What’s New in Bitcoin Core 0.13.0?

What’s New in Bitcoin Core 0.13.0?

Bitcoin Core 0.13.0, the thirteenth generation of Bitcoin’s reference client as first launched by Satoshi Nakamoto almost eight years ago, has now been tagged for release. This is one of the final steps in the software release process and initiates the Gitian build process.

Bitcoin Core 0.13.0 was developed by some 100 contributors over a period of about five months. And while much of the development effort over this time has also been focused on Segregated Witness, which will be activated only in a future minor release of the software, Bitcoin Core 0.13.0 includes about a dozen notable improvements compared to Bitcoin Core 0.12.0.

These are the most important changes.

Child Pays for Parent

The number of transactions on the Bitcoin network has been steadily growing over time. As a result, more blocks have been filling up, and miners typically charge higher fees to include transactions into blocks. Transactions that don’t include sufficient fees usually take longer to confirm, or perhaps even never confirm at all. This has proved to be somewhat problematic, especially in periods where so-called “stress tests” were conducted on the network, with spikes in the total number of transactions on the network and substantial transaction delays.

Individual users can solve this problem by including a higher fee on their transactions, incentivizing miners to prioritise these transactions. This is possible even after a transaction is sent, using Opt-in Replace-by-Fee (RBF); however, not many wallets include this option yet. Additionally, RBF is only an option for the sender of a transaction. Up till now, the receiver had no way to bump the fee for an incoming transaction to speed up confirmation.

This problem is effectively solved with a trick called “Child Pays for Parent” (CPFP). CPFP is a policy used by miners to select which transactions to include in blocks. With CPFP, miners don’t necessarily pick the highest paying (and valid) transactions, but instead, pick the most profitable set of transactions. In other words: they will select a low-fee transaction if a subsequent transaction that relies on the low-fee transaction offers a high enough fee to compensate. The miner will include both at the same time.

In practice, this means that the receiver of a low-fee transaction can “attach” a high-fee transaction, spending the same coins to himself. Incentivized by the new, high-fee transaction, a miner will include the set of transactions. As such, the receiver won’t have to wait as long for a confirmation, while the miner can increase his income.

Compact Block Support

Bitcoin’s peer-to-peer protocol is currently somewhat inefficient. Nodes send each other most transaction data twice: once as a transaction as it is initially sent over the network, and once as part of a block when the transaction is confirmed.

This has some disadvantages. For one, sending transaction data twice requires more bandwidth than it really should, which adds to the cost of running Bitcoin Core. Second, and perhaps more importantly, forwarding new blocks to several peers at the same time can cause significant outbound bandwidth spikes. This potentially disrupts internet-usage each time a new block is found, which is potentially annoying for users. And perhaps, more importantly, it can slow down block propagation over the network as well. Slow block propagation can, in turn, favour bigger mining pools, thereby incentivizing a more centralised mining landscape.

Compact Blocks (BIP 152), developed by Bitcoin Core and Blockstreamdeveloper Matt Corallo, are designed to decrease excess data-transmission. When a new block is found, nodes initially only communicate very compact hashes of transaction data. As nodes have already received the full transaction data when it was originally sent over the network, they can use these hashes to figure out which transactions are included in the block and reconstruct the block themselves.

This trick does not always work out perfectly, however. If a node did not yet receive the initial transaction before receiving the hashes, that node, of course, can’t select the transaction. Additionally, in rare cases a wrong transaction may hash into a right hash, fooling the node into believing it received the right transaction until it tries to reconstruct the block and finds it doesn’t add up.

In both these cases of failure, the node simply requests the specific transaction data after all. Even with only some complete transactions in them, Compact Blocks will transmit over the network much faster, and require significantly less bandwidth.

Hierarchical Deterministic Key Generation

Up till now, Bitcoin Core generated a new and completely random public and private key pair for each new Bitcoin address. While this is important for security and privacy reasons, it can also be a bit of a burden for users. In order to secure all private keys against loss, they need to make regular backups.

