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A New Bitcoin Wallet Fulfills an Old Privacy Promise

“From here on out, people can’t say bitcoin is not private anymore.”

That’s how veteran developer Adam Fiscor, now CTO and co-founder of the privacy tech startup Zksnacks, described the importance of the Wasabi Wallet, set to debut on August 1.

This desktop-friendly bitcoin wallet, which can only be used with the anonymizing Tor browser, will be the first (relatively) mainstream light wallet to offer CoinJoin transactions, dispatching lots of transactions at once to obscure their sources.

First proposed by Bitcoin Core legend Gregory Maxwell in 2013, CoinJoin is one of the most prominent attempts to solve one of bitcoin’s greatest challenges: while addresses are pseudonymous, all transactions are publicly recorded on the blockchain, undermining user privacy.

While developers have been experimenting for years with improved anonymity models, Wasabi Wallet will finally make using CoinJoin as easy as flipping a switch.

Because these privacy tech projects generally avoid collecting data about their users for obvious reasons, it’s hard to determine how many people use privacy-oriented wallets. However, Samourai Wallet’s Android app, arguably the bitcoin industry’s leading privacy wallet since the project was founded in 2015, has garnered at least 27,000 downloads.

The team behind Samourai also plans to implement a type of CoinJoin feature by the end of the year, called a Whirlpool cycle. So Fiscor added another unique feature to further distinguish Wasabi Wallet.

Most bitcoin wallets actually have thousands of addresses inside, he said. But blockchain explorers like Blockchain.info can often detect that those unique addresses share a common source since the same wallet will send an explorer balance queries on all its addresses simultaneously, tipping the user’s hand that they belong to the same person.

“That’s what we want to avoid,” Fiscor said. To do so, he applied a so-called filtering solution first proposed by the bitcoin developer known as Roasbeef, which Fiscor said enables the wallet “to query how much money is in your wallet in a way that you don’t connect your addresses together.”

With the filter, instead of pinging an explorer, “you can figure out which blocks in the blockchain you are interested in and you connect to a lot of bitcoin nodes and get one block from one node,” Fiscor said. “So basically they cannot figure out which transaction you are interested in and they cannot make statistical guesses what this random guy who asks for a block from me wants to do with that block.”

Although funds are otherwise viewable on the blockchain itself, Wasabi will be the only wallet that obscures from nodes how much bitcoin the total wallet holds. “No [other] light wallet queries the balance in a private way,” he said.

Shared values

Beyond the Japanese motifs, the Samourai and Wasabi projects have a lot in common, both in terms of values and business models.

The most obvious commonality is the privacy focus. Speaking to why he’s so passionate about privacy, Fiscor said it’s critical to the success of a currency that any individual unit is as valuable any other, no matter where it’s been, telling CoinDesk:

Fungibility is very closely related to privacy and anonymity. And we know this is a property of money, that this is a feature it needs.”

Likewise, the pseudonymous co-founder of Samourai Wallet, who goes by the initials SW, told CoinDesk his team views know-your-customer identity checks that connect bitcoin wallets to users’ government-issued IDs or bank accounts, such as those implemented by platforms like Coinbase, as a “fundamental attack on bitcoin and its users.”

These ideals have in turn shaped the two teams’ business models. They’ve both eschewed taking venture capital or raising money through an initial coin offering (ICO), two of the most popular fundraising methods for blockchain projects.

“My co-founder and I come from very well-funded, by VCs, companies in the crypto space. And that’s not something we wanted to replicate,” SW said, adding that ICOs are “a good way to distract yourself from building a good product.”

Rather, both Fiscor’s recently founded Zksnacks startup, incorporated in Gibraltar, and the un-incorporated Samourai Wallet project were self-funded until launch then accepted bitcoin donations to expand the team to roughly five people each.

SW pays contractors only in bitcoin, while Fiscor utilized two donated bitcoin to compensate independent developers.

Fiscor said self-funding allowed him to stay independent. In fact, Fiscor is so confident users want Wasabi’s CoinJoin feature that charging 0.3 percent per mixer transaction is the startup’s sole source of revenue. He told CoinDesk:

“We’re actually expecting to have a lot of income, so we’re not selling out.”

