Original author: Tanaya Macheel
Coin News
But for now, a dive in price could impact the future of a company that wants to transact in it, making vending in bitcoin a prohibitively risky move.What are derivatives?That is where derivatives come in. The contractual tool “derives” its value from an underlying asset—in this case bitcoin. The value of the underlying asset can fluctuate, but the contract locks it in at an agreed-upon price for a period of time.There is a lot of uncertainty. It is beneficial for merchants to lock in a long term price, so that they can still operate and plan in the face of possible fluctuations. Traditionally, this has been a useful tool for agriculture, oil, and other markets where the prices of underlying commodities were subject to volatility.“It will make bitcoin less and less volatile over time.” BTC.sx COO George Samman said. “It provides a proper hedging mechanism.”There are a number of types of derivatives: options, forwards, futures, and swaps. CoinDesk correspondent Daniel Cawrey touches on the various types of derivatives.As long as the network is composed of a small number of actors, many institutional players are hesitant to move into the bitcoin market until hedging instruments develop.Houman Shadab, professor at New York Law School and author of the Mercatus paper told CoinDesk, “The development of bitcoin derivatives means that people are taking bitcoin seriously and want to make it easier to use.”Mercatus recommendationsRight now, regulatory focus is fixed on bitcoin’s use in money-laundering and illicit purchases. But when the markets for advanced financial instruments expand, the arm of the government will likely follow.In mid-April, the Mercatus Center, a market-oriented think tank, released a working paper titled Bitcoin Financial Regulation: Securities, Derivatives, Prediction Markets, & Gambling that describes the government’s role in these transactions.According to the authors – Jerry Brito, Houman B. Shadab, and Andrea Castillo – as bitcoin evolves and the infrastructure develops for bitcoin trade, new financial instruments will pop up to deal with risk. Securities, derivatives, prediction markets and gambling will assume greater significance in the bitcoin ecosystem.The paper is a draft and is subject to change. The scholars’ recommendations is summarized as follows:Following the approach to virtual currencies taken by FinCEN, we argue that other financial regulators should consider exempting or excluding certain financial transactions denominated in bitcoin from the full scope of their regulations, much like private securities offerings and forward contracts are treated. We also suggest that to the extent that regulation and enforcement becomes more costly than its benefits, policymakers should consider and pursue strategies consistent with that new reality, such as efforts to encourage resilience and adaptation.Many Bitcoin derivatives resemble forwards, which are not regulated by the CFTC. Forwards are not subject to regulations outlined in the Commodities Exchange Act (CEA) for a couple of reasons. Forwards contracts are generally tied to a physical commodity, unlike futures which are settled in cash. Since bitcoins have a cap and inherent value it resembles a physical commodity. Bitcoins are also easily transferable.CFTC regulations are reserved for speculative markets.Bitcoin derivatives should be treated like any other commodity derivative, Shadab told CoinDesk. “The CFTC should exempt from the full scope of its regulation derivatives that ultimately transfer bitcoins between users, for the same reasons physically settled commodity derivatives are not regulated as heavily as futures.”“The CFTC should help to foster a liquid and robust market for Bitcoin derivatives so investors and users can decrease their exposure to price risk” he added.Other opinionsA CFTC spokesman declined to comment because the agency “has not taken any actions with regard to bitcoin.” But last year the former chairman Bart Chilton said the agency was “seriously considering” regulation.Some think clarity is the number one priority. Early this year Sen. Tom Carper (D-DE) asked the CFTC to clarify its position to “remove the cloud of uncertainty.” Harvard Review reported on the general attraction to regulation amongst bitcoin entrepreneurs, simply because it helps to dispel the paralyzing uncertainty.Undoubtedly, bitcoin would benefit from clarification from the CFTC.Pillars of law image via ShutterstockCFTCderivativesfuturespricesSenator Tom CarperOriginal author: Alyssa Hertig
Many have tried to explain bitcoin, some with more success than others.Creating a short and snappy video that makes bitcoin accessible to a general audience while simultaneously doing justice to the complex ideas behind its technology is a big ask. Anyone who tries should be applauded.However, while some have clearly done a very good job, others haven’t quite cracked it.Below, Kadhim Shubber takes a look at some of the best (and worst) bitcoin explainer videos out there. You can let us know which is your favourite by voting at the bottom of the article – or suggesting your own in the comments. Vox
Probably the snazziest bitcoin explainer yet, Vox leaves aside any discussion of bitcoin as a currency and instead focuses on its potential as a payment network. The promise of bitcoin is “permissionless innovation” in the financial sector, argues Vox. Although Ezra Klein, who narrates the video, does shy away from bitcoin’s history and exactly how it works, as a primer on bitcoin’s potential impact this video is top-notch.Straight to the moon: “You can do cool things without any central authority being able to tell you no.”Crash and burn: Not embeddableLength: 1:55 The Guardian
A more comprehensive overview of bitcoin, from the off The Guardian emphasises the benefits of sending money directly from customer to merchant: no money-grubbing banks taking a cut. The video touches on the double-spending problem, but doesn’t really address how the block chain (which doesn’t get a mention) solves that problem. Although it’s an enjoyable walkthrough of the story of bitcoin, people looking for an explanation of how it works will have to go elsewhere. After all, it is called ‘Bitcoin made simple’.Straight to the moon: “You may think that the system we have is pretty good, but everything we buy today has to go through a bank or credit card company, who take a cut of the transaction.”Crash and burn: Pays lip service to the double-spending problem, but doesn’t follow through. Also, not embeddable.Length: 03:17The Washington Post
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Probably the snazziest bitcoin explainer yet, Vox leaves aside any discussion of bitcoin as a currency and instead focuses on its potential as a payment network. The promise of bitcoin is “permissionless innovation” in the financial sector, argues Vox. Although Ezra Klein, who narrates the video, does shy away from bitcoin’s history and exactly how it works, as a primer on bitcoin’s potential impact this video is top-notch.Straight to the moon: “You can do cool things without any central authority being able to tell you no.”Crash and burn: Not embeddableLength: 1:55 The GuardianA more comprehensive overview of bitcoin, from the off The Guardian emphasises the benefits of sending money directly from customer to merchant: no money-grubbing banks taking a cut. The video touches on the double-spending problem, but doesn’t really address how the block chain (which doesn’t get a mention) solves that problem. Although it’s an enjoyable walkthrough of the story of bitcoin, people looking for an explanation of how it works will have to go elsewhere. After all, it is called ‘Bitcoin made simple’.Straight to the moon: “You may think that the system we have is pretty good, but everything we buy today has to go through a bank or credit card company, who take a cut of the transaction.”Crash and burn: Pays lip service to the double-spending problem, but doesn’t follow through. Also, not embeddable.Length: 03:17The Washington PostLess slick than the previous explainers, The Washington Post promises to explain bitcoin but spends much of the second half of the video discussing the impact of Mt. Gox’s collapse. A key part of the bitcoin story, sure, but we’re not left any the wiser about how bitcoin works or why people are excited about it.
