Bitcoin

Blockchain, Part I: Introduction and Cryptocurrency

Petros Koutoupis — Mon, 09 Apr 2018 15:45:00 +0000

It seems nearly impossible these days to open a news feed discussing anything technology- or finance-related and not see a headline or two covering bitcoin and its underlying framework, blockchain. But why? What makes both bitcoin and blockchain so exciting? What do they provide? Why is everyone talking about this? And, what does the future hold?

In this two-part series, I introduce this now-trending technology, describe how it works and provide instructions for deploying your very own private blockchain network.

Bitcoin and Cryptocurrency

The concept of cryptocurrency isn't anything new, although with the prevalence of the headlines alluded to above, one might think otherwise. Invented and released in 2009 by an unknown party under the name Satoshi Nakamoto, bitcoin is one such kind of cryptocurrency in that it provides a decentralized method for engaging in digital transactions. It is also a global technology, which is a fancy way of saying that it's a worldwide payment system. With the technology being decentralized, not one single entity is considered to have ownership or the ability to impose regulations on the technology.

But, what does that truly mean? Transactions are secure. This makes them more difficult to track and, therefore, difficult to tax. This is because these transactions are strictly peer-to-peer, without an intermediary in between. Sounds too good to be true, right? Well, it is that good.

Although transactions are limited to the two parties involved, they do, however, need to be validated across a network of independently functioning nodes, called a blockchain. Using cryptography and a distributed public ledger, transactions are verified.

Now, aside from making secure and more-difficult-to-trace transactions, what is the real appeal to these cryptocurrency platforms? In the case of bitcoin, a "bitcoin" is generated as a reward through the process of "mining". And if you fast-forward to the present, bitcoin has earned monetary value in that it can be used to purchase both goods and services, worldwide. Remember, this is a digital currency, which means no physical "coins" exist. You must keep and maintain your own cryptocurrency wallet and spend the money accrued with retailers and service providers that accept bitcoin (or any other type of cryptocurrency) as a method of payment.

All hype aside, predicting the price of cryptocurrency is a fool's errand, and there's not a single variable driving its worth. One thing to note, however, is that cryptocurrency is not in any way a monetary investment in a real currency. Instead, buying into cryptocurrency is an investment into a possible future where it can be exchanged for goods and services—and that future may be arriving sooner than expected.

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Cryptocurrency and the IRS

Shawn Powers — Wed, 28 Feb 2018 14:28:25 +0000

by Shawn Powers

One for you, one for me, and 0.15366BTC for Uncle Sam.

When people ask me about bitcoin, it's usually because someone told them about my days as an early miner. I had thousands of bitcoin, and I sold them for around a dollar each. At the time, it was awesome, but looking back—well you can do the math. I've been mining and trading with cryptocurrency ever since it was invented, but it's only over the past few years that I've been concerned about taxes.

In the beginning, no one knew how to handle the tax implications of bitcoin. In fact, that was one of the favorite aspects of the idea for most folks. It wasn't "money", so it couldn't be taxed. We could start an entire societal revolution without government oversight! Those times have changed, and now the government (at least here in the US) very much does expect to get taxes on cryptocurrency gains. And you know what? It's very, very complicated, and few tax professionals know how to handle it.

What Is Taxable?

Cryptocurrencies (bitcoin, litecoin, ethereum and any of the 10,000 other altcoins) are taxed based on the "gains" you make with them. (Often in this article I mention bitcoin specifically, but the rules are the same for all cryptocurrency.) Gains are considered income, and income is taxed. What sorts of things are considered gains? Tons. Here are a few examples:

Mining.
Selling bitcoin for cash.
Trading one crypto coin for another on an exchange.
Buying something directly with bitcoin.

The frustrating part about taxes and cryptocurrency is that every transaction must be calculated. See, with cash transactions, a dollar is always worth a dollar (according to the government, let's not get into a discussion about fiat currency). But with cryptocurrency, at any given moment, the coin is worth a certain amount of dollars. Since we're taxed on dollars, that variance must be tracked so we are sure to report how much "money" we had to spend.

It gets even more complicated, because we're taxed on the same bitcoin over and over. It's not "double dipping", because the taxes are only on the gains and losses that occurred between transactions. It's not unfair, but it's insanely complex. Let's look at the life of a bitcoin from the moment it's mined. For simplicity's sake, let's say it took exactly one day to mine one bitcoin:

1) After 24 hours of mining, I receive 1BTC. The market price for bitcoin that day was $1,000 per BTC. It took me $100 worth of electricity that day to mine (yes, I need to track the electrical usage if I want to deduct it as a loss).