Hierarchical Deterministic (HD) Key Generation (BIP 32), a cryptographic trick developed throughout 2012 and 2013 by Bitcoin Core developers Gregory Maxwell and Dr. Pieter Wuille, and Armory-developer Alan Reiner, solves this problem. With HD key generation, Bitcoin Core creates a completely new key pair for each new address, but all these keys are derived from a single, 12-word seed. As long as users remember this 12-word seed, they can re-generate all private keys and access all their funds.

It should be noted that HD Key Generation is not a new feature in the Bitcoin world. Many wallets already included the option for several years. It just never existed in Bitcoin’s reference client — until now.

Performance & Security

And of course, Bitcoin Core 0.13.0 introduces a significant list of performance and security upgrades. The full extent of these improvements is beyond the scope of this article (see Bitcoin Core 0.13.0’s release notes for all the details) but in short…

The database cache memory has been increased, which allows nodes to speed up transaction validation and more. The Bitcoin command line tool now allows users to type passphrases and other sensitive information interactively, improving security by not storing this information in plain text. The software is updated to use C++11 and Python 3, newer versions of the programming languages, that allow for more powerful features. ARM (a specific microprocessor architecture) binaries for Linux are now part of the release, so users don’t have to compile this for themselves. Data concerning which transactions in a mempool rely on each other (as utilised with CPFP) can be communicated to external programs. Nodes on the network can request to receive only transactions that meet a certain fee threshold to prevent DoS attacks. And, lastly, there have been a lot of low-level improvements to the peer-to-peer, remote procedure call, and messaging system (ZMQ) protocols.

This blog is originally published at Bitcoin Magazine on Aug 22,2016.



Tian Jia: Bitcoin traders made 700% the returns were really great

Tian Jia: Bitcoin traders made 700% the returns were really great

For years, Tian Jia made the kind of returns on his money that investors in the rest of the world could only dream of.

The 29-year-old Beijing-based programmer had $440,000 on deposit at the Hong Kong bitcoin exchange Bitfinex until last week and, on good days, would wake up to find a couple thousand more dollars in his account than when he went to sleep. The earnings came from lending his dollars to traders who wanted to leverage their bets. The exchange allowed lenders like Tian to set their own rates, and he says margin traders paid as much as 700 percent annualized interest to borrow dollars. At times, he earned as much in one day as holders of U.S. Treasuries earn in a decade.

“The returns were really great,” Tian said. “Bitfinex was quite innovative and among the first to come out with products including margin lending.”

That lucrative practice came to a stunning halt last week after Bitfinex said it was hacked for 119,756 bitcoins, worth about $70 million at current prices. While his U.S. dollars were not stolen, Tian is being forced to forfeit 36 percent of his deposit—about $160,000—as part of a rescue plan the exchange is imposing on all its customers. He said that will more than wipe out the profits he made through lending money.

Bitcoin How Multi-Signature Security Works
Image Credit: Bloomberg

Bitfinex, which was the largest bitcoin exchange for U.S. dollar trading prior to the attack, says leaning on its users to cover the loss is the best way to avoid insolvency that would tie up deposits with legal proceedings for years. The exchange hopes to repay the lost money: Customers are receiving tokens that Bitfinex says will one day be redeemable for shares in its parent company, which would give its customers a stake in future profits. Zane Tackett, a director at Bitfinex, said the exchange is also offering to pay anyone who helps recover the bitcoins a reward of 5 percent of the money, a bounty that could total more than $3 million.

The episode has triggered legal consultations and soul-searching among Tian and others like him. Whether they accept the exchange’s offer or fire back with lawsuits will determine the latest chapter in bitcoin’s colorful history.

“Some users are still reaching out to lawyers to weigh their options, but going through litigation does mean a lot of risks,” Tian said. “The losses aren’t as bad as I initially expected, but there are still a lot of questions regarding the method of compensation.”