Straight to the moon: “It’s virtual money that can be transferred from person to person online, without a middleman. That means no banks, and their transaction fees.”
Crash and burn: This video only really makes sense if you already know what bitcoin is. A newcomer is unlikely to understand the jargon.
Length: 01:30
The New York Times
“What makes ‘money’ money?” That’s the angle The New York Times takes on bitcoin, addressing an issue the other videos mostly skirt around. Admirable, but it’s arguably a poor way to explain what bitcoin is, with the video focusing on mining itself instead of the system and processes that mining facilitates.
Straight to the moon: “There’s no Ben Bernanke of bitcoin, no central bank or government authority at all.”
Crash and burn: The Winklevoss Twins feature for 11 whole seconds, which is about 11 seconds too many.
Length: 02:36
Duncan Elms and Marc Fennell
One of the most viewed bitcoin explainer videos ever, this dazzling and beautiful video by Duncan Elms and Marc Fennell isn’t as strong as it would first appear. Its main failing is that it doesn’t break things down, leaving the viewer with a hefty amount of google-fu to do afterwards to get a proper feel for the concepts discussed.
Straight to the moon: Damn this video is beautiful, I need to rewatch it.
Crash and burn: I’m not sure I really understood, I need to rewatch it.
Length: 03:24
My Drunk Kitchen
You are really unlikely to learn anything about bitcoin from this video, but if you don’t smile at least once you are a heartless so and so.
Straight to the moon: “The new digital decentralized chocolate chip market is based purely on supply and demand.”
Crash and burn: Forget digital currencies, let’s get drunk and open a bakery!
Length: 06:26
We Use Coins
The updated version of the most watched bitcoin explainer ever, this video covers all the bases and uses some cool graphics to explain the concepts around bitcoin. Like Vox, it notes the potential of bitcoin as a platform for innovation but when it says “Let’s look at how it works,” it really means, “Let’s not scare anyone away with the nitty gritty.” But coming in at just over a minute and a half requires compromises and on the whole We Use Coins provide a great introduction to bitcoin.
Straight to the moon: “Bitcoin is changing finance the same way the web changed publishing.”
Crash and burn: The wide-eyed cartoon people are a little bit creepy. Just a little bit.
Length: 01:36
Curious Inventor
Are you willing to spend 20 minutes learning about how bitcoin actually works? Yes? Great! Watch this video. No? Move along then.
Straight to the moon: Now I’m finally beginning to understand what’s going on here.
Crash and burn: What year is it?
Khan Academy
It’s probably not entirely fair to include this video, as it’s merely the introduction to a longer series of lessons on the mechanics of bitcoin. But it deserves a mention because if you really want to get to grips with the computer science behind bitcoin, it’s worth grabbing a pen and paper and spending a weekend with Zulfikar Ramzan, your teacher in these videos.
Straight to the moon: Achievement unlocked, bitcoin expert.
Crash and burn: My head hurts now.
Length: 09:08 [the series of videos run to over an hour and a half]
Loading ...Original author: Kadhim Shubber
At day two of the Bitcoin2014 conference, attendees learned about the regulatory issues being faced by bitcoiners in China, upcoming technological challenges and bitcoin investment opportunities.Later in the day, BitPay CEO Tony Gallippi shared plans for his company’s expansion, the topic of the mining arms race was addressed and the Startup Challenge awards were won by CoinPrism and Reality Keys.Troubles in China
Bobby Lee opened day two of Bitcoin2014 with a presentation about the rollercoaster ride bitcoin has experienced in China.Lee is the CEO of bitcoin exchange BTC China and was recently elected to the board of the Bitcoin Foundation.He explained the troubles the currency has faced in the country over the past five months, talking the audience through the suppressive actions taken by the People’s Bank of China.Lee outlined the current situation: there have been no written orders from the central bank, but all the major Chinese banks have stopped dealing with bitcoin exchanges, with some closing their customers’ corporate and personal accounts. He said:“It’s had a very chilling effect. Due to the verbal guidance over the past few months, people are spooked.”Lee suggested it hadn’t helped that the state-controlled media has switched its stance on bitcoin, now only reporting negative stories about digital currency.He explained laws in China are purposely ambiguous, enabling the government to adapt or update the rules as and when it pleases. Unfortunately, this means there is no way of telling what the government’s next move will be.Lee doesn’t think bitcoin has run its course in China, but he later revealed in a conversation with CoinDesk that he was exploring the potential of moving his business overseas.Technical challenges
Next up was a panel discussion looking at the technical challenges bitcoin is set to face in the near future.The session was moderated by Michael Terpin, co-founder of BitAngels, an angel investor group for digital currencies, which has invested at least $7 million into digital currency startups.Bitcoin 2.0 was the first topic on the agenda, with the panellists discussing the potential merits and pitfalls of adding services other than digital currency onto the block chain.Maidsafe CEO David Irvine, who has embarked on an ambitious project to ‘decentralize all Internet services, including enterprise data centers’, told the audience that the digital currency community shouldn’t “pray to the block chain”.He elaborated by explaining that a number of decentralised systems with different purposes can exist side-by-side, they don’t have to all stem from the bitcoin block chain.The discussion turned to the technological advances that need to be made this year. Irvine said the main priority should be the development of a user-friendly bitcoin wallet.John Light, founder of Buttonwood SF and PawnCoin, thinks multisig will really take off in 2014, labelling it “two-factor-authentication that is backed up by the block chain”.BitPay’s Ryan Charles, on the other hand, said he thinks it is inevitable that hardware bitcoin wallets will increase in popularity.The subject of altcoins came up and these alternative cryptocurrencies were praised by panellist number four, Sean Neville, Circle’s co-founder and CTO, whose company finally unveiled their plan to bring bitcoin to the masses this week.“Experimentation is fantastic,” he concluded.BitPay’s expansion plans