Meanwhile, economist Bálint Harmat, co-CEO of Zksnarks, agreed with SW about prioritizing the product instead of trying to make a quick profit or generate buzz.

“At first we want to make sure that the wallet is rock-solid,” Harmat told CoinDesk. “We are planning to release the 1.0 version on October 31, without outside investors. We are only going to accept investors’ money for further development of Wasabi if it is stable and we enjoy the acknowledgment of the bitcoin community.”

Co-opetition

Given the similarities between Wasabi and Samourai, it’s not surprising that the two have collaborated.

Both privacy wallets will implement ZeroLink, an open source tool Fiscor made to help developers find a wallet’s security vulnerabilities. By working with the Samourai Wallet team on such tools, Fiscor prioritized the open source ethos over any rivalries with a formidable competitor. Taking the idea even further, both teams plan to make almost all of their software open source.

Nevertheless, they are still competitors. Evincing the rivalry, SW critiqued Wasabi’s CoinJoin feature for requiring users to wait until 100 users pooled their bitcoin together to send out at once.

“How long is that going to take?” SW asked.

These privacy wallets share at least one more thing in common: they are out of step with the trend among VC-funded blockchain startups to become more like regulated financial institutions.

Aside from recently seeking broker-dealer or even banking licenses, the industry’s unicorns are known for tracking their users’ transactions on the blockchain in order to comply with anti-money-laundering (AML) laws and international sanctions. Indeed, platforms like Coinbase often freeze accounts that accept cryptocurrency previously used on a gambling site or dark market.

That’s why around 15 percent of Samourai users utilize the Ricochet option, which adds five additional hops to a transaction until it lands at the intended destination. Wasabi’s CoinJoin feature will offer similar, although not identical, obfuscation.

On the other hand, Samourai already has many other unique privacy features, including a stealth mode that hides the application so that anyone stealing the phone won’t know it holds a bitcoin wallet. Plus, Samourai Wallet offers remote commands to wipe a stolen phone clean and transfer the wallet to another device.

Such privacy features have proven especially useful for bitcoin users in Venezuela, where corrupt officials are known to confiscate crypto-related devices.

Venezuelan Samourai Wallet user Eduardo Gomez, head of support at the crypto startup Purse who earns his salary in bitcoin, told CoinDesk he uses features like Ricochet and CoinJoin because he fears platforms like Coinbase could freeze his account if he receives a bitcoin with a questionable transaction history.

“I have no control over which bitcoin my employers send me,” he told CoinDesk, concluding:

“I really want to emphasize how important fungibility is for bitcoin. The community needs to solve that problem ASAP.”

Wasabi Wallet co-founders Lucas Ontivero (L), Balint Harmat, Gergely Hajdu, and Adam Ficsor (R) image via Zksnacks

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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GoTenna Launches a Bitcoin Wallet That Works Without the Internet

If James Bond needed to use bitcoin on a secret mission in the jungle, he probably couldn’t drop by a Starbucks to use the wifi.

Since internet connections aren’t always available, reliable or private, cryptocurrency users need alternative ways to connect to the network. So the New York-based startup goTenna, founded in 2012 by Brazilian siblings Daniela and Jorge Perdomo, is partnering with Samourai Wallet to launch an Android app this summer that allows users to send bitcoin payments without an internet connection.

Announced Monday, the txTenna app will enable users to sync up their mobile with a goTenna device, which costs $179 per pair, then toggle the wallet app’s settings to transact offline and send the bitcoin.

“You need to be able to spend your bitcoin even in disaster areas,” goTenna engineer Richard Meyers told CoinDesk, citing the Perdomo siblings’ recent work in Puerto Rico, where goTenna devices helped people reconnect after Hurricane Maria. “As long as you have a way to charge your phone, you can be up and meshed and communicating.”

The signal needs to be within roughly a mile of another goTenna device to relay the message across the mesh network, a decades-old system for using the internet without wifi or a landline. So far, goTenna has sold more than 100,000 devices that let users tap into the mesh network.

If the offline bitcoin user is within a mile of another active device, the transaction could bounce across the mesh until it reaches a user with an internet connection.

“It offers an alternative that is more censorship-resistant,” Meyers said, adding:

“It’s going to obscure who you are and where you’re at when making these transactions. So that’s a big privacy advantage there.”