Among the unanswered questions: How did Bitfinex calculate the 36 percent haircut? Is the exchange itself shouldering any losses? What are the legal guarantees that the new tokens will be redeemable in the future? The exchange did not reply to multiple inquiries from Bloomberg. The tokens, which were issued at a total value of about $70 million, immediately fell to about $21 million in their trading debut Thursday on Bitfinex.

The discount suggests little confidence in the exchange’s future. “Bitfinex has to prove that it can survive first,” said Peter Ng, a Hong Kong-based user who is facing more than $200,000 in losses. “We need to see how transparent the company is going forward. If you lose trust, then you lose your customers.”

Still, he says he had feared even worse. In February 2014, Tokyo-based Mt. Gox—then the world’s largest bitcoin exchange—announced that $480 million was stolen by hackers and filed for bankruptcy weeks later. Its users are still waiting for liquidators to return a fraction of the deposits that did not disappear.

Bitcoin How Your Bitcoin is Secured
Image Credit: Bloomberg

Litigation against Bitfinex could also drag out since Hong Kong, like most countries, has little legal infrastructure in place for regulating bitcoin exchanges or protecting owners of digital currencies. The city’s central bank has said bitcoin falls outside its authority. KC Chan, the secretary for financial services and the treasury, has said the government doesn’t yet see a need for legislation.

Bitcoin exchanges could still face legal liabilities under general anti-money laundering laws, and bitcoin transactions may be subject to rules on commodity trading, according to the law firm Kobre & Kim. Customers may also try to recover funds based on claims of negligence or manipulation on the part of the exchange, according to Jef Klazen, a New York-based partner at the firm.

“If your account wasn’t actually hacked but received this 36 percent haircut, you might be able to pursue a legal claim on the theory that Bitfinex misappropriated your funds because it made a unilateral decision to take money out of your account,” Klazen said. Still, he says a lot will depend on what kind of legal contracts users signed with Bitfinex when opening accounts. He reviewed the terms and conditions on the exchange’s website and thinks that disputes may need to be resolved using an arbitrator selected by the exchange.

“Depending on what jurisdiction you’re trying to sue in, a court might view that as foreclosing your ability to pursue a lawsuit,” said Klazen.

Bitcoin How Hackers Pulled Off a $65 Million Dollar Heist
Image Credit: Bloomberg

While security experts have stressed for years that users should minimize deposits at bitcoin exchanges—a painful lesson from Mt. Gox—many ignored that advice due to Bitfinex’s unique margin lending system. The platform allowed traders to multiply the size of their bets by borrowing money, but the practice required both lenders and borrowers to keep their funds at the exchange. That made it a prime target for hackers. About $38 million was on loan to margin traders immediately before the attack, according to bfxdata.com, a site that tracks activity on Bitfinex.

Among those who borrowed heavily is 34-year old Zhuo Shuoji. The Beijing-based trader says his annualized borrowing rates were usually less than ten percent, but would jump to extraordinary levels when bitcoin volatility rose. Despite the high cost, he says he made good profits until the hack. Now, he just wants to get back whatever money he can.

“The key is for us to get our remaining funds back first,” said Zhuo, adding that he is facing about $700,000 in potential losses. “Then we need to see that this exchange can remain in operation for the tokens to have any value.”

The risk for Bitfinex is that if too many customers like Zhou pull their money out and don’t come back, profits from trading fees and margin lending will tumble, throwing into question the exchange’s plan to earn back the loss over time. Still, Bitfinex’s ability to begin restoring operations, defend against follow-up attacks, and keep users from completely giving up hope has earned it some credibility.

“The way the whole thing was handled is already an improvement compared with older cases where either the exchange went bust or let users shoulder all the loss,” said Tian. “They found a middle way and solutions created could become a road map for the future.”

