6 New Bitcoin Educational Resources

By Jon Matonis
Forbes
Monday, May 13, 2013

http://www.forbes.com/sites/jonmatonis/2013/05/13/6-new-bitcoin-educational-resources/

In the fast-moving Bitcoin world, it’s crucial to stay up to date with the latest in educational resources and new media. The last two months have seen an explosion in media attention and a desire for new users to learn as much as possible about the global bitcoin economy. It is within this spirit that I present the latest Bitcoin educational resources to hit the web:

CoinDesk – This London-based resource and news operation aims to be the “Reuters of Bitcoin” according to its founder Shakil Khan. As an angel investor in Spotify and bitcoin startup BitPay, Khan noticed a gap in the news coverage for bitcoin and digital currencies in general when other entrepreneurs constantly questioned him about the bitcoin.

Also just last month, Khan assisted in orchestrating the sale of his mobile news gathering portfolio company, Summly, to Yahoo for approximately $30 million. Now, drawing on the experience of a few editors and freelance writers, CoinDesk largely covers the growing Bitcoin ecosystem for a general, non-technical audience. It still needs an RSS subscriber feed , but it is off to a brilliant start.

The Genesis Block – A welcome addition to the Bitcoin blogosphere, the writing is refreshing and sometimes technical. The Genesis Block claims to be your foundation for all things Bitcoin and they are a news and tutorial site covering mining, trading, economics, and businesses. The authors involved in the project include Phil Archer, Jonathan Stacke and Wayne Parker. Intentional or not, little else is known about the founders however they consistently crank out good content.

Bitcoin Education Project – The full name of this community-built resource is “Bitcoin or How I Learned to Stop Worrying and Love Crypto: The definitive guide to understand what the bitcoin is and why we should care about them.” Started by technology entrepreneur Charles Hoskinson and part of the Udemy network, this online Bitcoin course is one of many educational courses offered by the Udemy marketplace. The free course is organized into several mini-lectures covering Bitcoin basics and extending into specific topics such as wallets, mining, transaction fees, and cold storage. Interesting future content is crowd-funded on the site.

Khan Academy Bitcoin Series – Founded in 2008 by Salman Khan, the non-profit Khan Academy is on a mission to provide a free world-class education for anyone, anywhere. Within the larger Finance and Capital Markets section, and then within the Money, Banking and Central Banks subsection, they currently offer a new 8-part Bitcoin series taught by Zulfikar Ramzan, a world-leading expert in computer security and cryptography. Receiving his Ph.D. in computer science from MIT, Ramzan is currently the Chief Scientist at Sourcefire. Also, the interactive discussion below each lecture is particularly good.

Bitcoin Press Center – Launched by Andreas Antonopoulos as a sensible reaction to the bitter infighting regarding potential press contacts within the community, this resource supports multiple languages and time zones as well as targeted searches of individuals that have expressed a willingness to be available for media interviews. Billing itself as the global media center for Bitcoin and the best way to find a specific Bitcoin expert, the site accepts new nominations for Bitcoin experts with the only criteria being accuracy of their stated credentials and confirmation that they want to be listed.

Let’s Talk Bitcoin – This all-Bitcoin podcast is brand new on the scene and produced by Adam Levine, who has developed a loyal listener following in a short amount of time. Providing current news, topical interviews, and studied analysis, Adam is joined by Let’s Talk Bitcoin co-hosts Stephanie Murphy and Andreas Antonopoulos. The program started with an overly-ambitious daily schedule and is now available on Tuesdays and Thursdays, which hopefully will prevent burnout. Listeners can also send in questions and comments.

Expertly produced and always knowledgeable, this important program is well on its way to becoming the de facto podcast for all things Bitcoin. My only complaint is that the audio hosting has jumped around a lot and it’s not always easy to find the segment that I’m looking for. Despite that, Let’s Talk Bitcoin is required listening and vitamins for your Bitcoin brain.

CardFlight's Tech May Someday Give Lift to New Payment Systems

By Jon Matonis
PaymentsSource
Monday, May 13, 2013

http://www.paymentssource.com/news/cardflights-tech-may-someday-give-lift-to-new-payment-systems-3014106-1.html

Typically, I don't cover or analyze so-called payments innovations that merely embrace and extend the legacy infrastructure, but a new middleware startup, CardFlight, could actually operate as a payments "air traffic controller" because its code sits directly between the consumer and the processor.