This system uses a free, unlicensed radio frequency, and it isn’t the first partnership to explore such potential for cryptocurrency networks.

It takes a village

Stepping back, a variety of projects since the Cold War have used relatively cheap and mobile radio setups to broadcast across firewalls and oceans.

Last year, renowned cryptographer Nick Szabo and blockchain engineer Elaine Ou published a proposal detailing how weak-signal radio transmissions could help boost security and the diversity of connections across the bitcoin network.

Then, in December, after the U.S. Federal Communications Commission repealed “net neutrality,” fans of ethereum, the world’s second most popular blockchain network, started flocking to mesh network technology meetups.

When net neutrality rules expire next month, internet service providers will no longer be barred from favoring or blocking specific websites and communities. It’s an opportune moment for censorship-resistant tools for bitcoin transactions.

Perhaps the most important aspect of txTenna is that the cryptocurrency wallet will be an open source project.

Indeed, it was Samourai Wallet’s open source communication tools on Github that first inspired goTenna’s team to reach out to the bitcoin startup. The same txTenna code could theoretically be applied to iOS wallet applications as well.

As Meyers explained:

“It absolutely could work with any software wallet and they [Samourai Wallet developers] are not writing it specifically for the Samourai wallet anyway. It will be something any wallet provider could send transactions through.”

Image of Daniela and Jorge Perdomo with goTenna devices via goTenna

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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How To Save on Bitcoin's Soaring Fees

Rising fees seem to be the only thing people talk about in the bitcoin world these days.

The crypto space is full of frustration and vitriol on the topic, as the average transaction fee has soared to $19, turning bitcoin’s old claim to fame as a cheaper online payment method into a laughable assertion.

But despite these increasing costs, and the long-running debate they’ve caused, developers and users argue there are simple ways to decrease fees that aren’t being fully taken advantage of.

This point was raised recently when new data came to light suggesting that one bitcoin startup, Coinbase, singlehandedly facilitates as many as half of all bitcoin transactions, based on the drop in overall network volume when the U.S.-based exchange went offline for a couple hours on Jan. 11.

The problem with that situation, according to critics, is the company could singlehandedly save users (not only its own but other companies’ customers as well) a bundle on their transactions by implementing a couple technical features, namely Segregated Witness (SegWit).

And since the code change for SegWit was activated on bitcoin nearly six months ago, many are upset Coinbase hasn’t yet implemented it.

Sergej Kotliar, the CEO of payment provider Bitrefillcalled the new data a “smoking gun” in that it shows how much of bitcoin’s limited transaction space Coinbase is using up. The pseudonymous blogger WhalePanda went so far as to blame bitcoin’s transaction backlogs and high fees on the Silicon Valley startup’s “incompetence.”

Patience is running especially thin as it relates to Coinbase, since the startup was one of the more vocal during bitcoin’s block size debate, complaining about high fees and arguing that an increase in the block size parameter would help alleviate those expenses.

Yet, critics argue, the company really shouldn’t be complaining since it’s not doing everything it can to push fees lower.

In response, Coinbase co-founder and CEO Brian Armstrong took to Twitter to stress that the company is working on rolling out technical features to reduce fees, but hinted that it’s not easy. “Thanks for bearing with us!” he said. (Coinbase declined to comment for this story).

But should users not be interested in enduring the fees for transacting, there are several possible ways to reduce them today.

The fee halver

SegWit was lauded as the optimization that would help bitcoin scale without upping the block size during last year’s scaling debates – yet only 12% of bitcoin transactions take advantage of the technology, even though SegWit transactions cost half as much as normal transactions.

Not all wallets currently have SegWit capability, but hardware wallets Trezor and Ledger support it and mobile wallets such as Edge (formerly Airbitz) and privacy-minded Samourai Wallet do as well.

But for users who don’t want to go through the trouble of switching providers, SegWit capability is on its way at other companies too.

Coinbase and Blockchain.info are working on implementations, for example, but both have emphasized that SegWit is a new and complex change that they need to take their time with – they could lose user funds if a big enough mistake occurred.

Overall though, as the number of companies supporting the new feature grows, bitcoin fees will decrease – some even argue that transaction fees would disappear altogether if SegWit transactions replaced normal transactions.

But if fees aren’t eliminated altogether, a more specific type of SegWit address is in the works, which could potentially save users more in the future.

