data drive on my Windows PC.
  • On Linux, I used Veracrypt to encrypt my backup drive that’s connected to it (doesn’t really help against Ransomware, but again, just thought I’d mention it.)
  • Running a scheduled backup program on the Linux laptop (Lucky-backup… a GUI for rsync), connecting to my Windows PC over the network with the Windows “Backup” user account. It backs up all of my Windows external data drive to the Linux, encrypted backup drive and runs a differential backup every night.
  • Critically, the Windows PC has no direct access to the Linux backup drive.
  • My Linux laptop boots off a Linux flash thumb drive and does NOTHING but backup.

How does this protect me?

By using 2 different PC’s, the chances of BOTH of them being infected with ransomware at the same time is very small. By using 2 different operating systems, the chances of both being infected at the same time is drastically reduced.  While Linux is NOT virus free and is NOT ransomware free, it’s significantly more resilient and will NOT be infected by a Windows ransomware infection.  If, by chance, the Linux machine gets infected with Ransomware, it has only read only access to my data drive on my Windows PC and will not be able to encrypt it.  In either case, I have my full data on the other machine.

What happens if my Windows machine gets Ransomware?

I’ll reformat all of my Windows drives by booting off a clean flash thumb drive that has Windows installation media.  Then I’ll have to manually re-install my software, which will be a pain, but I have access to all of it.  Then I’ll need to restore my data to my data drive from my clean Linux backup.

What happens if my Linux machine gets Ransomware?

I’ll reformat all my Linux drives by booting off a clean flash thumb drive and then re-set up my backup system.  My Windows machine at that time should be clean.

Why doesn’t Encrypting my drives help me?

Encrypting your drives DOES  help protect you against adversaries trying to gain access to your data, but it does NOT help protect you against ransomware, which simply wants to DESTROY your data.  The reason is because ransomware runs after you’ve booted into Windows and Windows has decrypted access to your encrypted drives.  That means the ransomware has access to your encrypted drives too and can simply double-encrypt your data.

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Is BitCoin Legitimate?

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It’s time to correct some misunderstandings about BitCoin.

I was interested in BitCoin and read about it, but one can only learn so much without actual experience, so I dove in and bought some BitCoin, did some mining, gave some BitCoin to my kids, and bought and sold BitCoin over the last year.

What I learned

  1. It’s absolutely, positively not a pyramid scheme. I know pyramid schemes. Pyramid schemes were a friend of mine, and you, BitCoin, are no pyramid scheme.
  2. BitCoin is not centrally located, is user supported, and cannot be shutdown by this or any other government, similar to Tor or bittorrent.
  3. It’s draw is that it is NOT controlled by a central authority like a government or Google.
  4. Everything costs money. Transactions have to be processed and that costs money, but BitCoin transactions are crazy cheap.
  5. 100% of every BitCoin transaction that’s ever taken place has been tracked and is a permanent part of the BitCoin block chain.
  6. Just as cash is not taxed, neither is BitCoin. But BitCoin purchases are no different than cash purchases. They are taxed unless the buyer and the seller agree to not report the transaction. But, the buyer usually has a tax incentive to report the purchase for income tax reasons. Same as cash.
  7. BitCoin is not a tax free paradise.
  8. BitCoin is not an illegal transaction paradise. Cash has no circulation ledger history. BitCoin has a complete and total transaction ledger and history.
  9. Illegal transactions happen in all markets, in all countries, in all currencies, including BitCoin, but only BitCoin has a complete and total history of every single transaction.

Responding to claims that it’s a pyramid scheme, anonymous, you don’t know who promotes it  nor how much BitCoin they have, and that BitCoin has no value, and that only scammers, drug dealers, and hackers use it…

A pyramid scheme works with or without anonymity. As such, anonymity is not a requirement for a pyramid scheme.
A pyramid scheme is when a smaller number of people at the top of the  scheme make money only as larger numbers of newer recruits pay in. Drawing this relationship and hierarchy on paper looks like a triangle, hence the term “pyramid”.  And since the only way people get paid in a pyramid scheme is by larger numbers of recruits, mathematically, that scheme is doomed to failure because after only a couple dozen recruit layers pass, the new numbers needed to keep it going become larger than the human population. That is not BitCoin.