“Amsterdam has more per-capita penetration for bitcoin than any other country,” enthused BitPay CEO Tony Gallippi as he kicked off his presentation on driving business adoption, adding that the ability to eat, sleep, pay bills and even medicate yourself with the currency is what makes the conference’s host city so unique.His presentation tackled a wide-range of issues faced by consumers today, including credit card fraud, “It claims 12 million victims each year,” and outdated payments technology:“Credit cards were never designed for the Internet. They’ve changed [very little] in 55 years.”By contrast, Gallippi was bullish on bitcoin’s future, revealing impressive growth statistics – over 30,000 merchants worldwide and an expanding team spanning three continents – and an appetite for technological innovation.The CEO emphasised BitPay’s continued commitment to open-source development, citing the hire of Jeff Garzik as well as the company’s Bitcore, Copay and Insight initiatives.Hailing 2014 as the year of multisig, Gallippi revealed how few users actually use it:“On [bitcoin's] top 100 rich list of addresses, not one is secured with multisig.”However, he predicted that 10% of bitcoin assets would be stored using multiple signatures by the end of 2014.Following BitPay’s record-breaking funding round earlier this week, Gallippi finished with equally-ambitious expansion plans to open an Amsterdam bitcoin centre. “We’ll call it ABC until it has a real name,” he quipped.The high-tech space will play host to everyone from central bankers to investors, startups and developers. In Gallippi’s words: “We all accelerate faster as a group.”Co-authored by Emily Spaven and Grace CaffynImages by Grace CaffynBitcoin 2014BitPayBobby LeeBTC China
Bobby Lee opened day two of Bitcoin2014 with a presentation about the rollercoaster ride bitcoin has experienced in China.Lee is the CEO of bitcoin exchange BTC China and was recently elected to the board of the Bitcoin Foundation.He explained the troubles the currency has faced in the country over the past five months, talking the audience through the suppressive actions taken by the People’s Bank of China.Lee outlined the current situation: there have been no written orders from the central bank, but all the major Chinese banks have stopped dealing with bitcoin exchanges, with some closing their customers’ corporate and personal accounts. He said:“It’s had a very chilling effect. Due to the verbal guidance over the past few months, people are spooked.”Lee suggested it hadn’t helped that the state-controlled media has switched its stance on bitcoin, now only reporting negative stories about digital currency.He explained laws in China are purposely ambiguous, enabling the government to adapt or update the rules as and when it pleases. Unfortunately, this means there is no way of telling what the government’s next move will be.Lee doesn’t think bitcoin has run its course in China, but he later revealed in a conversation with CoinDesk that he was exploring the potential of moving his business overseas.Technical challengesNext up was a panel discussion looking at the technical challenges bitcoin is set to face in the near future.The session was moderated by Michael Terpin, co-founder of BitAngels, an angel investor group for digital currencies, which has invested at least $7 million into digital currency startups.Bitcoin 2.0 was the first topic on the agenda, with the panellists discussing the potential merits and pitfalls of adding services other than digital currency onto the block chain.Maidsafe CEO David Irvine, who has embarked on an ambitious project to ‘decentralize all Internet services, including enterprise data centers’, told the audience that the digital currency community shouldn’t “pray to the block chain”.He elaborated by explaining that a number of decentralised systems with different purposes can exist side-by-side, they don’t have to all stem from the bitcoin block chain.The discussion turned to the technological advances that need to be made this year. Irvine said the main priority should be the development of a user-friendly bitcoin wallet.John Light, founder of Buttonwood SF and PawnCoin, thinks multisig will really take off in 2014, labelling it “two-factor-authentication that is backed up by the block chain”.BitPay’s Ryan Charles, on the other hand, said he thinks it is inevitable that hardware bitcoin wallets will increase in popularity.The subject of altcoins came up and these alternative cryptocurrencies were praised by panellist number four, Sean Neville, Circle’s co-founder and CTO, whose company finally unveiled their plan to bring bitcoin to the masses this week.“Experimentation is fantastic,” he concluded.BitPay’s expansion plans“Amsterdam has more per-capita penetration for bitcoin than any other country,” enthused BitPay CEO Tony Gallippi as he kicked off his presentation on driving business adoption, adding that the ability to eat, sleep, pay bills and even medicate yourself with the currency is what makes the conference’s host city so unique.His presentation tackled a wide-range of issues faced by consumers today, including credit card fraud, “It claims 12 million victims each year,” and outdated payments technology:“Credit cards were never designed for the Internet. They’ve changed [very little] in 55 years.”By contrast, Gallippi was bullish on bitcoin’s future, revealing impressive growth statistics – over 30,000 merchants worldwide and an expanding team spanning three continents – and an appetite for technological innovation.The CEO emphasised BitPay’s continued commitment to open-source development, citing the hire of Jeff Garzik as well as the company’s Bitcore, Copay and Insight initiatives.Hailing 2014 as the year of multisig, Gallippi revealed how few users actually use it:“On [bitcoin's] top 100 rich list of addresses, not one is secured with multisig.”However, he predicted that 10% of bitcoin assets would be stored using multiple signatures by the end of 2014.Following BitPay’s record-breaking funding round earlier this week, Gallippi finished with equally-ambitious expansion plans to open an Amsterdam bitcoin centre. “We’ll call it ABC until it has a real name,” he quipped.The high-tech space will play host to everyone from central bankers to investors, startups and developers. In Gallippi’s words: “We all accelerate faster as a group.”Co-authored by Emily Spaven and Grace CaffynImages by Grace CaffynBitcoin 2014BitPayBobby LeeBTC ChinaOriginal author: Emily Spaven
In this piece, CoinDesk contributor Tim Swanson takes a look at the latest block chain data in an attempt to draw new conclusions about how bitcoins are being spent, why they’re being held and what this may mean for the burgeoning market.
John Ratcliff is a principal engineer at NVIDIA who has a unique hobby, using 3-D tools to visualize block chain analytics. Over the past several months he has created visual aids for the community, in part to help show trends and highlight uncertainty.For instance, below is a pie chart of UTXO (unspent transaction outputs), better known as bitcoins and their distribution by age. That is to say the amount of bitcoins based on their last use.Here’s his original chart from January:
The following chart is an updated version based on the bitcoin block chain as of 30th April.