Estimation game

But while users wait for mass SegWit adoption, they can reduce fees individually using fee estimators.

Although early bitcoin wallets didn’t let users choose fees, this has changed, with many bitcoin wallets providing fee estimator tools to help users decide how much of a fee they should attach to their transaction to get it through the network in a timely manner.

In short, the higher the fee, the quicker the transaction will get added to a block, but on the other hand, users don’t want to overpay. New fee estimator tools try to help users strike the right balance.

That said, some estimators are better than others.

Some users check with standalone tools that consider different factors, such as the estimator from University of Freiburg computer science researcher Jochen Hoenicke, which gives a good idea of what fee is required to get your transaction into the next block.

Another from Coinb.in considers transaction complexity – such as how much data is sent with the transaction. Fees also take this into account, meaning that even a transaction equal to $1 could have large fees based on a large amount of data attached to the transaction, whereas a transaction equal to $1,000 could have a smaller fee if the amount of data attached to it is limited.

Users have criticized some estimators as telling them to pay higher fees than necessary, but that’s partly because fees are so difficult to predict. Fees can fluctuate for all sorts of reasons. The day of the week, for instance, can be a factor since people generally make fewer transactions on the weekend, meaning transaction backlogs would ease and fees wouldn’t need to be so high during that time.

In this way, users who don’t need to send money right away always have the option to wait for transaction backlogs to die down.

Beyond that, there are more roundabout ways to eliminate transaction fees completely, but these are highly dependent on what wallet or exchange provider is used.

For instance, it’s possible to transfer bitcoin on Coinbase for free, using its off-chain way of transacting or by moving funds to the startup’s cryptocurrency exchange, GDAX.

Longer-term tools

While the idea of batching a bunch of smaller transactions into one big transaction has been used in the traditional payments space for some time, it’s becoming more popular for bitcoin businesses that facilitate payments.

If more companies use this feature effectively, bitcoin transaction fees could be reduced by as much as 80 percent, according to one estimate. However, it’s worth mentioning that batching can erode privacy and is potentially slower, depending on how the company or user implements it.

Despite these tradeoffs, though, several companies, including Coinbase, have announced they intend to implement batching to tame fees.

In an effort to keep up with all the industry’s progress on decreasing fees, Bitrefill’s Kotliar launched a tool that allows users to see how optimized their bitcoin transactions are, displaying whether the transaction used batches, SegWit or a handful of other mechanisms shown to increase or decrease fees.

“Just paste a transaction ID and see if you’re overpaying for your bitcoin transactions and withdrawals,” Kotliar tweeted.

Plus, looking even further into the future, bitcoin developers are working on a handful of projects, such as the Lightning Network, that would be instrumental in reducing transaction fees, even as the number of people using the network continues to grow.

Summing up the work in the industry to reduce transaction fees in the short term, BitGo engineer Mark Erhardt tweeted:

“There is a lot of throughput to be gained by making better use of the available capacity.”

Disclosure: CoinDesk is a subsidiary of Digital Currency Group, which has an ownership stake in BitGo, Blockchain, Coinbase and Ledger. 

Fee charge statement image via Shutterstock

The leader in blockchain news, CoinDesk is an independent media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. Interested in offering your expertise or insights to our reporting? Contact us at news@coindesk.com.

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No, You Don't Have to Buy a Whole Bitcoin

“How much is bitcoin?”

“Around $14,000.”

“Well, that’s too expensive. I can’t afford that.”

It’s a conversation that has surely happened thousands of times over the past several months as a new swarm of people find themselves enchanted by the cryptocurrency space and its tremendous gains.

And it reveals not only a misunderstanding, but also a psychological barrier that many face stepping into the scene for their first time.

Since so much emphasis is placed on how much “one” bitcoin is worth across the industry, new users often come in thinking that if they want to participate, they’ll have to fork over tens of thousands of dollars to buy a whole bitcoin.

But actually, that isn’t the case – it’s possible to buy a half of a bitcoin, a quarter of a bitcoin or even a fraction of a percent of a bitcoin.

Yet, that’s not always clear to new people entering the market, and many believe that’s why a handful of altcoins – including dogecoin and dentacoin, both of which recently reached market caps of more than $1 billion – are seeing a pump in their price, as they offer an affordable way to get into the cryptocurrency markets in whole units.