Taxable income for day 1: $900.

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Spend Bitcoin Anywhere

Shawn Powers — Wed, 27 Sep 2017 17:37:56 +0000

by Shawn Powers

I've written about Bitcoin several times during the past few years, and I still love the technology. I am a little disturbed by the amount of electricity the Bitcoin blockchain consumes using dirty power sources, but that's another discussion altogether. Although there are many places to spend Bitcoin directly, and services like Purse.io exist that allow you to spend Bitcoin at Amazon, what if you want to buy a pack of gum at the local gas station?

I recently ordered two different Bitcoin debit cards. One card is from BitPay, and one is from Shift. They both conceptually do the same thing, which is convert your Bitcoin into currency that can be spent anyplace that accepts debit cards. They work slightly differently in function though.

The BitPay card is a "reloadable" debit card that allows you to add US Dollars to your card. When you load the card, Bitcoin is converted at the current price, and the dollar amount is stored in your account. Once the card is loaded, Bitcoin is out of the equation, and fluctuating prices don't matter. If you want to know exactly how much money you have on your card, the BitPay card is the way to go.

In contrast, the Shift card doesn't have any money loaded onto it. Rather, the Shift card connects to a Coinbase account, and at the time of purchase, your Bitcoin is converted to US dollars. This is actually "cleaner" than the BitPay method, but the volatility of Bitcoin can mean your actual available money isn't consistent. If Bitcoin tanks, so does your buying ability with the Shift card.

Each card was $10 to buy, and neither has an ongoing fee to use. The transactions don't cost anything, and the only fees are when one of the cards is used at an ATM to get cash. Considering that you instantly can get cash from an ATM from Bitcoin, however, the small fee associated with the process isn't too difficult to accept.

If you've been avoiding digital currency because you don't have any way to spend it, I urge you to check out one or both of these cards. There are other options, but these seemed like the best deal, and I've personally used both.

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Hodge Podge

Shawn Powers — Tue, 21 Mar 2017 14:33:01 +0000

by Shawn Powers

For every article, I try to write something that is interesting, entertaining, educational and fun. Sometimes I even succeed. Many other times I have some things I'd like to talk about, but there's not enough of it to fill the space. This time, I decided a disjointed hodge podge would be the theme. So let's just have a virtual nerdy talk about stuff, shall we?

My Little Cloud Puff

It's really nice to have a server on the internet that is online even when you're not. Even with my two business-class internet connections (one cable modem and one DSL), the reliability of my connection is shoddy at best. The thing is, I don't really need very much in a server. I mainly use them for hosting files I want to access when out and about, or to test services, and so on. It used to be prohibitively expensive to purchase a dedicated server. Thanks to VPS options though, it's actually really cheap to get full-blown internet servers that have a dedicated public IP address. In order to get the best deal, however, it's important to think about what you need and then shop around.

For example, I like to have a server I can use as a VPN. There are affordable services, like Private Internet Access, which I do use for $40/year, but if you want your own VPN to protect your data, a VPS is perfect. The thing is, you need a specific type of VPS. It doesn't take much CPU, RAM or storage to run a VPN, but limited bandwidth on low-end servers really can be a showstopper for something like a VPN service. The key is to find a very low-end machine that has unmetered data. It usually doesn't have to be any faster than 100mbps either, because that sort of speed is still more than enough for browsing the web. (That said, it's hard to find a VPS with less than 1gbps speed.)

I'm not endorsing VPSCheap.net as a vendor, since I don't actually use it, but a quick search found this plan (Figure 1). For $20/year, you get a small server with unlimited bandwidth. For a VPN, it's perfect! Plus, with unmetered bandwidth, you can do things like run a BitTorrentSync server and not worry about getting your VPS shut off. The only downside with unmetered bandwidth is that it usually comes as a trade-off with memory, CPU and storage space/speed.

Figure 1. Although $20 is a significant amount of money, for a year, it's pretty reasonable!

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Non-Linux FOSS: Scripts in Your Menu Bar!

Shawn Powers — Wed, 23 Nov 2016 17:19:15 +0000

by Shawn Powers

There are hundreds of applications for OS X that place information in the menu bar. Usually, I can find one that almost does what I want, but not quite. Thankfully I found BitBar, which is an open-source project that allows you to write scripts and have their output refreshed and put on the menu bar.