As you can see, the oldest coins have still not budged or moved in the subsequent months for reasons described in a recent paper (pdf).Investor impactThe most surprising area of growth is the three-to-six month section.While there could be a variety of reasons for why this is now the largest segment (e.g., lost, stolen tokens, Goxcoins), the timing coincides with the November price bubble that peaked at $1100 per bitcoin – it has since fallen to roughly $450.That is to say, these holders could and likely did buy during the peak and are simply underwater. If that is the case, rather than cashing out and realizing a loss, they are holding them and waiting (with the hope) that there will be a rally in prices once more.Some readers may be thinking that two data points are not enough to draw a conclusion. For instance, what does the block chain distribution look like over the past year?After exchanging some thoughts and theories with Ratcliff, he put together a very interesting animation of the daily changes in distribution based on age starting from the genesis block on 3rd January 2009 to 14th May (here is the raw data). Spoiler alert: not much happens the first year. At the beginning of January 2014, the three-to-six months segment represented only 6.8% of all tokens.Now it represents more than 3 million UTXOs in part because people probably do not want to unload because of the ongoing bear market.However, the activity that is generally associated to commerce happens solely on the left side of the bar graph, in the period of a week or less, representing roughly 10% of all mined bitcoins. Yet as far as how much is related to day traders, gambling sites (e.g., Satoshi Dice, Prime Dice), remittances or other activity that cannot be determined by this method.In Ratcliff’s view, “we know what and where the liquid bitcoins are. And what is interesting about the graph is that it shows the difference in liquidity at different time periods”.He is currently working on releasing a number of other ways to visualize this type of data beginning with the genesis block (i.e., showing every token on every address in 3-D). In addition, he has another shorter clip from 9th March 2013 through 12th May 2014.Cautious conclusionsYet, he says that you cannot definitively jump to conclusions from it.For instance, if Bob moves 100,000 bitcoins, outside observers do not know what Bob was doing (moving a wallet like Bitstamp did in November, conducting real commerce, betting, etc.).In Ratcliff’s view, his approach has one key distinction, if Bob has a bitcoin address and he spends one bitcoin (UTXO), observers will view that event as if Bob moved just one bitcoin – Ratcliff is marking age as age of last transaction.This then proves that Bob still controls this address (an address which represents inputs and outputs) – this address is not dead which is a subtle distinction.To him, what you can see is X% of bitcoins that are liquid (moving on a weekly basis), X% that are being “saved” and X% (or in this case, 30%) that may be gone forever. It is unclear if someone such as Satoshi Nakamoto (who is alleged to control approximately 1 million bitcoins) still controls the keys or how much market uncertainty this will create.For additional analysis, I contacted Jonathan Levin, co-founder of Coinometrics for his insights on this tool and approach. He explains:“The underwater explanation for the three-to-six month period is plausible but the problem with the method is that this measure is highly susceptible to changes in the exchanges and so inferring behaviour of individuals is difficult. If Bitstamp has not done another reshuffle since the one last year that would probably show up in the three-to-six month section.I am interested in the one month and one week decreases as well. It seems that less bitcoins are being moved around the block chain now rather than in January. We have also seen volumes on the exchanges drop since December levels which may explain some of this drop.”Alternative approaches to analysisThis picture has also been making the rounds on social media and on CoinDesk:
The original source is a Technology Review infographic.Yet, the data source mentions Sarah Meiklejohn, author of one of the best papers in this space, “A Fistful of Bitcoins” (pdf). I contacted her and she said that the data in question comes from Figure 3 in the same paper.However, the likely explanation to the infographic is that mining pools and farms typically must sell off their bitcoins to cover their operating costs which makes it difficult to isolate actual commerce from mining activity.What the graphic probably visualizes is the competitiveness and professionalization of the industry.Virtually all miners have to spend their tokens within a month of mining them. This is not real economic activity for the ecosystem as nearly all of those funds are converted to a foreign exchange (fiat currency) and then paid to a utility or hardware company, this does not improve the protocol or its usability.Another depiction of the network activity are these two charts:
The chart above is the on-chain transactional volume over the past year excluding the top 100 popular addresses (such as gambling sites).
The chart above visualizes bitcoin days destroyed (BDD) which basically measures old coins that move.Basically, the older and larger the amount, the larger the leverage point (as statisticians call it). What these two charts show is that there is very little new movement in the chain.One of the reasons this is worth mentioning is because at the beginning of 2014 there was an estimated 20,000 – 30,000 merchants that accepted bitcoins for payment. By the end of the first quarter, approximately 60,000 merchants accepted bitcoins. Yet there has been very little corresponding on-chain growth.Instead, most of the growth is on the edges, in trust-me silos. The occasional spikes are outliers involving exchanges moving wallets from one wallet to another (such as Bitstamp did and Mt. Gox purportedly did).Regarding BDD, Jonathan Levin said:“It seems that aside from the big spikes which are ‘security measures, there are relatively few bitcoins that are being actively traded and moved around the block chain. Estimating this amount of supply comes from pie charts. I would give an estimate for this active supply of bitcoins by taking the six month figure.”Block chain analytics and forensics is a nascent yet exciting field of study that will bring to light what kind of real activity is taking place on public ledgers. And trailblazers like John Ratcliff, Jonathan Levin and Sarah Meiklejohn are individuals to keep your eye on.Visualization image via ShutterstockBitcoin protocolData analysis
John Ratcliff is a principal engineer at NVIDIA who has a unique hobby, using 3-D tools to visualize block chain analytics. Over the past several months he has created visual aids for the community, in part to help show trends and highlight uncertainty.For instance, below is a pie chart of UTXO (unspent transaction outputs), better known as bitcoins and their distribution by age. That is to say the amount of bitcoins based on their last use.Here’s his original chart from January:The following chart is an updated version based on the bitcoin block chain as of 30th April.As you can see, the oldest coins have still not budged or moved in the subsequent months for reasons described in a recent paper (pdf).Investor impactThe most surprising area of growth is the three-to-six month section.While there could be a variety of reasons for why this is now the largest segment (e.g., lost, stolen tokens, Goxcoins), the timing coincides with the November price bubble that peaked at $1100 per bitcoin – it has since fallen to roughly $450.That is to say, these holders could and likely did buy during the peak and are simply underwater. If that is the case, rather than cashing out and realizing a loss, they are holding them and waiting (with the hope) that there will be a rally in prices once more.Some readers may be thinking that two data points are not enough to draw a conclusion. For instance, what does the block chain distribution look like over the past year?After exchanging some thoughts and theories with Ratcliff, he put together a very interesting animation of the daily changes in distribution based on age starting from the genesis block on 3rd January 2009 to 14th May (here is the raw data). Spoiler alert: not much happens the first year. At the beginning of January 2014, the three-to-six months segment represented only 6.8% of all tokens.Now it represents more than 3 million UTXOs in part because people probably do not want to unload because of the ongoing bear market.However, the activity that is generally associated to commerce happens solely on the left side of the bar graph, in the period of a week