And this confusion is (partly) why developer Jimmy Song argues some standardization should occur in what the industry calls smaller units of bitcoin.

Toward this goal, Song released a standards proposal that seeks to express one one-millionth of a bitcoin (about one cent at today’s prices) as a “bit.” And he’s nudging wallet providers, exchanges and other bitcoin businesses to support the proposal.

If widely adopted, he hopes it will put an end to this confusion, and make new crypto users more apt to purchase bitcoin, if even in tiny amounts, instead of cryptocurrencies that he thinks might come back to bite them, since many of the cheap altcoins don’t have much technical merit to back them up.

Rise of the ‘bits’

The problem now is that more traditional dollar units, such as $5, when converted to bitcoin look daunting and messy – at 0.000345 bitcoin.

But with Song’s proposal – which he’s released in the form of a bitcoin improvement proposal, or BIP – that dollar value would instead be 345 bits, still a mental juggle, but arguably less confusing, since it’s in whole numbers and not decimals.

“For whatever psychological reason, normal people have trouble understanding decimals and fractions. $0.002 is weirder than $200.00,” said Erik Voorhees, co-founder and CEO of ShapeShift, which supports Song’s proposal, adding:

“For bitcoin to be a global, commonly used currency, it would certainly be helpful to have a denomination that allows people to express prices in integers (2,000 bits for a coffee) rather than a decimal.”

Adding to the mental benefits, Song also said the standardizing “bit” would remove what he calls “unit bias.”

According to Song, people don’t like having what looks like such a small amount of bitcoin, or money in general for that matter. Bitcoin’s price rise at the end of 2017, only exacerbated that problem, adding even more zeros in between the positive numbers and the decimal.

Poking fun at all the recent bitcoin forks, Song said, a group of people could have success enticing a new wave of crypto buyers by splitting off bitcoin with the goal of moving bitcoin’s decimal system six positions.

While others have proposed similar unit changes in the past, Song’s proposal seems to be gaining transaction with exchanges and other companies, which is all the proposal needs to succeed – getting businesses to use the unit to display not only how much bitcoin is in an individual’s wallet but also, within merchants stores, how much things cost.

And even though, Song’s proposal is targeted at bitcoin, it could serve as an outline for how other cryptocurrencies, such as ethereum, could update their units to be more user-friendly.

Still confused?

Although the idea of the proposal is to limit confusion, it’s garnered its fair share of criticism, with those against claiming it could add to the confusion instead.

The critics say, for instance, that if not all companies roll out the standard at the same time – and ShapeShift uses “bits,” while Coinbase sticks with “bitcoin” – when sending bitcoin from one wallet to another, they could either think they somehow earned money or lost money.

Voorhees, for one, even agreed this was a concern, but argued that it shouldn’t stop bitcoin companies from eventually adopting the standard.

“There will undoubtedly be some mistakes and friction as the new term gains usage, but for the purpose of language and mathematical simplification, the net result should be beneficial to bitcoin’s adoption,” he said.

Meanwhile, Song stressed that even though he thinks it would be a move in the right direction, like most things in the cryptocurrency world, it’s up to the community to decide if they want to adopt the system or not.

Still, many more exchanges and businesses would need to adopt the change to get the ball rolling. Song has been tweeting at various exchanges and companies – including CoinMarketCap, one of the most popular sites for checking cryptocurrency prices – suggesting they move to “bits.”

Song concluded:

“This is meant to be a community-driven initiative and the benefits will hopefully be obvious to businesses.”

Disclosure: CoinDesk is a subsidiary of Digital Currency Group, which has an ownership stake in Coinbase and Shapeshift. 

Broken bitcoin image via Shutterstock

The leader in blockchain news, CoinDesk is an independent media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. Interested in offering your expertise or insights to our reporting? Contact us at news@coindesk.com.

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Jonas Schnelli Wants You to Run a Bitcoin Full Node

200 gigabytes.

That’s the maximum load some personal laptops will store. It’s also roughly the amount of space the bitcoin blockchain currently requires.

