Scalability The core Bitcoin network can scale to much higher transaction rates than are seen today, assuming that nodes in the network are primarily running on high end servers rather than desktops. Bitcoin was designed to support lightweight clients that only process small parts of the block chain (see simplified payment verification below for more details on this). A configuration in which the vast majority of users sync lightweight clients to more powerful backbone nodes is capable of scaling to millions of users and tens of thousands of transactions per second. Scalability targets VISA handles on average around 2,000 transactions per second (tps), so call it a daily peak rate of 4,000 tps. PayPal, in contrast, handles around 4 million transactions per day for an average of 46 tps or a probably peak rate of 100 tps. Let's take 4,000 tps as starting goal. Current bottlenecks Today the Bitcoin network is restricted to a sustained rate of 7 tps by some artificial limits. The protocol has two parts.
Software Bitcoins: Why They're More Than a Bubble The volatile rise-and-fall of Bitcoin has prompted lots of stories explaining why the online virtual currency is a classic bubble. Many compare it to tulip mania in 17th century Holland, where prices of rare tulip bulbs soared to absurd heights and then crashed, ruining the speculative investors who had bought them. But the Bitcoin phenomenon is more than a bubble. The scale of the recent boom-and-bust has been staggering indeed. Such monumental appreciation and volatility are clearly the result of speculation — people buying the online currency just because they think its value will rise, not because they want to use it to purchase goods and services. (MORE: No Money, No Problems: Canada Considers Completely Digital Currency) The technicalities of the Bitcoin system are complex, but to make this online currency more successful than previous versions, the designers overcame two key challenges. Unlike assignats, Bitcoins have no backing at all. Governments will fight back, no doubt.
CCN: Bitcoin News, Price, Analysis, & Mining Reports P2sh_safe_address This paper describes a mechanism for using Bitcoin’s P2SH functionality to build a stronger, more secure web wallet. Background Bitcoin addresses (where your bitcoins are stored) are secured today using public key cryptography and the Elliptic Curve Digital Signature Algorithm (ECDSA). Client-side wallets The advantage of a client side wallet is that your bitcoin keys are entirely your own. Web Wallets Web Wallets have the advantage that they are accessible through the web, from anywhere. But the disadvantages are obvious. Pay To Script Hash (a.k.a. P2SH is a new type of bitcoin address which was introduced as part of Bitcoin Improvement Proposal 16 (BIP 16) in early 2012. Unlike traditional bitcoin addresses, which are secured with a single ECDSA key, 2-of-3 addresses are secured with three ECDSA keys. Using a 2-of-3 address offers several advantages: A Proposal for a 2-of-3 Address Web Wallet Implementation 2-of-3 Address Creation The server will then create a 3rd key. Maintaining Privacy
3rd Party Payers Feds seize money from Dwolla account belonging to top Bitcoin exchange Mt. Gox The Department of Homeland Security has apparently shut down a key mobile payments account associated with Mt. Gox, the largest Bitcoin exchange. Chris Coyne, the co-founder of online dating service OKCupid, tweeted out an e-mail he received from Dwolla this afternoon. Dwolla confirmed the change to the New York Observer , which first reported the story. "The Department of Homeland Security and US District Court for the District of Maryland issued a ‘Seizure Warrant’ for the funds associated with Mutum Sigillum’s Dwolla account (a.k.a. It isn't yet clear why this seizure happened, and Dwolla isn't saying anything beyond confirming the court order. Using a payment service like Dwolla is one of the easiest ways for US residents to buy Bitcoins.
Coinbase's Fred Ehrsam Drops Knowledge on Paul Krugman E-Currency Amazon’s new “virtual currency” of dubious benefit to customers Straight from Amazon's press room comes the news that Amazon has officially launched Amazon Coins, which the company excitingly claims are "a great way for customers to save money when they buy apps, games and in-app items" for Kindle Fire users. To help everyone start using Amazon Coins, Amazon has deposited 500 of them into the accounts of all existing and new Kindle Fire users in the US. Amazon Coins were initially announced back in February, with the company saying they're primarily designed to benefit developers and consumers. "For customers, Amazon Coins is an easy way to purchase apps and in-app items on Kindle Fire, and for developers it’s another opportunity to drive traffic, downloads and increased monetization," proclaims this morning's press release. The biggest problem is the inevitable misalignment between "coins" purchased and "coins" used. From Amazon's perspective this is fabulous.
What is the best way to store Bitcoins? Hosted Wallets The most common way I’ve seen is using traditional Hosted Wallets. There are many services that run these (for free), the most obvious being the exchanges where most people buy Bitcoins to begin with. Also popular is Blockchain.info. The main advantage of this method is that the convenience level is very high. Running your own wallet If you are up for it, you can install and run a wallet server on your own machine. The flipside to getting enhanced security (if you are good) is that convenience takes a big hit. Most people I know running their own wallets are doing it to have “cold storage”. For cold storage, many people also take the added precaution of creating paper wallets. P2SH Wallets This is the new way I was talking about, and as far as I know, only one company called Bitgo is doing it so far. What they are doing is pretty interesting. P2SH enables you to create Bitcoin accounts that always require MULTIPLE keys to complete any given transaction instead of just one...
Wallets Wary of Bitcoin? A guide to some other cryptocurrencies It might have passed you by, but an essential part of the Internet's infrastructure took a heavy knock last week. The Silk Road—you know, the website where you can buy any drug imaginable—was subjected to a series of distributed denial of service (DDoS) attacks. Calling the Silk Road "essential" might seem an exaggeration, but it isn't if you're one of its many regular users. Right now, Bitcoin is undeniably a mainstream currency, even if it is not necessarily popular in the sense of being used by a significant proportion of society. That isn't to say Bitcoin doesn't have issues, though. For all Bitcoin’s problems, the underlying concept is an attractive one: a cryptographically secure and anonymous currency that doesn't take a cut from transactions. For all the Bitcoin hype, it's not hard to see that there's a big problem in how bitcoins are actually used. Businesses have started accepting Bitcoin to their credit.