or less, representing roughly 10% of all mined bitcoins. Yet as far as how much is related to day traders, gambling sites (e.g., Satoshi Dice, Prime Dice), remittances or other activity that cannot be determined by this method.In Ratcliff’s view, “we know what and where the liquid bitcoins are. And what is interesting about the graph is that it shows the difference in liquidity at different time periods”.He is currently working on releasing a number of other ways to visualize this type of data beginning with the genesis block (i.e., showing every token on every address in 3-D). In addition, he has another shorter clip from 9th March 2013 through 12th May 2014.Cautious conclusionsYet, he says that you cannot definitively jump to conclusions from it.For instance, if Bob moves 100,000 bitcoins, outside observers do not know what Bob was doing (moving a wallet like Bitstamp did in November, conducting real commerce, betting, etc.).In Ratcliff’s view, his approach has one key distinction, if Bob has a bitcoin address and he spends one bitcoin (UTXO), observers will view that event as if Bob moved just one bitcoin – Ratcliff is marking age as age of last transaction.This then proves that Bob still controls this address (an address which represents inputs and outputs) – this address is not dead which is a subtle distinction.To him, what you can see is X% of bitcoins that are liquid (moving on a weekly basis), X% that are being “saved” and X% (or in this case, 30%) that may be gone forever. It is unclear if someone such as Satoshi Nakamoto (who is alleged to control approximately 1 million bitcoins) still controls the keys or how much market uncertainty this will create.For additional analysis, I contacted Jonathan Levin, co-founder of Coinometrics for his insights on this tool and approach. He explains:“The underwater explanation for the three-to-six month period is plausible but the problem with the method is that this measure is highly susceptible to changes in the exchanges and so inferring behaviour of individuals is difficult. If Bitstamp has not done another reshuffle since the one last year that would probably show up in the three-to-six month section.I am interested in the one month and one week decreases as well. It seems that less bitcoins are being moved around the block chain now rather than in January. We have also seen volumes on the exchanges drop since December levels which may explain some of this drop.”Alternative approaches to analysisThis picture has also been making the rounds on social media and on CoinDesk:The original source is a Technology Review infographic.Yet, the data source mentions Sarah Meiklejohn, author of one of the best papers in this space, “A Fistful of Bitcoins” (pdf). I contacted her and she said that the data in question comes from Figure 3 in the same paper.However, the likely explanation to the infographic is that mining pools and farms typically must sell off their bitcoins to cover their operating costs which makes it difficult to isolate actual commerce from mining activity.What the graphic probably visualizes is the competitiveness and professionalization of the industry.Virtually all miners have to spend their tokens within a month of mining them. This is not real economic activity for the ecosystem as nearly all of those funds are converted to a foreign exchange (fiat currency) and then paid to a utility or hardware company, this does not improve the protocol or its usability.Another depiction of the network activity are these two charts:The chart above is the on-chain transactional volume over the past year excluding the top 100 popular addresses (such as gambling sites).The chart above visualizes bitcoin days destroyed (BDD) which basically measures old coins that move.Basically, the older and larger the amount, the larger the leverage point (as statisticians call it). What these two charts show is that there is very little new movement in the chain.One of the reasons this is worth mentioning is because at the beginning of 2014 there was an estimated 20,000 – 30,000 merchants that accepted bitcoins for payment. By the end of the first quarter, approximately 60,000 merchants accepted bitcoins. Yet there has been very little corresponding on-chain growth.Instead, most of the growth is on the edges, in trust-me silos. The occasional spikes are outliers involving exchanges moving wallets from one wallet to another (such as Bitstamp did and Mt. Gox purportedly did).Regarding BDD, Jonathan Levin said:“It seems that aside from the big spikes which are ‘security measures, there are relatively few bitcoins that are being actively traded and moved around the block chain. Estimating this amount of supply comes from pie charts. I would give an estimate for this active supply of bitcoins by taking the six month figure.”Block chain analytics and forensics is a nascent yet exciting field of study that will bring to light what kind of real activity is taking place on public ledgers. And trailblazers like John Ratcliff, Jonathan Levin and Sarah Meiklejohn are individuals to keep your eye on.Visualization image via ShutterstockBitcoin protocolData analysisOriginal author: Tim Swanson
Image via Bees BrothersHailing from Cache Valley, in northern Utah, three brothers between the ages of 11 and 15 have their own successful honey business at home in the Cache Valley.It all began when Nate, Sam and Ben Huntzinger caught a swarm of bees as an experiment. Little did they know it would lead to a small business and an obsession with bitcoin.Their father, Craig, says they had no intention of starting a business. “As we started working with honey and beeswax we started making new things for ourselves, and eventually got a small business licence, more honeybee hives, and started selling our items at our local Farmer’s Market,” he said.They heard about bitcoin in 2011 and were instantly attracted by the concept of a decentralised, non-inflationary currency. The ideals behind bitcoin seem to align with those of the Huntzinger family.The three brothers are home-schooled as their father admits they have a different view of education. “We don’t believe that government has a monopoly on education, nor that the only way to learn is being forced to sit at a desk all day and stare at a book […] The whole purpose of getting that first hive, and later the business licence, was all about education. What would happen if we did this…?”The answer is a flourishing business and three boys learning about finance and investing before they’ve even finished high school. Business is booming. From selling pots of their honey locally, their company, Bees Brothers now produces several different flavours of honey caramels, honey roasted almonds, beeswax lip balms and candles both at the markets and via their website. And all can be had for bitcoin, of course.The publishing moguls
If you’re confused at all about what bitcoin is and how to use it, then head right over to the BitKidz website where you’ll find a host of online tutorials, as well as the chance to buy a host of books (using bitcoin) that explain the subject.And that’s not the best part. The site and books, as well as a host of other blogs and publications are all written by a trio of young sisters, who describe themselves thus on their blog:“We’re three tech tweenpreneurs, also known as The Sabra Sisters. We were born in 2000, 2001 and 2003. We’ve been blogging since 2008, started making money online in 2010, [and] became bestselling kindle authors in 2013.”30th May 2013 was a life-changing day for the sisters. That was the day they were introduced to cryptography by their Uncle I.J.Aware that they were all successful juvenile nonfiction authors, he challenged the sisters to write a ’25 Fun Facts of Bitcoin’ book, which eventually evolved into the five-book ‘Bitcoin for Kids‘ series.They immediately started researching into bitcoin and, less than 24 hours later, surprised him with the launch of their brand new blog dedicated to learning about the digital currency – the first post being entitled, ‘Yes, we’re interested Uncle I.J.‘ The rest as they say, is history.The girls generally divide up the different tasks required for the publications, depending on their skills and preferences, but said JuJu:“My sisters and I split up the various tutorials so everyone had a share in spending bitcoin and having fun. ;-)”Now the home-schooled girls justifiably boast they are “professional bloggers and bestselling authors”, with some credit given to their mother Ponn – also a blogging professional – for her guiding input too.Collectively, the Sabra sisters have over two-dozen kindle books published, with an astonishing 55,000 plus downloads during the past year, JuJu told CoinDesk, adding:“We rarely look at each individual title, but two books are our bestsellers making up nearly 40,000 of those downloads: ’Science Projects for Kids’ and the ’My First Smoothie Recipe Book’.”Cuteness and cookies 