This article is originally published on Bloomberg.com

Bitcoin – The State of Cryptocurrency in India in 2016

The revolution of blockchain is upon us, with the smartest and brightest minds in the world trying to work out its implications and its application. So far its widely-known application has been on Bitcoin, the crypto currency created in 2009 by a person using the alias ‘Satoshi Nakamoto’. Bitcoin enables decentralised transactions without any credit card or central bank intervention. It allows users to transfer currency with the help of the Internet, and blockchain is the underlying technology that helps clearing transactions and supports the process of mining and pricing bitcoins.

It is critical to secure bitcoin wallets from hackers. Bitcoin transactions are not reversible and are anonymous with a two-factor authentication, thereby making it safe. But the backup location should also be protected,” says Rajashekara V. Maiya, AVP and Head – Finacle Product Strategy, EdgeVerve.

Every time a transaction happens, it needs to be verified and validated between the members of a network. The process of verification is carried out by ‘miners’ who create a ‘block’ of all the transactions occurring over the bitcoin network in every few minutes. The banks/ members of the network only are privy to the transactions performed, under blockchain technology.

Image Credit: yourstory

Blockchain technology is a distributed ledger technology that allows banks to modernise legacy processes, reduce costs, enhance operational efficiencies and provide authenticity of transaction data. However, it should be remembered that blockchain-based applications cannot be used by a bank in isolation. A network of banks should be in agreement to leverage this technology. It dissuades the need for any central authority.

Why India needs Bitcoin?
Given that 60 percent of the population in India is unbanked, Prime Minister Narendra Modi and Reserve Bank of India uphold financial inclusion as top priority. Therefore, India is viewed by many to have significant potential for Bitcoin usage and adoption. The primary ways to obtain Bitcoin are buying on an exchange, mining new ones and accepting them for goods and services.

A financial infrastructure based on Bitcoin and its underlying technology blockchain is likely to herald a revolution like Internet did. The stored currency notes can be stolen easily but one can recover Bitcoin wallet at any point of time by locating wallet words or wallet backup folder. Bitcon was fundamentally created to solve the problem of creating a digital property such a decentralised digital ledger, keeping track of all transactions and retaining the accuracy of the data. Currently, the value of one Bitcoin is Rs 44,254.66. 

Very similar to the Internet, Bitcoin is a free-to-join, open-source decentralised network. Just like mobile phones helped India skip the landline generation in connecting a billion Indians, embracing Bitcoins can help India skip the current generation of financial infrastructure and move India directly to the future of finance,” says Saurabh Agrawal, Co-Founder, Zebpay, a mobile Bitcoin company.

Zebpay has over 60,000 users, who use the app to buy, sell, store and spend bitcoins. With 5,000 to 6,000 users are added every month, the company aims at adding one lakh users by end of 2016. On an average, more than 4,000 transactions are done on Zebpay per day. It did more than 120,000 transactions in the month of June. This year, the startup has raised $1 million in Series-A funding.

Globally Bitcoin Companies raised almost 1billion in VC funding in 2015
Image Credit: yourstory

World Bank’s annual report stated that India was the world’s largest remittance recipient in 2015, despite experiencing a $1-billion drop from the previous year, the first decline in its remittances since 2009. India retained its top spot in 2015, attracting about $69 billion in remittances, down from $70 billion in 2014.

“In India, which happens to be the biggest market for remittance at over $70 billion, the highest transaction amount is as low as $200. Even for such amounts, users pay about 15 percent fees to the banks or other intermediaries. Once implemented, blockchain can allow the remitters to save about $7 billion. As compared to China, which does over Rs 10,000 crore per day, India is still at a nascent stage for adoption of blockchain,” says Rajashekara.

State of Bitcoin adoption in India
Bitcoin witnessed a slow beginning in India. However, banks are now acknowledging its advantages. According to an analyst, Bitcoin trade in the country has grown rapidly, at an estimated Rs 500 crore per year, with 50,000 Bitcoin wallets and over 700-800 Bitcoins being operated every day.