These bloating storage requirements are a longstanding problem for the community’s efforts to keep bitcoin decentralized. But Bitcoin Core contributor and maintainer Jonas Schnelli has spent the past few years trying to make full nodes easier to run for a wider audience despite this huge data cost – and in turn, make bitcoin more resistant to centralization.

With so much information to download, setting up a bitcoin full node currently takes days or even weeks. This issue was at the heart of bitcoin’s years-long scaling debate. While increasing transaction capacity by raising the block size limit might have eased the network’s steadily rising transaction fees, it also would have disqualified more users from running bitcoin’s core infrastructure.

And even though the block size held steady, the pressures favoring centralization remain, because of the storage space and time it takes to set up a full node.

Yet, developers argue that running a full node is the best way to use bitcoin (some even going as far as to claim that without a full node to validate bitcoin transactions themselves, users are just wasting their time on cryptocurrency). In this way, users take full advantage of all bitcoin’s benefits, including censorship-resistance and the minimization of trust in third parties.

“It’s very important to run bitcoin full nodes. It’s the main or at least a significant reason to use bitcoin,” Schnelli told CoinDesk. “If we throw that away we lose one of the more interesting parts of bitcoin.”

Schnelli’s particular focus is on making Bitcoin Core, the most popular bitcoin software implementation, more user-friendly, for people he calls “non-geeks.”

And he feels, perhaps, a stronger commitment than most to this cause, saying:

“I think it’s our duty as developers to make it possible to run full nodes.”

To be sure, you could argue that most of the 15,000 updates to the codebase implemented over the years are geared toward the same goal, making bitcoin more efficient and faster to download.

Yet, Schnelli is specifically focused on the software’s user experience, coming up with creative ways to make it easier for people to run these full nodes.

Bitcoin on the go

And Schnelli doesn’t want those full nodes leashed to the places they were set up, such as a user’s desktop computer at home or the office, where it can only verify transactions from one location.

Instead, Schnelli wants bitcoin full nodes to be mobile.

“We’ve almost reached that goal,” he said, adding that other developers have been helping him bring recent additions to Bitcoin Core – such the ability to load multiple separate wallets when starting the software – that would help bring full node mobility to fruition.

Once all the pieces are in place, users will be able to securely connect smartphone wallets to their full nodes running from home.

Further, Schnelli is developing a hybrid Simplified Payment Verification (SPV) mode, which allows users waiting for their full node to download to still use Bitcoin Core to validate and make transactions in the meantime.

With an SPV wallet, the user has some information about the bitcoin transaction history, but must rely on trusting other full nodes to ultimately verify transactions.

This scenario is one many bitcoin developers would like to avoid, but it would only be used for the time it takes to download the full node.

Depending on the hardware and internet speeds being used to download a full node, the process can take days, and sometimes, weeks – which is an “unacceptable user experience,” Schnelli said. Hence the need for some kind of connection in the interim.

And once the full node download is complete, the software switches back to the more secure full node.

Like Apple TV?

Another project Schnelli is getting started on, in an effort to cut down the time it takes to set up a full node, is building devices that already have a bitcoin full node downloaded and set up on them.

This comes from the knowledge that users generally need to buy “dedicated hardware,” which can cost a few hundred dollars, to run bitcoin full nodes.

Also the co-founder of hardware wallet Digital Bitbox, Schnelli is calling the project a “full node in a box.” He hopes to sell those devices in the future. While unsure how much they would cost, he said they would save a lot of time.

“You could have a black box similar to an Apple TV or router that you just plug in and it works,” he said.

There are similar full node-only devices on the market, “but not in a way that I think is useful,” Schnelli said. “It’s hard to get affordable hardware that syncs pretty fast,” and building a “good” full node device requires knowing the ins and outs of the Bitcoin Core code.

BitSeed devices, for example, cost between $200 and $350. Schnelli said he thinks he can ship a product that slashes this cost, partly by doing the marketing required to attract a few hundred or thousand buyers.

Schnelli envisions the “full-node-in-a-box” device as a computerized auditor someone would run in their home to ensure their bitcoin finances are in check. Less entertaining than streaming television shows on an Apple TV, but perhaps producing greater satisfaction in the long run.

Jonas Schnelli image via San Francisco bitcoin developers video

The leader in blockchain news, CoinDesk is an independent media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. Interested in offering your expertise or insights to our reporting? Contact us at news@coindesk.com.

