Bitcoin for Governments, but Without Privacy and with Taxes

Bitcoin Magazine
Bitcoin for Governments, but Without Privacy and with Taxes

Banks and governments are warming up to the possibility of leveraging the power and resiliency of the blockchain to implement smarter financial systems that permit faster and cheaper local and global transactions, permanently recorded in a tamper-proof blockchain. At the same time, financial institutions and states find some aspects of Bitcoin worrisome.

One concern is that the Bitcoin network relies on anonymous miners to validate transactions. This concern is addressed by various concepts and implementations of “permissioned blockchains” that are popping up, which would offer the advantages of digital currencies powered by public blockchains but be restricted to banks and vetted financial operators. Permissioned blockchains have been supported by Accenture and Digital Asset Holdings CEO Blythe Masters, and criticized by Jon Matonis and legendary cryptographer Nick Szabo, among others.

Another concern is the privacy and semi-anonymity of Bitcoin. Many governments have expressed the position that private digital currencies shouldn’t be tolerated because they can facilitate criminal activities and money laundering, and make tax collection much more difficult. So, on the one hand governments wish to modernize the financial system with blockchain technology, but, on the other hand, they want to remove privacy.

Concepts and implementations of blockchains without privacy, where all users are explicitly identified, and all transactions traceable by the government by design, are beginning to appear.

The website of “identifiable digital currencyGreenCoinX highlights a statement of Bill Gates in a 2014 Bloomberg TV interview:

“The customers we’re talking about aren’t trying to be anonymous, they’re willing to be known, so Bitcoin technology is key, and you can add to it or you could build a similar technology where there’s enough attribution where people feel comfortable that this is nothing to do with terrorism or any type of money laundering,” said Gates.

GreenCoinX, developed by GreenCoinX Inc., a company jointly owned by lead developer Nilam Doctor and investment company GreenBank Capital Inc, has digital identification built-in.

“Other cryptocurrencies are not identifiable and, therefore, those cryptocurrencies are not only susceptible to be used for illegal purposes, but are not easily taxable by governments,” state the developers. “These concerns make global acceptance of cryptocurrency transactions more difficult. GreenCoinX provides a solution by adding email and phone identification to all GreenCoinX transactions. Those intending illegal activities will likely not use GreenCoinX as they can be easily identified. Furthermore, global governments will be able to collect taxes based on GreenCoinX transactions with country-by-country rules for each type of transaction.”

GreenCoinX is clearly and unambiguously targeted at governments. The developers hope that governments around the world will adopt their digital currency to automate tax collections in the context of an efficient digital economy. The government section of the GreenCoinX website invites all governments to contact the developers to build custom implementations of GreenCoinX tailored to specific national requirements and laws.

“GreenCoinX is flexible and modifiable such that each government can decide what identification rules they require for a GreenCoinX transaction and what country-specific taxes should be attached to each transaction,” reads the call for interest. “Additional parameters can be added on an as-needed basis depending on the requirements of each country.”

The GNU Taler project, promoted by the Free Software Foundation and developed in the GNU framework in collaboration with INRIA, is a new free software system for electronic payments under development. Unlike BitCoin or cash payments, Taler will be aimed at ensuring that governments can easily track their citizens’ income and thus collect sales, value-added or income taxes. Taler will not be a new currency, but use an electronic mint holding financial reserves in existing currencies such as U.S. dollars, euros or bitcoin.

The government section of the GNU Taler website notes that, with Taler, the receiver of any form of payment is known, and the payment information comes attached with some details about what the payment was made for. “Thus, governments can use this data to tax businesses and individuals based on their income, making tax evasion and black markets less viable.”

However, GNU Taler is different from GreenCoinX because, while it doesn’t protect the identity of the merchant, it does protect the identity of the customer. The identity of a customer won’t be revealed to the merchant, and the government won’t be able to learn how consumers spend their electronic money.

“To facilitate [end user anonymity], we are developing a system for anonymous payment called GNU Taler,” said Free Software Foundation founder Richard Stallman in a comment posted to the Institute for Ethics and Emerging Technologies website. “With anonymous payment, we can put an end to surveillance-based web services that collect dossiers about their users.”

The GNU Taler project seems an interesting attempt to put together two conflicting requirements – anonymity for consumers and ability for the government to tax merchants. However, the government doesn’t want to know only how much a merchant earns, but also who buys what. Therefore, it seems likely that governments would prefer simpler systems with no privacy at all, such as GreenCoinX.

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Google Launches Android Pay to Compete with Apple Pay and Boost Mobile Payments

In February, Bitcoin Magazine reported Google’s preliminary announcement of Android Pay. In June, we reported the official announcement of Android Pay at the annual Google I/O event on May 28 and 29, where Google revealed more information on its upcoming payment platform.