CardFlight announced the availability of a private beta last week for the iOS and Android platforms. Its encrypted magnetic-stripe card reader and simple software development tools allow developers to handle swiped card payments within mobile apps without becoming payments experts. It focuses on card-present payments and charges 10 cents per transaction.

As the New York startup's technology makes its way into more mobile applications, the company could also begin to offer non-card payment choices as well, such as the new cryptocurrencies like Bitcoin circulating worldwide now. Just as mobile application developers don't want to worry about compliance with the Payment Card Industry (PCI) data security standard, they don't want to worry about alternate payment models either. A one-stop shop for payments integration can allow developers to support bitcoin processing for a global marketplace.

The existing merchant processor landscape offers either a 100%-card platform or a 100%-bitcoin platform, requiring developers to integrate each separately. Atlanta-based BitPay is the leader in bitcoin merchant processing and they offer exchange rate guarantees as part of their service.

If grabbing market share of placement within mobile applications is the name of the game, the payments functionality is an excellent place to start.

"We aim to be the leading enabler of mobile commerce for vertical industry software developers and our vision is not constrained to Visa, Mastercard, Amex, and Discover," says CardFlight founder and CEO Derek Webster. "As a lynchpin in the payments processing chain, if customers demand bitcoin or Ripple support, we could easily accommodate those processing solutions because CardFlight acts as a switchboard."

At just three months old and with only three employees, CardFlight has the potential to fill a void left by companies such as Apple.

While restricting payment options for digital goods, Apple has traditionally permitted payments for real-world goods to go through a variety of payment channels. However, the Apple App Store still restricts the send and receive functionality for Bitcoin wallet apps on iOS. Conversely, the Google Play store does not place the same restrictions on Android Bitcoin wallet apps.

As a development tool provider with an open platform, CardFlight suggests potential uses for its technology such as apps for event organizers that need to sell tickets at the door, CRM apps to enable field sales and medical-practice management apps to collect a copay while keeping the rest of the details available for insurance billing.

It's interesting that the company has recently partnered with Stripe, which offers similar application development tools for 'card not present' transactions, because together the two companies can present a combined offering that is essentially a customizable version of Square and PayPal. Online and offline, they have you covered.

"We're proud to be working with CardFlight, as they share our developer-friendly approach to payments," Stripe Business Development Manager Cristina Cordova said in a blog post. "CardFlight provides tools to any Stripe user looking to incorporate in-person payments into their mobile apps, while still taking advantage of Stripe's simple pricing and seamless setup."

Sure, Stripe could extend into CardFlight's space at some point or vice versa, but for now the partnership is valuable to both.

Money Laundering Is Financial Thoughtcrime

By Jon Matonis
American Banker
Tuesday, May 7, 2013

http://www.americanbanker.com/bankthink/money-laundering-is-financial-thoughtcrime-1058902-1.html

When people hear the term money laundering today, they envision the most evil of acts, in which gangsters process satchels of cash through a fabricated company to show it as business revenue. Words and semantics are very important in this post-9/11 world, and as far as creating a negative connotation, that parlance has been extremely effective.

At its essence, money laundering is the act of concealing money or assets from the state to prevent its loss through taxation, judgment enforcement, or blatant confiscation. However, as the late J. Orlin Grabbe wrote: "Anyone who has studied the evolution of money-laundering statutes in the U.S. and elsewhere will realize that the 'crime' of money laundering boils down to a single, basic prohibited act: Doing something and not telling the government about it."

Protecting one's wealth is interwoven with the history of trade and banking which has existed since the dawn of commerce. Sterling Seagrave's Lords of the Rim describes how some 2,000 years before Christ, merchants in China would hide their wealth from rulers who would simply take it from them and subsequently banish them. This concealment involved moving the wealth and investing it in remote provinces or outside China.

Part myth, part rumor, the plausible tale of Mafia gangsters running huge amounts of cash from extortion, prostitution, gambling and bootleg liquor through existing Laundromats accounts for the phrase money laundering.

Also during this period, Al Capone was convicted in October 1931 for tax evasion, which is what earned the prosecutor's conviction rather than the predicate crimes that generated his illicit income. Capone's episode inspired Meyer Lansky, the mob's accountant, who structured elaborate international and Swiss financial facilities for safely securing money and vowed never to suffer Capone's fate.