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Money at Risk? Mobile Wallets Become New Battleground in Bitcoin Fork Debate

Mobile bitcoin wallets users might not realize it, but their money might be at a heightened risk this November.

While advertised as a tool bitcoin users can tap to achieve an experience more akin to a conventional financial product, mobile bitcoin wallets today send transactions to the bitcoin blockchain, though in a way that differs from the default wallet options. But come November this construction could cause turbulence, because that’s when the bitcoin protocol is aiming to undergo yet another major change to its software.

Following this summer’s activation of the code upgrade SegWit, a group of businesses are now seeking to trigger a hard fork to increase bitcoin’s block size and further expand its transaction capacity. The code, part of a larger upgrade called Segwit2x, could lead bitcoin to split into two (again), that is, if not everyone decides to support the upgrade.

Still, the difference is that, unlike bitcoin cash, Segwit2x’s developers are doing everything they can to keep all bitcoin users on the same blockchain.

Segwit2x lead developer Jeff Garzik told CoinDesk:

“The design goal of Segwit2x – just like [the latest] ethereum fork – is to upgrade bitcoin, not create a new currency.”

To do so, developers backing the project also have made a couple of key (if controversial) design decisions that have to do with maintaining compatibility with “simplified payment verification” wallets, the technical term for smartphone-based bitcoin wallet applications.

But developers argue that there are pros and cons of how they are trying to accomplish this.

For one, it might not exactly be safe for mobile wallet users to make transactions immediately after the hard fork is enacted.

Attack resistance or convenience?

The first design decision is omitting so-called “replay protection.”

A bit of a political term, it’s meant to describe what happens when a blockchain splits in two, as users suddenly have equal value on both blockchains. This means that when users move tokens on one blockchain, the tokens also move (or “replay”) on the other.

But this isn’t visible to people who might not know that they have money on two networks during a network split. Worse case: users might lose some of their money and not even notice.

“It becomes unpredictable what money you’re moving and when,” Bread Wallet CMO Aaron Lasher explained in conversation with CoinDesk.

Since not everyone agrees with the Segwit2x hard fork – some are even going as far as to write up manifestos in opposition – it’s likely to split into two competing networks, and this could be confusing for general users.

However, Segwit2x developers have a reason for leaving replay protection out: to keep Segwit2x compatible with SPV mobile wallets.

“‘Replay protection’, as you call it, splits the chain. It simply doesn’t make sense. You’d suddenly be breaking [more than 10 million] SPV clients that otherwise work just fine. It is a goal of Segwit2x to help avoid this,” BitGo CEO Mike Belshe wrote in an email debate between developers of the project.

In other words, replay protection would cause inconvenience for mobile wallet users who want to shift over to the Segwit2x blockchain, so Segwit2x developers don’t plan on adding it.

Hard fork decisions

Mobile wallets are the subject of debate in another area as well.

Many providers of this wallet option, such as Electrum and Bread Wallet, rely on SPV. This does away with need to hold a full copy of the blockchain, making the data far easier to store on storage-strapped cellphones.

But, they have some drawbacks. (Coinkite co-founder CEO Rodolfo Novak went as far as to quip that “the ‘V’ in SPV stands for Victim.”)

As implemented today, SPV wallets will automatically follow whatever version of bitcoin has the most miners backing it. So, if bitcoin splits into two, and Segwit2x attracts more computing power than the legacy bitcoin chain, then all of the SPV wallets will follow along. That’s by design.

But some mobile wallet providers aren’t so happy about this, as it’s hard to explain to users what’s happening.

“It’s really tough for us because we are so direly affected,” said Lasher.

This also has the potential to lead to some technical problems. If there are two bitcoins, mobile wallet software might get confused about which chain to follow, especially if miners switch between blockchains over time (as happened in the aftermath of the bitcoin cash fork).

“It could confuse SPV clients and result in clients switching back and forth between chains, making them lose money depending on which chain has more work at what point,” Chaincode engineer Matt Corallo said.

Novak painted another scenario.

“With SVP you don’t know if the node you are connected to is lying to you. For example, a Segwit2x node can spoof as a [bitcoin] node [on the other chain], this means that without replay protection your wallet may spend the funds in the wrong chain and lose them on the correct chain,” Novak told CoinDesk.