A single BitCoin is an answer to an extremely complicated mathematical formula that takes an ordinary home PC more than a year to compute at full CPU speed. As such, they cannot be counterfeited.

There will only ever be 22 million BitCoins in existence. Their value is on their limited numbers and work involved to be mined.

Promoters of BitCoin are not anonymous. The creator is, but that has no bearing on the existing, known community that supports it. Coinbase, CoinDesk, etc are not anonymous entities.

Everyone that buys BitCoin usually buys it from a known entity, such as the ones I listed above. But what’s cool about BitCoin, is that you CAN buy BitCoin from some anonymous entity SAFELY. That’s the beauty of it. The worldwide BitCoin network validates the BitCoin you’re purchasing is valid, has not been already spent, and that it has successfully been transferred into your wallet. You can safely buy BitCoin in a back alley, with cash, in a foreign land, at night, while naked, if you prefer. 🙂

No one needs to know how much BitCoin the person or entity you’re transacting with has. But, if you want to know, that’s public knowledge too. It’s all in the public, permanent BlockChain. All you need to know is their wallet address. You see 100% of every transaction on that wallet. And to do any transaction, you do need to know that wallet address. So it’s all out in the open.

BitCoin, like fiat currency has no intrinsic value. Both currencies have value in them as their users see fit. Since BitCoin sells for real money by real people in a real society, by definition, society has indeed placed a value on BitCoin. At the moment, that’s $402.38.

Scammers, drug dealers and hackers are and have been using cash too. That has no bearing on the fact that we can and do legitimately use cash, just as we legitimately use BitCoin.

The EU court, just the other day, officially ruled BitCoin as a currency. Big credit cards are getting into it. More and more major retailers are accepting it like Amazon gift cards and http://overstock.com.

What can I buy with BitCoin?

It’s real, has value, is safe, is 100% recorded in the BlockChain.
I hope this has provided you with useful information.

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What is Bitcoin?

Production Of Bitcoins By Mike Caldwell of Casascius

BitCoin, also known as a “Cryptocurrency” is not as complex to understand as one might think.  To understand BitCoin, let’s first review what “real” money is (or what it’s supposed to be):

In the United States, “Real” money is paper and coins, manufactured by the Federal Reserve.  It has no real value on it’s own.  It’s a low cost representation of gold.  At least, that’s what it used to be.  When it’s backed by a real world and limited resources that can’t be duplicated, it can represent real value because the item behind the money (the gold) is rare, limited, and can’t be duplicated.  Instead of exchanging actual gold for goods and services, we exchange the paper and coin representations of that gold.

So, what about BitCoin?

Now, think of this:  You have a set of incredibly complex mathematical formulas that you want to calculate the answers to.  The problem is that it takes a high speed computer days (or more) of crunching numbers 24/7 before it can find an answer to just ONE of those formulas.  That’s what a BitCoin is!  It’s an answer to one of those complex numbers.  You can’t duplicate it.  You can’t fake it.  You have to mine it, just like you have to mine gold.  But instead of picks and axes, you use CPUs.  It’s still a LOT of work to “find” the “nuggets” of answers.  Additionally, there are a limited number of answers… about 21 million.  So, once the last one is mined, that’s it.  No more manufacturing of more BitCoins.

Now, as you know, gold is represented by paper and low cost metal coins.  How is BitCoin represented?  Well, it’s NOT represented with tangible things you can hold in your hand.  It’s just numbers… the numbers that represent the answers to the formulas.  You CAN print them out on paper and store them under  your mattress, if you like, so in a way, you CAN make paper representations of it.  But, you CANNOT counterfeit it.  When you buy something with BitCoin, you don’t just hand someone a printed piece of paper with a bunch of numbers on it.  I mean, you COULD, but that, by itself, won’t fly.  You give them the numbers (either electronically or on paper) and they then run the numbers through one of many transaction processors (actually, I think it goes through many).  The processors are servers run by many people around the world.  They VALIDATE that those numbers are, in fact, an actual BitCoin… an actual answer to one of the 21 million formulas.  Once validated, the person you’re buying form can accept it, then give you the goods or services you’re wanting to buy.

In short:

A BitCoin is a limited and non counterfeit-able asset, just like gold.  But instead of a tangible asset, it’s an answer to a complex math problem.  Your “money” in BitCoin is usually kept in digital form and is validated on each transaction as being real.

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