On Thursday, September 10, Google announced that it is beginning to roll out Android Pay.

“We’ll be rolling out gradually over the next few days, and this is just the beginning,” notes the announcement. “We will continue to add even more features, banks and store locations in the coming months, making it even easier to pay with your Android phone.”

Android Pay works with all NFC-enabled Android devices (running KitKat 4.4+), on any mobile carrier, at every tap and pay-ready location across the U.S. Android Pay will support credit and debit cards from the four major payment networks: American Express, Discover, MasterCard and Visa, issued by the most popular banks and credit unions.

Existing Google Wallet users will be able to access Android Pay through an update to the Wallet app. For new users, Android Pay will be available for download on Google Play in the next few days. Currently, seven out of 10 Android phones in the U.S. are equipped for Android Pay, and the app will come pre-installed on new NFC-enabled Android phones from AT&T, T-Mobile, and Verizon Wireless.

“Starting Thursday, shoppers will be able to use their phone to pay at more than one million retail stores in the U.S. that have point-of-sale registers equipped with near field communication technology, known as NFC,” Fortune reports. “Android Pay incorporates fingerprint biometrics to authenticate payments, whereby people verify their identity by pressing their finger onto their phone’s screens.”

Android Pay is, evidently, Google’s response to Apple Pay. The two systems are remarkably similar, but Android Pay seems more flexible – as is usually the case when comparing Apple’s walled garden to Android’s more open ecosystem. Android owns a much larger slice of the mobile devices market, especially in the developing world where mobile payments are growing faster. According to IDC, Android dominated the smartphone market with an 82.8 percent share in the second quarter of 2015, and it’s the only mobile OS whose share is growing, while iOS, Windows Phone and Blackberry are all declining. Android Pay could, therefore, boost mobile payments.

“Android Pay doesn’t store or transmit your credit card number,” notes The Wall Street Journal. “Instead, like Apple Pay, it relies on an industry-standard approach called ‘tokenization.’  After you enter a card into Android Pay, the app generates a unique code called a token. Each card has its own token, and each token is specific to each Android. When you make a purchase with Android Pay, this token is used to create yet another temporary token to complete a purchase.”

After launch, Android Pay will support in-store payments in more than 1 million checkout stands in the U.S. that currently work with Android Pay. Besides adding more stores, Google will enable in-app payments via Android Pay. The feature, according to the Android Pay developers website, is coming soon. “Android Pay requires no changes to your payment processing,” reads Google’s invitation to developers wishing to integrate Android Pay into their apps. Apparently, Google will offer developers the possibility to channel all sorts of payments in their apps through the enhanced authentication and security features of Android pay, and leave the rest as it is.

“Leading payment gateways and processing platforms are also adding support to make it even easier for developers to enable Android Pay,“ says Google. Bitcoin-friendly companies Braintree and Stripe are among the payment processors integrating Android Pay in their platforms.

It is also possible that Bitcoin wallet and payment apps developers will integrate Android Pay. According to information currently available, it appears that Bitcoin operators will be able to do so.

“We are doing it in a way so that anybody else can build a payments service on top of Android,” Sundar Pichai – who was announced as the next Google CEO in August – said in March. That seems to imply that any external Bitcoin service will be able to integrate Android Pay. More will be known when further details of the Android Pay developer program are released.

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UPDATED: CoinWallet’s September Stress Test Begins with $48,000 in Free Bitcoin

Updated on 9/10/2015 at 12:59 EST: The bitcoin network has begun to show signs of stress as CoinWallet conducts its promised “major stress test” with a twist. Instead of generating all the transactions itself, the UK-based exchange released the private keys to hundreds of addresses containing small amounts of bitcoin. Thousands of transactions have flooded the network as users seek to send the bitcoin held by these addresses to their own wallets. CoinWallet has indicated that it intends to give away $48,000 in free bitcoin using this method. At the time of writing, there were over 70,000 unconfirmed transactions waiting to be processed by the network. Bitcoin Magazine will keep you updated as the effects of this “stress test” become clear.

Updated on 9/2/2015 at 11:43 EST: As of September 2, transaction rates indicate that the stress test by CoinWallet has likely begun. At time of writing, over 23,000 transactions were waiting to be confirmed by the network. Bitcoin Magazine will continue to monitor the network status and provide updates.

CoinWallet, the U.K.-based Bitcoin mining and wallet business has said it will be running another “stress test” in early September to test the Bitcoin network, according to International Business Times.

The company told the international journal that this round of “test” or “spam” attacks “will likely render most standard wallet software worthless and create nearly a 30-day backlog” in the system.

Bitcoin Magazine reached out to CoinWallet to learn more about the company’s plans but received no response by time of publication.