I personally use it to fetch Bitcoin and Ethereum prices, but because you're limited only by what you can get Bash to output, it's extremely flexible. Even the method by which you change update frequency is elegant. By adding a refresh rate to the name of your script, the program refreshes only as often as you desire. You can see an example of my Bitcoin price-fetching script in the screenshot (Figure 1). Also notice the file format for my additional scripts (Figure 2).

Figure 1. Bitcoin Price-Fetching Script

Figure 2. File Format for Additional Scripts

You can download the binary or the source code here. There is also a huge library of user-contributed scripts so you don't have to start from scratch. My Bitcoin script is actually from this repository, and I based my other scripts off that. Whether you want to pull text from an API like me or possibly grep the temperature from a weather page, BitBar is simple and elegant at the same time.

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Bitcoin on Amazon! Sort of...

Shawn Powers — Wed, 28 Sep 2016 16:00:00 +0000

by Shawn Powers

I was a Bitcoin fan before it was popular. That means I had thousands of Bitcoins. It also means I sold my thousands of Bitcoins for less than $1 each. Still, the technology fascinates me, and although cryptocurrencies have risen and fallen, I'm still a fan.

There are several places to use Bitcoin on a regular basis. One of my favorites, which I've mentioned before, is the Humble Bundle. I've also ordered from Overstock.com using Bitcoin. I often look for places I can spend Bitcoin and try to shop at them when possible. Like most people, however, I usually end up buying things on Amazon.

Thankfully, with the help of Purse.IO, you can indirectly purchase items from Amazon using Bitcoin! I've been using Purse.IO for more than a year, but it seemed too good to be true, so I hesitated writing about it. The premise is this: some people have Amazon gift cards but would rather have Bitcoin. I have Bitcoin and want to buy stuff from Amazon. Using wish lists and an escrow system with Purse.IO, we trade. In fact, people are willing to give a discount in order to get Bitcoin for their gift cards, and so I can order items from Amazon and get a large percentage (sometimes more than 25%) off the retail price. I usually agree to around 13% off, and there are folks willing to send me things from Amazon. Once the items from my wish list arrive, Purse.IO releases the Bitcoin from escrow, and both parties are happy.

(Photo via )

I'm sure there are people who try to scam others by ordering items with bad credit cards and so on, but since you release the escrow only when the item actually arrives, the risk is pretty low. I don't think I'd want to spend vast amounts of Bitcoin via Purse.IO, but since I don't have vast amounts of Bitcoin, it works out quite well for me. If you have some Bitcoin and wonder what to do with it, check out Purse.IO. It's pretty cool!

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Android Candy: Copay—the Next-Generation Bitcoin Wallet

Shawn Powers — Thu, 03 Sep 2015 18:20:20 +0000

by Shawn Powers

When I hear the word "copay", I think of the doctor's office. Thankfully, the Copay app from the folks at Bitpay doesn't cost you anything, and it keeps your Bitcoin healthy and secure. I've mentioned many Bitcoin wallet applications and cloud solutions during the past few years, but Copay truly is different. It has features other wallets can't touch, such as:

Truly cross-platform with availability for Android, iOS, Windows, OS X, Linux and Chrome.
Fast Bitcoin communication with Bitcoin network, no blockchain download.
Payment verification (BIP-0070-0073).
Shared wallets (multi-party transfer approval).
Wallet backups, multi-device access of same wallet.
100% open, downloadable source code hosted on GitHub.

I'll admit the first time I tried Copay, I didn't quite understand the hype. It feels like every other app accessing a cloud-based Bitcoin wallet (for example, Coinbase). But Copay is an actual wallet, with private keys stored only where you back them up. Thankfully, it allows simple backup of your wallet keys, so you can access your Bitcoin from multiple locations. In fact, you really really really need to have your wallet backed up and/or accessed from multiple locations. If you lose your phone and don't have a backup of your wallet, there's no way to recover your Bitcoin.

(Photo Credit: https://copay.io)

Thanks to its devotion to multi-platform open-source development and attention to security while never compromising flexibility, Copay gets this month's Editors' Choice award. If you want to manage your own Bitcoin without trusting an on-line cloud provider, Copay puts the control in your hands. Check it out today at ttps://copay.io.