Lansky is credited with designing one of the first real laundering techniques, the use of the "loan-back" concept, which disguised allegedly illegal money within "loans" provided by compliant foreign banks. The money could then be justified as revenue and a tax deduction for interest expense obtained in the process.

Without any method of tracking cash or bank activity, Congress passed the Bank Secrecy Act in 1970, heralding the age of transaction reporting, including the Currency Transaction Report (Form 4789), the Report of International Transportation of Currency or Monetary Instruments (Form 4790), and the Report of Foreign Bank and Financial Accounts (Form TD F 90-22.1). In the United States, the Money Laundering Control Act formally made money laundering a federal crime.

Internationally, the elements of the crime of money laundering are set forth in the United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances and Convention against Transnational Organized Crime. Also, the Financial Action Task Force on Money Laundering, founded in 1989 on the initiative of the Group of Seven industrialized nations, is an intergovernmental organization whose purpose is to develop policies to combat money laundering and terrorism financing.

From President Roosevelt's 1933 seizure of personal gold to the Nazi confiscation of Jewish wealth to the recent deposit theft at Cyprus banks, asset plundering by governments has a long and colorful tradition. Protecting wealth from oppressive regimes continues to this day.

It's highly political and also a matter of perspective whether protection from confiscation is a justifiable activity. Government access to wealth is at the heart of the issue and it matters not if it's hiding money or cleaning money.

Therefore, the artificial crime of "money laundering" had to be invented, mainly because more direct and traditional methods of enforcing certain laws yielded little result. Think of it as driving without a light bulb above the license plate being a felony because thieves might drive away in the night. All must participate in illuminating the way to be tracked. More than anything, this is a clear sign of regulatory desperation.

Money laundering has been called the thoughtcrime of finance. Isn't it really just banking with someone's possibly nefarious intentions attached to the act? It's like buying a drive-thru donut in a stolen vehicle. The theft of the vehicle may have been illegal and immoral but the act of purchasing a donut is not. Money laundering is not pre-crime but post-crime. And, it's difficult to identify the victim, other than the bank shareholders that must expend millions of dollars for the proactive compliance required as the state's deputized enforcers.

Moreover, money laundering is guilt by association. If the monetary flows resulting from associated businesses are deemed illegal, then the banking activity is defined as money laundering. But, in the absence of victimless crime laws against drugs, gambling, and prostitution, the majority of banking labeled as money laundering would simply be banking.

According to the International Money Laundering Information Bureau, "Money Laundering is also the world's third-largest industry by value." Apparently, it happens in every country in the world. Well, breathing by humans also happens in every country in the world. If money laundering is actually the third-largest industry in the world then it's either being calculated wrong or it's too easily defined.

In his Rolling Stone article "Gangster Bankers: Too Big to Jail," Matt Taibbi mocks the anti-money-laundering regime as being hypocritical because large commercial banks like HSBC receive a light slap on the wrist and the blind-eye treatment as smaller fish are routinely scooped up in the net. Taibbi correctly distinguishes between an arrestable class and an unarrestable class. However, he misses the point of the law's arbitrariness in the first place. Thank you for the analysis, Mr. Taibbi, but dispensing enforcement of an immoral law more evenly is not a solution for justice.

Even as the money-laundering laws are said to exist for the fight against terrorism or drugs or gambling, the cashless utopia is simultaneously being thrust upon us as the monetary architecture of the future. Expect ever more increasing thoughtcrime enforcement as the international money flow tightens.

Bitcoin On The PayPal Network

By Jon Matonis
Forbes
Saturday, May 4, 2013

http://www.forbes.com/sites/jonmatonis/2013/05/04/bitcoin-on-the-paypal-network/

PayPal has recently entertained the notion of accepting and clearing the bitcoin unit on its pervasive platform. It’s a bit like the prince joining the revolution. Is this a good thing?

Naturally, some bitcoin businesses will see this as PayPal moving in to usurp bitcoin’s popularity and momentum in the marketplace. But, depending on your outlook, it may not be all negative and it raises the identical issues that a bank would face if embracing bitcoin, especially since PayPal is now viewed as part of the legacy apparatus.