Overall, developers paint an assortment of “if-then” scenarios. Lasher admitted as much, noting that it’s unclear which ones will actually play out.

“It’s really this decision tree of many, many things that can happen. And all of them are on the scale of somewhat annoying to downright dangerous,” he said, adding that Bread Wallet plans to encourage users to stop making transactions during the hard fork, “if they can manage.”

A solution?

But with disarray at the application layer, protocol developers have been arguing about how best to handle what might come.

Bitcoin contributor James Hilliard, well-known for helping to prevent a bitcoin split earlier this year, suggested a change to the Segwit2x codebase that he argues would give mobile wallets more control over the which bitcoin they ultimately land on.

Again, though, Segwit2x developers argue that this change would make it more difficult for users to transition to a blockchain with a block size increase – something they believe many users want to do, so that they can make cheaper transactions. (Garzik argued that is the most “neutral” metric for determining which chain SPV wallets should follow.)

But, again, others believe that this will confuse users and perhaps even lead those that are unaware of the situation to lose money.

Some developers even agree that there needs to be a block-size parameter increase, but simply disagree with some of Segwit2x’s design decisions.

As such, the statements highlight that, while often portrayed as black and white, the scaling argument still has its shades of gray.

Lasher concluded:

“There might be some merits to a block-size increase. But we don’t agree with the current way it’s being pushed through.”

Disclosure: CoinDesk is a subsidiary of Digital Currency Group, which helped organize the Segwit2x proposal and has an ownership stake in BitGo.

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$9 Million: Bitcoin Startup Luno Completes Series B Funding

Bitcoin wallet startup Luno has raised $9 million in new funding as part of a Series B round.

Announced today, the round was led by Balderton Capital, a London-based VC firm that has invested in startups like Revolut, which launched cryptocurrency services earlier this year. As part of the deal, Balderton partner Tim Bunting will join Luno’s board. Other contributors to the round include AlphaCode and Digital Currency Group.

Luno was originally founded in 2013 as BitX, but rebranded in January. At the same time, the startup also announced that it had joined the regulatory sandbox supervised by the Financial Conduct Authority, one of the U.K.’s financial markets regulators.

In statements, the startup said that it would use the funds to continue developing its mobile app and services, as well as expanding to new markets.

“Enabling more people in Europe to have access to these products and services is a critical part of our mission to bring digital currencies to everyone, everywhere – and in a way that makes everyone’s journey into the world of digital currency safe, super easy, and highly enjoyable,” said Marcus Swanepoel, Luno’s co-founder and CEO.

Luno currently serves customers in Indonesia, Malaysia, Nigeria, South Africa and the U.K.

Disclosure: CoinDesk is a subsidiary of Digital Currency Group, which has an ownership stake in Luno. 

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The leader in blockchain news, CoinDesk is an independent media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. Have breaking news or a story tip to send to our journalists? Contact us at [email protected].

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Wallet Provider Blockchain Partners With Indian Bitcoin Exchange

Blockchain, the provider of the world’s most popular bitcoin wallet, has entered a strategic partnership with Indian cryptocurrency exchange Unocoin.

The news means that Unocoin’s exchange services are now directly available within the Blockchain wallet, allowing users to more easily buy and sell bitcoin.

Citing the recent growth of digital assets in the Asian country, Blockchain indicated in a blog post that the move was part of a commitment to making digital currency “simple and more accessible throughout India.”

According the Indian Economic Times, Blockchain co-founder Nicolas Cary said that 2,500 Indians are investing in bitcoins daily, figures that his firm’s partnership with Unocoin could help support.

Cary stated:

“India is our 35th market and after demonetisation, there has been an unprecedented surge in people using bitcoins and other cryptocurrencies.”

Notably, India has not seen an easy regulatory path in recent years, with raids by authorities on exchanges and warnings from the country’s central bank that caused some services to cease operating for a time.

Cary told the news source: “I hope that legal hassles related to bitcoins would soon be solved in India and it will become a legal tender.

Disclosure: CoinDesk is a subsidiary of Digital Currency Group, which has an ownership stake in Blockchain and Unocoin. 

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The leader in blockchain news, CoinDesk is an independent media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. Have breaking news or a story tip to send to our journalists? Contact us at [email protected].