Image via DorkusPrime/redditReddit user DorkusPrime came across young entrepreneurs Mia and Taylor in California back in January in the Noe Valley neighbourhood of San Francisco. He posted a photo of the two little girls at their cookies and lemonade booth and it quickly became something of a web sensation.“These adorable little girls just sold me snickerdoodles for Bitcoin in San Francisco. I asked them to say cheese for the Internet :),” DorkusPrime wrote at the time.The girls were accepting bitcoins via the QR code plastered to the booth’s roof. And business was pretty good too – the pair told Foodbeast that they had made 0.083 BTC, which was around $70 at the time.The youngest bitcoin author
Youthful writer, Jaden Shelton (A.K.A. the Bitcoin Kid) claims to be “the youngest author ever who has published a book offered only in bitcoin”.Published last year, when he was nine, his book The Scary Blueberry is the “ideal book for children facing new foods and new challenges!”, Jaden says on his online store.Inspiration for the book came from his problems eating certain foods as a younger child, Jaden told CoinDesk:“It was something funny that happened in my childhood – I used to not eat certain foods and we would say ‘are you scared of a blank? I would say ‘no’ and we would keep joking around with it. A few years later, we started thinking about making a book about it.”As well as being a self-published author, the Bitcoin Kid maintains a blog about aspects of bitcoin that interest him and as a platform for his videos.A promising TV presenter, Jaden has posted a series of videos in which he interviews key staff at prominent digital currency businesses, such as ripple, Mycelum and BitInstant.When asked what he planned to do later in life, Jaden said:“Well, you can’t buy anything unless you have a job, so I might be an entrepreneur … or maybe sell toys to kids.”The shrewd investor
Andrew Karam isn’t your average nine-year-old. While most kids his age ask for the latest must-have toy for their birthdays, Andrew requested shares in Apple.His parents bought him $120-worth and Andrew watched the price of the stock with interest, checking regularly whether his investment had gone up or down in value.Andrew’s father, Steve, later told him about bitcoin and the schoolboy was hooked.“He was incredibly excited about it and asked if I could take his Apple stock and cash it out for BTC, so I made him a paper wallet and […] bought a bit at a time,” Steve wrote in a post on reddit.Andrew later told his teacher about his investment, revealing he had made about $50 since his dad bought him some bitcoins. He said he was originally thinking of cashing out 25% of his investment, but the savvy youngster decided to hold on to his cryptocurrency.Andrew wanted to do more than just a talk at school to get his peers involved in digital currency. So he asked his father whether he could sell bitcoins to his classmates, then get them back by accepting BTC as payment for his Wonder Bracelets, which he makes from colourful elastic bands.With a few doubts, Steve set up an online store for the aspiring entrepreneur called Bracelets for Bitcoin.Andrew’s story and enthusiasm struck a chord within the bitcoin community, with some members of reddit making donations to the 4th grader.Steve said his son is “super excited” by all the support he is getting and even commented that he wants to be a “professional millionaire” when he grows up.The chancer 
Credit: ImgurAnd finally, let us not forget the enterprising college kid who, in early December 2013, made it onto TV holding up a sign with a bitcoin logo and wallet QR code at ESPN’s ‘College GameDay’ game.After a little sharpening by helpful members of the public, a still of the moment made it onto the front page of reddit and caught the attention of the bitcoin community, who promptly sent him a flurry of donations amounting to over $24,000 in bitcoin, some of which he allegedly donated to Sean’s Outpost – a bitcoin-funded homeless outreach centre in Pensacola, Florida.Boy with coins featured image via ShutterstockKidsSean's Outpost
Original author: Dan Palmer
Original author: Emily Spaven
2014 has been touted by some as the ‘Year of Multisig’ – including most recently by Gavin Andresen at Bitcoin2014 in Amsterdam – and for one big reason: the number of services which support multi-signature transactions is increasing. In this article, Thomas Kerin charts the story of this emerging technology to date, addressing some key questions using data obtained from the block chain.
If you’re not sure about multisig, here’s a brief primer. Multisignature addresses allow multiple parties to partially seed an address with a public key. When someone wants to spend some of the bitcoins, they need some of these people to sign their transaction in addition to themselves. The needed number of signatures is agreed at the start when people create the address.Since multiple signatures are needed before funds can be spent, the additional signatures could come from, say, a business partner, your significant other, or even from a second device which you own, to add a second factor to spending your coins.Imagine a safe in a bank that needs two keys to unlock the safe at any time – the bank’s key and your personal key. Multisignature addresses capture the essence of this but without needing to be in the same place. And since the keys can be in separate places, it’s unlikely an attacker can compromise both; whereas with regular bitcoin addresses, the attacker knows roughly who to target, and could compromise the server in any number of ways just to steal the wallet file.Services using multisignature addresses have a much greater resistance to theft, since instead of just needing access to the servers wallet, funds are protected by the elliptic curve digital signature algorithm (ECDSA), a far greater barrier than the security a website could implement in its code.Are multisignature addresses new or something?They aren’t really! They were first realised in 2012, once support was added for ‘pay-to-script-hash’ addresses. When funds are sent to this address, the script used to make the address known only to the owner, instead of including it in the funding transaction. This script enforces who can and can’t spend the bitcoins at that address. The addresses also look different, starting with 3 instead of 1.Pay-to-script-hash is the precursor to multisig, and multisig is just one complicated use-case of P2SH.Take this transaction for example: 112ae9859731f671ec3593de5790ed026d06d23134ba284aec811bc8f50e96b3 – actually the 6th P2SH transaction ever to occur – reveals a script of ‘5357’, which simply means push the numbers 3 and 7 into memory. This script is hashed, and used to create the actual address: 37paP4uTjmA4Pi85LG6CF9huift3Dw1kFT. Any funds sent to this address can in fact now be stolen, since people know the script doesn’t check who is actually spending the funds. So it’s a bit like the 1JwSSubhmg6iPtRjtyqhUYYH7bZg3Lfy1T (correct horse battery staple) of P2SH.It’s a very simple demonstration of P2SH, which lead to the more complicated, but naturally far more secure use case – multisignature transactions.Why haven’t I heard of them yet?Multi-signature addresses and transactions are still a bit complicated to carry out. Currently only the Bitcoin Core software can handle them fully, even without storing the block chain, but you still need to use the console. Lately we are seeing more and more services popping up which aim to bridge this gap, and expose multisignature transactions in a user-friendly way.The Coinbin site allows you to create bitcoin private and public keys, create multisignature addresses, and sign transactions from them. It’s a very simple site, but currently doesn’t support compressed keys, so is incompatible with Bitcoin Core. Everyone needs to be using uncompressed keys, which Coinbin will generate at least.Onchain.ioOnchain is a vault for Electrum & BIP0032 master public keys, and is working on a website and an Android app to sign multisignature transactions for addresses in its wallet. Using deterministic wallets means users can submit their extended public key to a site just once, and public keys will be generated from this. The app will also accept QR codes of multisignature transactions for signing, making them incredibly easy to use.How much are they used?Using data I obtained from QuantaBytes, a blockchain analysis company based in Ireland, I was able to learn about the different types of multi-signature addresses being used to date and how often. All this data is publically available if you scrape the block chain, but I learned the hard way that this takes forever.