“The global Bitcoin trade is skyrocketing, touching $35 billion per month in December 2015. Billion-dollar companies like Dell, Expedia, Overstock, Rakuten (Japan’s Flipkart) have started accepting Bitcoins on their websites. Bitcoin companies raised almost $1 billion in VC funding in 2015,” says Saurabh.

Mohit Kalra, Founder and CEO of Coinsecure, is of the view that 2016 will also witness a growth of use of Bitcoin for services such as remittance, charitable donations and international payment gateways. Delhi-based Coinsecure offers an algorithmic trading bitcoin exchange, a blockchain explorer, free APIs for all their products. Recently, it raised over $1.2 million from angel investors.

The State of Bitcoin in India
Image Credit: yourstory

Supply and demand of Bitcoin
Since the mining industry is not as strong in India as it is globally, the country has witnessed a huge demand. Owing to the dearth of supply, Bitcoin prices sometimes go up to 3-4 percent, as compared to global exchanges such as Bitstamp or BTC-E. The need of the hour is to develop a strong Bitcoin industry in India, to bridge the demand-supply gap and prevent users from relying on global sources.

The supply of Bitcoin is limited to 21 million units and approximately 15 million are already in circulation, as per various reports. Until mid- 2016, the Bitcoin mining reward was 25 bitcoins per block (approximately every ten minutes) and is scheduled to halve to 12.5 Bitcoins per block for four years. On July 9, the Bitcoin mining reward dropped by 50 percent and has been reduced to 12.5 BTC, which may have significant impact on the miners.

Legality of Bitcoin in India
In 2013, the Deputy Governor of the Reserve Bank of India ruled out the adoption of Bitcoin, making a statement that RBI had no plans to regulate it. The concept of cryptocurrency and Bitcoin is still in its nascent stage in India and does not have regulatory clarity.

According to Nishith Desai, Founder of law firm Nishith Desai Associates, Bitcoin are not illegal in India and this is in consonance with an international approach.

A proper regulatory framework around Bitcoin will automatically increase the adoption rate among merchants and consumers in India. RBI governor Raghuram Rajan had noted in a statement that digital currencies such as Bitcoin would be helpful in the transition towards a cashless society.

The white paper by Nishith Desai Associates on Bitcoin stated that the recent past has seen an enormous growth in Bitcoin as a form of payment. This is because the fee charged in case of making payments with the use of Bitcoin is lower than the general 2-3 percent interest imposed by credit card processors.

The RBI, which has not yet come out with an ultimate verdict, has issued a press release cautioning users, holders and traders of virtual currencies about the potential financial, operational, legal and security related risks.

Top cities in terms of trading over the past six months are Mumbai, Delhi, Pune, Bengaluru, Hyderabad, Kolkata, and Chennai,” says Sathvik Vishwanath, Co-founder, Unocoin.  a bitcoin service providerwhich has more than 50,000 users and its web traffic has increased to more than 1,000 per cent over the last one year. Unocoin offers people Rs 200 for free on signing up.

Propelling the future of business
Recently, Infosys launched a blockchain framework at Finacle to allow customers to overhaul and simplify complex, transaction-driven services. This is a permitted ledger, which will help banks deploy blockchain-based services for various business areas. It also offers support to international, cross-border transactional business and enables secure, peer-to-peer transactions that can be verified without any centralised authority.

Our blockchain solutions development is undertaken in R&D centres in India and Ireland. We have over 40 employees certified in this technology from Blockchain University in US. Further, it can be applied across several industries, in addition to the financial sector and enable the company to co-innovate with clients,” says Rajashekara. 

IBM in its recent study on blockchain revealed that financial services, supply chains, Internet of Things (IoT), risk management, digital rights management and healthcare are some of the areas that are poised for dramatic change using blockchain networks. With its open source contributions and resources for blockchain software developers, IBM is advancing the science of blockchain to remove complexity, making it more accessible.

Source: yourstory