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Non-Linux FOSS: All the Bitcoin, None of the Bloat

Shawn Powers — Tue, 26 May 2015 17:17:16 +0000

by Shawn Powers

I love Bitcoin. Ever since I first discovered it in 2010 and mined thousands of them, I've been hooked on the technology, the concept and even the software. (Sadly, I sold most of those thousands of Bitcoin when they were less than a dollar. I'm still kicking myself.) One of the frustrations with using Bitcoin, however, is that the blockchain has gotten so large. It currently weighs in at a little less than 20GB, and it takes about a week to download the first time you do so. There are ways to jumpstart the download with a bootstrap file, but still, it's a huge undertaking to run the standard Bitcoin client.

Enter MultiBit.

Although it doesn't have the entire blockchain, MultiBit does have all of the security and encryption the standard Bitcoin client does. Because it reads the Bitcoin network in real time, it takes seconds to sync up as opposed to days. Sending and receiving Bitcoin with MultiBit is fast, efficient and secure. Oh, and it's open-source, multiplatform and under constant development! If you want to run a local Bitcoin client, but don't want to download the entire blockchain, check out MultiBit at http://multibit.org. (Also check out Electrum, a Python-based alternative at http://electrum.org.)

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Here, Have Some Money...

Shawn Powers — Mon, 06 Apr 2015 21:29:29 +0000

by Shawn Powers

I love Bitcoin. It's not a secret; I've written about Bitcoin mining and cryptocurrency in the past. I'm the first to admit, however, that we're at the very beginning of the cryptocurrency age. Although it's becoming easier and easier to use Bitcoin (see http://www.coinbase.com, for example), the limited use cases combined with the wild volatility of price make Bitcoin the wild wild west of the financial world.

There are a few awesome ideas, however, that are brilliant in their simplicity. Certainly things like the Humble Bundle folks integrating Bitcoin purchasing and Overstock.com allowing Bitcoin purchases are great first steps. Those are really just re-inventing the wheel, however, because we already can buy things using existing forms of currency.

Enter ChangeTip.

Sending someone a tip or donation on the Internet generally has been done with something like PayPal. That's all well and good, but it's fairly cumbersome. The folks at changetip.com have made sending money over the Internet extremely simple, and fun!

With its integration into Twitter, Facebook, GitHub, Google+, YouTube, Reddit and more, ChangeTip makes sending money as simple as sending a Tweet. Thanks to the world of OAUTH, you don't even need to create an account on ChangeTip.com to claim or send funds. If you send money to people who don't have accounts, they simply sign in to ChangeTip via the social-media account from which you sent it to them, and the money will be there waiting for them. Oh, and the money? It's Bitcoin!

With its seamless integration to Coinbase, ChangeTip makes actual financial transactions secure, simple, and did I mention simple? Check it out today at http://changetip.com, or visit my personal page at shawnp0wers.tip.me. And, if you want incentive to try it out, I originally planned to include a bunch of "one-time links" in this article that could be claimed for $1 each. It turns out that the one-time links expire after a week. So although it might have been a great April Fool's joke, I really want to give everyone a chance to claim some tips, so keep reading!

On April 1st, 2015, watch my personal Twitter account (@shawnp0wers), and I'll tweet out some ChangeTip URLs worth actual money. Be the first to click the link, and you will be the proud owner of $1 from yours truly. I'll try to spread out the tweets throughout the day, so don't worry if you're reading this after work. It probably won't be too late!

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Anubis, the God of Dead Bitcoin Miners

Shawn Powers — Thu, 06 Feb 2014 17:43:45 +0000

by Shawn Powers

With the recent resurgence of Bitcoin and the subsequent vitality of other cryptocurrencies (Litecoin, for instance), I've been receiving lots of e-mail messages asking how to mine. I've discussed cryptocurrencies in LJ quite a bit during the past few years. Recently, a friend introduced me to Anubis, so I want to mention it briefly here.

Whether you're mining for Bitcoins with ASIC hardware or Litecoins with high-end graphics cards, chances are you're using the cgminer program to do your mining. Although cgminer provides a nice console-based screen for monitoring your miner, there's no easy way to see how all your miners are doing at once. Enter: Anubis.

Anubis is a Web-based program that interacts over the network to all your miners. It then combines the data it collected into a simple monitoring screen so you can check temperature, errors, efficiencies and even change configurations on the fly. If you're running more than one instance of cgminer in your mining farm, you likely will benefit from Anubis. Check it out at https://github.com/pshep/ANUBIS.

Figure 1. Anubis gives a nice overview of all the problems with my mining farm.

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