This graph shows the number of P2SH outputs per 2,500 blocks. Since some of these weren’t redeemed, we cannot learn what type of address it actually was. But all the same, there has been a huge increase starting around block 278,000 (1st January 2014), where there has been at least one every five blocks, and getting more and more frequent.In spite of this, they still have a long way to go to match regular transaction usage: We know there are on average a few hundred transactions per block, so we’re a long way away from this yet. This graph also shows when the first multisignature transaction occurred: block 170,052.
In the data used in this report, which spans from block 170,052 up to 297,445 (about 7th March to 24th April this year), 24,591 transaction outputs were identified which paid to a script-hash address. Of these, 14,123 outputs came from eight spam transactions, each paying 1 Satoshi to random addresses. They have been ignored throughout this article. 70% of the remaining valid transactions were redeemed, and hence revealed the script behind the address.From the transactions which were redeemed, we could learn the script, and hence the type of multisignature address – i.e., if it was 2 of 2, 3 of 5, etc.
We see that 2 of 3 addresses are the most frequently used type of address, followed by 2 of 2. 2 of 3 allows for escrow between a buyer, seller, and third party, but no one person can ever walk away with the funds without agreement from another. Many services, such as BitGo, Bitalo, GreenWallet, and BitWasp have started using these addresses as one-use addresses for transactions and orders.2 of 2 addresses have recently been implemented in Mycelium’s built in face-to-face exchange feature. It uses multisignature addresses and a transaction lock time to protect the funds during the exchange.The rows in blue in the above graphs are by the current networks’ rules non-standard, and technically shouldn’t be in the blockchain, as unmodified clients won’t relay them to other nodes in the network. The Eligius mining pool has removed the standard check, and mine non-standard transactions for a fee, but out of all the transactions analyzed only 0.36% were non standard.29.7% of all the redeemed outputs were reused addresses. Many of the above services take a unique public key from each party to create the order address, meaning we should expect mostly unique addresses.The following graphs show the frequency of the most common multisignature address types: 1 of 2, 2 of 2, 2 of 3, and 3 of 3 over time. The results are split into two halves; the first is from block 170,052 to 227,500, and the second is 230,000 to 297,445.
While the first graph is scattered and inconsistent, the second shows a clear increase in the frequency of 2 of 2 and 2 of 3 addresses, starting around November 2013. I expect this trend to increase, as more and more services adopt this transaction type over others.It’s not without good reason. Multisignature addresses can secure your cold storage bitcoins with physically remote keys. You can have greater redundancy by using more keys, to protect against loss.If services which offer multisignature addresses to transacting parties ever go offline, the funds can still be recovered if the two parties can still communicate. It makes it much more difficult to scam users, or to be dishonest about how much funds are actually on the website.By simply using multisignature transactions in the first place, you can have a prenominated third party step in to arbitrate the dispute, and possibly recover your funds from the address.
The above graph shows the number of redeeming transactions from 2 of 3 addresses, which redeemed only one unspent amount at the address, paying to two separate addresses, where the ratio of one to the other was less than 8%. This was to approximate the average percent fee of an escrow mediator, along with sites commission for the transaction – potentially giving numbers to transactions processed by wallet providers, or marketplaces using multisignature transactions. 2,410 transactions from the dataset matched the above criteria and were used in the graph. While unclear if the transactions originate from a wallet provider, or a marketplace using multisignature transactions, the most common percent charged seems to be around 0-0.2%, before almost steadily decreasing as the percentage increases.So, the Year of Multisig is shaping up nicely. The numbers clearly show their use is surging, and with initiatives like BitPay’s BitCore – a javascript library providing core bitcoin functionality and access to the network – this area is sure to see more active development, with people working on the core stack or writing their own services using it.It’s important to have a lead development of such a framework at this time. Without it, startups must weigh if it’s worth the time and money to research and implement all the required functionality for themselves, and possibly get it wrong. If everyone has to repeat this effort, it doesn’t do much for innovation, so saving a trusted codebase makes it far easier for a service to consider using multisig.There is no shortage of wallet providers at present. Multisig wallet providers have gotten around the lack of client support by using client-side scripts derived from projects like BitCore or BitcoinJS to create the transaction signature, rather than forcing them to use other software. I do anticipate that eventually most sites won’t tout multisig as a feature. It’ll be expected – and if they do a good enough job, their users don’t even have to know they’re using it.I would like to see more platforms which assist with signing multisignature transactions, enabling people to make full use the protocol, instead of aiming to be a wallet provider. The possibilities that stem from multisignature transactions are limitless, but the supporting tools and infrastructure just aren’t there. I have high hopes for Onchain.io – who’s app should make it as simple as scanning two QR codes, bringing something close to the protocol P2SH at this early stage.Using a website to look after your bitcoins is very much against the bitcoin ethos. While it’s an acceptable solution for many, the impetus for this shouldn’t be lack of support from software like Electrum, and Armory. Tools which enable two-factor protection for funds across devices, and facilitate signing transactions proposed by marketplaces, exchanges, and wallets are a must.I think addressing this key issue will really reduce the barrier to using multisignature transactions in general, allowing more and more people to embrace this amazing technology, and really make it the Year of Multisig.Image via BitWaspBitPayBitWaspmultisigwallets
If you’re not sure about multisig, here’s a brief primer. Multisignature addresses allow multiple parties to partially seed an address with a public key. When someone wants to spend some of the bitcoins, they need some of these people to sign their transaction in addition to themselves. The needed number of signatures is agreed at the start when people create the address.Since multiple signatures are needed before funds can be spent, the additional signatures could come from, say, a business partner, your significant other, or even from a second device which you own, to add a second factor to spending your coins.Imagine a safe in a bank that needs two keys to unlock the safe at any time – the bank’s key and your personal key. Multisignature addresses capture the essence of this but without needing to be in the same place. And since the keys can be in separate places, it’s unlikely an attacker can compromise both; whereas with regular bitcoin addresses, the attacker knows roughly who to target, and could compromise the server in any number of ways just to steal the wallet file.Services using multisignature addresses have a much greater resistance to theft, since instead of just needing access to the servers wallet, funds are protected by the elliptic curve digital signature algorithm (ECDSA), a far greater barrier than the security a website could implement in its code.Are multisignature addresses new or something?They aren’t really! They were first realised in 2012, once support was added for ‘pay-to-script-hash’ addresses. When funds are sent to this address, the script used to make the address known only to the owner, instead of including it in the funding transaction. This script enforces who can and can’t spend the bitcoins at that address. The addresses also look different, starting with 3 instead of 1.Pay-to-script-hash is the precursor to multisig, and multisig is just one complicated use-case of P2SH.Take this transaction for example: 112ae9859731f671ec3593de5790ed026d06d23134ba284aec811bc8f50e96b3 – actually the 6th P2SH transaction ever to occur – reveals