Speaking as if PayPal represented some sort of global payments umbrella, CEO John Donahoe told the Wall Street Journal, “It’s a new disruptive technology, so, yeah, we’re looking at Bitcoin closely. There may be ways to enable it inside PayPal.” I find this statement funny, particularly in light of the fact that WordPress’ reason for accepting bitcoin was that PayPal disabled certain parts of the globe for them.

Let’s examine what it could mean when something like Bitcoin, that is both platform and unit, is absorbed into something like PayPal that is just platform. Phil Archer writing at The Genesis Block categorized the four areas of likely impact — online wallets, escrow services, merchant processing, and exchange services. PayPal account funding alone is not exactly bitcoin sitting on the PayPal payments network, so that use case is not included in the analysis. Archer concludes that PayPal’s immediate advantage would be in the first two areas with eventual game-changing impact probable in the latter two.

While I tend to agree with the category choices, the analysis overlooks what the PayPal-Bitcoin world would not be getting (or, what it would be losing).

Firstly for the consumers, the new PayPal paradigm would look like a Coinbase on steroids with massive connectivity into your bank accounts and even more intrusive data collection. As a fully-regulated money services business (MSB) and licensed money transmitter, PayPal would be the undisputed gorilla in the U.S. marketplace with online wallets and fast exchange services. Of course, escrow services would be welcomed because this model is almost always needed in a free market and banks could look to provide this functionality as well.

However, what would consumers not be getting in this bitcoin nirvana? Not a huge fan of transactional privacy, PayPal would have to link your identity to your account and eliminate the user-defined privacy aspects of bitcoin. This has the effect of reducing bitcoin’s important cash-like qualities. While it may be convenient for exchange services to be an integrated part of your personal online wallet, it is fundamentally unnecessary.

Furthermore, it’s unlikely that PayPal would reach into many new countries that it doesn’t serve today because it would need the banking infrastructure to do so. By the way, that is the same situation for Coinbase too. So consumers would not gain anything in terms of worldwide access. Also, consumers would not get unimpeded access to their funds because it’s doubtful that PayPal will modify any of their current policies on account suspension.

Secondly for the merchants, the new PayPal paradigm would offer merchant processing services similar to BitPay with exchange rate guarantees for conversion into national currencies. As BitPay is more nimble with first-mover advantage and low-cost pricing, they are considered a likely acquisition target. PayPal’s distinct advantage in this area comes from leveraging its installed merchant base, however it is unclear how fee savings with bitcoin could be passed on to merchants due to the potential cannibalization of PayPal’s other revenue streams.

Larger merchants maintaining their balances in bitcoin and managing currency risk internally seems like the most efficient practice, but it’s unlikely that PayPal would offer that option for free. As part of the PayPal network, merchants would not enjoy the attractive bitcoin benefit of “no account freezing,” because without segregated bitcoin balances, a merchant’s overall funds could be ensnared in an account suspension.

Also, when it comes to specific merchant categories being restricted like online casinos or prescription drug sites, a PayPal-Bitcoin world is unlikely to remove the blocks on those merchants. It is a symptom of having one foot in the old banking and credit card world and one foot in the new decentralized and nonpolitical currency world. Perhaps, the PayPal executives view bitcoin as creative destruction but somehow I don’t think so.

My advice to PayPal and other conglomerates “looking into” Bitcoin with a shoehorn approach is to understand how authorization, clearing, and settlement occur nearly simultaneously within the Bitcoin distributed transaction network. Enhancing, rather than diminishing, that feature is the key to success. Bitcoin doesn’t need PayPal to be mobile, but PayPal probably needs Bitcoin to become seamlessly mobile.

About the best that could be said of any potential arrangement between PayPal and bitcoin is that it would bestow public credibility on bitcoin as a “unit of account” or new currency code. However, squeezing only the monetary unit portion into a legacy payments platform inserts an intermediary into a decentralized system and dilutes the value of the whole. Not to mention that Bitcoin will simply outlast PayPal.

The Elephant In The Payments Room

By Jon Matonis
American Banker
Monday, April 29, 2013

http://www.americanbanker.com/bankthink/the-elephant-in-the-payments-room-bitcoin-1058703-1.html

The payments industry has been ripe for disruption for as long as I can remember. Historically conservative and non-experimental, banking and financial services always appear to be the laggard for any new technology. But none of that has stopped recent innovators from pursuing things like Square, Stripe, Dwolla, FaceCash, ZooZ, Affirm, MangoPay, and Balanced. The Internet and mobile payments gold rush is in full swing and venture capitalists are lapping it up.