Stress Test will hammer the Bitcoin network

Much like its previous stress test in early July of this year, CoinWallet’s so-called “dust attack” will flood the network with thousands of small, spam-like bitcoin transactions that are large in data but small in value.

A backlog of thousands of transactions with almost no value (such as 0.0001 bitcoin) waiting to be confirmed can potentially tie up the network for hours.

Making it clear which side of the ongoing blocksize debate it’s on, CoinWallet said that it needs to demonstrate that the current Bitcoin blocksize is inadequate and does not meet the demands of a growing bitcoin market.

Bitcoin companies take steps to prepare

As reported previously, exchanges and wallet companies are developing strategies including BitGo’s “surge pricing” to deal with these nuisance attacks and may even at some level appreciate that testing may show the strength of the network.

Mycelium Community Manager Dmitry Murashchik told Bitcoin Magazine:

“Mycelium was hit pretty hard by the last stress test, but we have implemented changes to deal with it. On our back-end we moved to a faster database and linked our nodes so they communicate transactions directly to each other to stay in sync.

“We changed our wallet to automatically connect to another node if the current one fails, added the option to rebroadcast unconfirmed transactions in case some nodes didn’t hear them, and added dynamic fees calculated based on how clogged up the network is to make sure your transaction still gets included in the next block,” Murashchik added.

Alena Vranova, CEO of SatoshiLabs, says that they are fully prepared for the tests and are also gearing up for an increased blocksize noting, “Some companies attempt to cast fear, uncertainty or doubt on their competitor’s products. Let’s wait for the stress test in practice to judge its impact.”

Vranova sees this exercise as just as much about a political statement as about testing the network:

“We strongly feel that the bitcoin community deserves a free and fair debate on the subject: there should be zero censorship around BIP 101 discussions in any forum, including online discussion boards such as BitcoinTalk, /r/Bitcoin, or anywhere else. We stand against any sort of information censorship. A genuinely open approach, with full public access to all available information, is the best way for Bitcoin to proceed.”

QuadrigaCX CEO Gerald Cotten is not really bothered by the upcoming test.

“We use BitGo for our hot wallet, a third-party multi-signature wallet solution,” he told Bitcoin Magazine. One of the ways that we handle this type of thing is that we use a dynamic fee structure which changes based on the network load. Usually, the fee we pay on outgoing transaction is about $0.03. However, when ‘spam attacks’ are taking place we often increase it automatically to as much as $1 per transaction. Basically, we pay whatever is needed to ensure that the transaction will be confirmed within the next few blocks.”

Mycelium’s Murashchik is taking a positive view of all this saying:

“[A]lthough the first stress test was painful, it has shown us whatever weaknesses we may have had, which we have since patched, and we are looking forward to the next stress test to see how well those things we implemented will work. We believe we’re ready for it.”

BitPay also released an updated version of their Copay wallet that includes dynamic transaction fees to ensure that transactions are confirmed quickly, even during transaction backlogs. “Now Copay users can count on their wallet to scale fee levels based on the bitcoin network load, ensuring their transactions aren’t delayed,” the company said in a statement.


Photo sara marlowe / Flickr (CC)

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Cubits Partners with Gobal Payment Provider ApcoPay for Bitcoin Payments

Cubits, an all-inclusive platform to buy, sell and manage bitcoin, has entered into a strategic partnership with ApcoPay, a global online payment service provider to enable more than 500 businesses to accept bitcoin, as well as major cards and e-wallets.

“Our collaboration with ApcoPay is another important step for us in bringing Bitcoin to the global marketplace,” said Cubits CEO Tim Rehder. “Through ApcoPay, we reach a wide audience of businesses and can make them aware of Bitcoin’s advantages easier than ever before. It is our main goal to develop a flexible payments ecosystem for merchants and customers alike. With ApcoPay, we found a trusted partner with which to grow.”

Through the partnership, both Cubits and ApcoPay hopes to urge merchants and businesses to accept bitcoin and to protect their funds using the ApcoPay platform, which provides state-of-the-art security and fraud prevention protocols, PCI-DSS compliance, a full anti-fraud prevention suite and 3DSecure.

“We’re very pleased with the transaction and exchange speed of Cubits, and our customers are as well,” said Ian Pellicano, Director of Apco Limited. “With exceptional KYC protocols in place and a product-oriented mindset, we, at ApcoPay, feel that we are in great hands as we begin to offer Cubits’ Bitcoin processing solutions after an easy integration process via Cubits’ API. We look forward to experiencing continued growth with Cubits as the Bitcoin economy matures.”

Continuing its momentum, Cubits will continue to seek payment solution and gateway providers to allow more businesses and merchants to accept bitcoin with ease, “without any need to sign contracts with the payment providers individually.”


Photo Wonderlane / Flickr(CC)

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