a script of ‘5357’, which simply means push the numbers 3 and 7 into memory. This script is hashed, and used to create the actual address: 37paP4uTjmA4Pi85LG6CF9huift3Dw1kFT. Any funds sent to this address can in fact now be stolen, since people know the script doesn’t check who is actually spending the funds. So it’s a bit like the 1JwSSubhmg6iPtRjtyqhUYYH7bZg3Lfy1T (correct horse battery staple) of P2SH.It’s a very simple demonstration of P2SH, which lead to the more complicated, but naturally far more secure use case – multisignature transactions.Why haven’t I heard of them yet?Multi-signature addresses and transactions are still a bit complicated to carry out. Currently only the Bitcoin Core software can handle them fully, even without storing the block chain, but you still need to use the console. Lately we are seeing more and more services popping up which aim to bridge this gap, and expose multisignature transactions in a user-friendly way.The Coinbin site allows you to create bitcoin private and public keys, create multisignature addresses, and sign transactions from them. It’s a very simple site, but currently doesn’t support compressed keys, so is incompatible with Bitcoin Core. Everyone needs to be using uncompressed keys, which Coinbin will generate at least.Onchain.ioOnchain is a vault for Electrum & BIP0032 master public keys, and is working on a website and an Android app to sign multisignature transactions for addresses in its wallet. Using deterministic wallets means users can submit their extended public key to a site just once, and public keys will be generated from this. The app will also accept QR codes of multisignature transactions for signing, making them incredibly easy to use.How much are they used?Using data I obtained from QuantaBytes, a blockchain analysis company based in Ireland, I was able to learn about the different types of multi-signature addresses being used to date and how often. All this data is publically available if you scrape the block chain, but I learned the hard way that this takes forever.This graph shows the number of P2SH outputs per 2,500 blocks. Since some of these weren’t redeemed, we cannot learn what type of address it actually was. But all the same, there has been a huge increase starting around block 278,000 (1st January 2014), where there has been at least one every five blocks, and getting more and more frequent.In spite of this, they still have a long way to go to match regular transaction usage: We know there are on average a few hundred transactions per block, so we’re a long way away from this yet. This graph also shows when the first multisignature transaction occurred: block 170,052.In the data used in this report, which spans from block 170,052 up to 297,445 (about 7th March to 24th April this year), 24,591 transaction outputs were identified which paid to a script-hash address. Of these, 14,123 outputs came from eight spam transactions, each paying 1 Satoshi to random addresses. They have been ignored throughout this article. 70% of the remaining valid transactions were redeemed, and hence revealed the script behind the address.From the transactions which were redeemed, we could learn the script, and hence the type of multisignature address – i.e., if it was 2 of 2, 3 of 5, etc.We see that 2 of 3 addresses are the most frequently used type of address, followed by 2 of 2. 2 of 3 allows for escrow between a buyer, seller, and third party, but no one person can ever walk away with the funds without agreement from another. Many services, such as BitGo, Bitalo, GreenWallet, and BitWasp have started using these addresses as one-use addresses for transactions and orders.2 of 2 addresses have recently been implemented in Mycelium’s built in face-to-face exchange feature. It uses multisignature addresses and a transaction lock time to protect the funds during the exchange.The rows in blue in the above graphs are by the current networks’ rules non-standard, and technically shouldn’t be in the blockchain, as unmodified clients won’t relay them to other nodes in the network. The Eligius mining pool has removed the standard check, and mine non-standard transactions for a fee, but out of all the transactions analyzed only 0.36% were non standard.29.7% of all the redeemed outputs were reused addresses. Many of the above services take a unique public key from each party to create the order address, meaning we should expect mostly unique addresses.The following graphs show the frequency of the most common multisignature address types: 1 of 2, 2 of 2, 2 of 3, and 3 of 3 over time. The results are split into two halves; the first is from block 170,052 to 227,500, and the second is 230,000 to 297,445.While the first graph is scattered and inconsistent, the second shows a clear increase in the frequency of 2 of 2 and 2 of 3 addresses, starting around November 2013. I expect this trend to increase, as more and more services adopt this transaction type over others.It’s not without good reason. Multisignature addresses can secure your cold storage bitcoins with physically remote keys. You can have greater redundancy by using more keys, to protect against loss.If services which offer multisignature addresses to transacting parties ever go offline, the funds can still be recovered if the two parties can still communicate. It makes it much more difficult to scam users, or to be dishonest about how much funds are actually on the website.By simply using multisignature transactions in the first place, you can have a prenominated third party step in to arbitrate the dispute, and possibly recover your funds from the address.The above graph shows the number of redeeming transactions from 2 of 3 addresses, which redeemed only one unspent amount at the address, paying to two separate addresses, where the ratio of one to the other was less than 8%. This was to approximate the average percent fee of an escrow mediator, along with sites commission for the transaction – potentially giving numbers to transactions processed by wallet providers, or marketplaces using multisignature transactions. 2,410 transactions from the dataset matched the above criteria and were used in the graph. While unclear if the transactions originate from a wallet provider, or a marketplace using multisignature transactions, the most common percent charged seems to be around 0-0.2%, before almost steadily decreasing as the percentage increases.So, the Year of Multisig is shaping up nicely. The numbers clearly show their use is surging, and with initiatives like BitPay’s BitCore – a javascript library providing core bitcoin functionality and access to the network – this area is sure to see more active development, with people working on the core stack or writing their own services using it.It’s important to have a lead development of such a framework at this time. Without it, startups must weigh if it’s worth the time and money to research and implement all the required functionality for themselves, and possibly get it wrong. If everyone has to repeat this effort, it doesn’t do much for innovation, so saving a trusted codebase makes it far easier for a service to consider using multisig.There is no shortage of wallet providers at present. Multisig wallet providers have gotten around the lack of client support by using client-side scripts derived from projects like BitCore or BitcoinJS to create the transaction signature, rather than forcing them to use other software. I do anticipate that eventually most sites won’t tout multisig as a feature. It’ll be expected – and if they do a good enough job, their users don’t even have to know they’re using it.I would like to see more platforms which assist with signing multisignature transactions, enabling people to make full use the protocol, instead of aiming to be a wallet provider. The possibilities that stem from multisignature transactions are limitless, but the supporting tools and infrastructure just aren’t there. I have high hopes for Onchain.io – who’s app should make it as simple as scanning two QR codes, bringing something close to the protocol P2SH at this early stage.Using a website to look after your bitcoins is very much against the bitcoin ethos. While it’s an acceptable solution for many, the impetus for this shouldn’t be lack of support from software like Electrum, and Armory. Tools which enable two-factor protection for funds across devices, and facilitate signing transactions proposed by marketplaces, exchanges, and wallets are a must.I think addressing this key issue will really reduce the barrier to using multisignature transactions in general, allowing more and more people to embrace this amazing technology, and really make it the Year of Multisig.Image via BitWaspBitPayBitWaspmultisigwalletsOriginal author: Thomas Kerin