The amount of money raised by a startup in the space can be staggering too, ranging from $3.4 million to as much as $200 million in the case of Square. But are venture capitalists truly funding disruptive "home runs" if licensed banks and legacy credit card networks are required for their so-called innovations? Also, most would agree that the states' money transmitter licensing infrastructure acts more like a barrier of entry protecting incumbents than providing any protection for consumers.

Doesn't anyone notice the elephant in the room? Growth rates of over 10,000% since inception, measured in transaction volume and amounts. Pervasive international market penetration with full digital and mobile platforms. A passionate and dedicated customer base.

Of course, I'm talking about the distributed payments network and cryptocurrency Bitcoin, which plays a dual role as a transaction confirmation network and independent floating unit of account.

It's easy to understand why certain venture capitalists might be timid about pulling the trigger on a Bitcoin-related investment. Regulatory risk (illustrated by the fallout from Fincen's recent guidelines in the U.S.), on top of typical execution risk demands a greater return from initial investment. While that return may ultimately be there, a skittish board or a wary risk-averse management team might be unable to navigate the onslaught of negative public relations and price volatility.

Any lesser technology with so many forces aligned against it would be unlikely to survive. Bitcoin's persistence demonstrates that we are witnessing something unique in money and payments. For those that do invest and successfully navigate the potential traps, the reward is a first-mover advantage for a new international monetary unit.

Here's the important part. Disruption in the unit of account is the way to disrupt the payments space.

National currency units come with many strings attached and they reek of favoritism and crony capitalism primarily benefiting the well-connected. With a nonpolitical monetary unit, many new possibilities become apparent structurally that would not have been contemplated before, such as: peer-to-peer mobile applications that don't require permission from legacy transaction carriers; global remittances that don't require high-fee currency conversion; merchant categories that are no longer disallowed due to fraud and chargeback risk; and merchant reach into countries that are not even on the map for Visa, MasterCard or PayPal.

It's very telling that, when WordPress announced its plan to begin accepting bitcoin, the blogging platform provider noted, "PayPal alone blocks access from over 60 countries, and many credit card companies have similar restrictions. Some are blocked for political reasons, some because of higher fraud rates, and some for other financial reasons."

Compared to conventional payments startups, the largest private equity raise by a Bitcoin-related company has been Atlanta-based BitPay Inc. which raised $510,000 in January to expand its lead in the bitcoin merchant processing space. Startup CoinLab also raised $500,000 in April 2012 and foreign exchange platform Coinsetter closed a $500,000 investment round this month. Coinbase, a provider of personal wallet storage and merchant processing services, raised $600,000, although almost half of that was through crowdfunding.

Those are just some of the Bitcoin initiatives with external funding. Many Bitcoin-related companies grow organically with a one- or two-person team, because the technology offers the most open platform for payments innovation in the world today.

The powerful Bitcoin open-source development funnel will begin to suck in greater and greater talent driving applications that will have the broadest overall impact in the payments sphere. Creative talent naturally gravitates toward the point where maximum societal impact intersects with maximum reward. This alignment of incentives for early adopters and a global "workforce army" cannot be matched with traditional employee stock option plans. Legacy and closed systems cannot compete.

Just ask Kevin McInturff, who recently left Global Payments – a processor of Visa and MasterCard transactions with thousands of employees – to join BitPay, where he is one of three full-timers. Bitcoin "offers the opportunity to change the way business is done," McInturff told PaymentsSource.

Email wasn't spawned by the post office as a way to drive efficiency for the U.S. Postal Service. File sharing technology didn't come out of a media headquarters' lab to test improvements for distribution. Disruptive innovation simply doesn't work that way.

Disruptive technology disrupts. That is its mission. It annihilates any substandard process or product in its path and it originates outside of the established paradigm. You don't see it coming. I get a chuckle out of all these investors trying desperately to attach themselves to something, anything, in the Internet and mobile payments space.

However, a payments startup that ignores Bitcoin in its strategic plan is like a publisher ignoring the Web in 1999. Certainly, innovators can design routes around Bitcoin and established players can dismiss it as insignificant, but that won't make the elephant go away. The savvy and true disruptors already know this.