The Promise and the Regulatory Challenge of “Physical” Bitcoins


Physical bitcoins that can be exchanged as cash have been discussed for years. In 2010, Gavin Andresen himself began a discussion on the Bitcoin Forum on possible ways to "print bitcoins to function as user-created paper money". Physical bitcoins have been frequently implemented, but there are several challenges. Many operators of physical bitcoins active a few years ago have disappeared or show no signs of recent activity. Others are novel collectable objects that do not store real bitcoins. But there are still some interesting options both on the horizon and in the market in the physical space of bitcoin.

Physical bitcoins are a really powerful application for many reasons, firstly because they can be exchanged privately and anonymously without a trace. Not at all, just like cash. Of course, this is exactly why regulators hate the idea and will do anything to prevent physical bitcoins from spreading. In addition, the design of physical bitcoins with high security and high usability is difficult.

In an ideal world, simple paper wallets could be used as physical bitcoins. In fact, anyone can make a paper wallet, load it with any amount of BTC, print it and give it to anyone. The recipient can easily verify the balance before accepting the paper wallet and folding it into their physical wallet for later use, as well as cash.

Of course, in the real world, the string will break very soon. Since public and private keys are well printed in a paper wallet, anyone can empty the paper wallet after transferring it. This forces the first recipient to empty the wallet immediately after receiving it, but then the transaction is no more private than a normal bitcoin transaction between the first and the second (last) owner.

It is worth noting, in pbading, that this simple chain of trust would only work between people who really trust each other. For example, members of a closed club with a strong entry inspection could use bitcoin paper wallets as internal currency for goods and services exchanged within the club.

In practice, physical bitcoins must have private keys (or equivalents) hidden in a test form. One possibility is to use scratch cards such as Crypto Scratch Cards (now discontinued ). One of the first attempts to develop physical bitcoins, called Bitbills, announced in May 2011 used a credit card form with an anti-counterfeit hologram and a QR code embedded in the card, which could not be read without that the card shows evidence of alteration. The project was abandoned a few months after it was announced.

Another possibility is to manufacture physical bitcoins with the public key visible on the outside, but the private key (or equivalent) hidden inside or by a tamper evidence seal. This method was used by Late Lamented Casascius Physical Bitcoins which was discontinued in November 2013 after Financial Crimes Enforcement Network (FinCEN), a branch of the Treasury Department, informed the developer Mike Caldwell that the coining of physical bitcoins qualified it as a money transmitter business with high compliance requirements.

Today, there are some options that seem to have solved most of these difficulties.

The physical bitcoins sold by Denarium with headquarters in Finland, have a private key inside the coin and use a hologram as an anti-counterfeit measure. "The hologram has a 'window' where you can read a portion of the public Bitcoin address of the currency to verify the balance and upload bitcoins to the currency," says the Denarium website. Denarium coins come in two versions, one loaded with a predefined amount and an "empty" version that users themselves must upload by sending bitcoins to the currency address. Due to regulations, only empty coins can be sold to US residents. UU

All Denarium coins, including pre-filled coins, can be reloaded by sending bitcoins to the currency address. A Denarium coin can be redeemed by "opening the hologram label and importing the private key found under the wallet of your choice," says the Denarium User's Guide . "Keep in mind that an open hologram label implies that the coin has been spent.The hologram label can not be repositioned after opening, so it should not be removed without the intention of spending the bitcoins."

] Opendime a small USB flash drive that the first user can load with bitcoin and pbad, is more of a lightweight wallet of hardware than a heavy paper wallet. Unlike most other options, the device generates the private key attached to each Opendime at the moment of configuration by the user: nobody knows it, not even the first owner. Opendimes can be pbaded to other users several times and verified; however, it can only be exchanged by the last user, who must break the device to access the private key and import it into any bitcoin wallet.

You can request a package of three Opendimes for $ 37.50. Although it may be too technically demanding for casual Bitcoin users and too expensive for small values ​​(the device is useless after removing the funds), the Opendimes are certainly usable as physical bitcoins.

Earlier this month Fintech Select a provider of prepaid card programs, mobile banking solutions, announced that will launch a pilot test project for badociated physical bitcoins with the product line Selectcoin of the company.

Another interesting idea, which has been discussed several times in Bitcoin Forum (for example 1 2 3 ), is the of "hijacking" physical notes to carry a bitcoin value. A physical invoice (say a $ 1 invoice) identified by a serial number would be badigned a bitcoin value (say 0.1 BTC) and would be used as a physical bitcoin invoice, with robust anti-counterfeit measures provided automatically courtesy of the state .

The idea was presented in a recent tweet by Andreas Antonopoulos . Cryptographer and Bitcoin developer Sergio Demian Lerner responded : "It's not a bad idea: I proposed it seriously in 2013 ."

"I found one of those powerful ideas that are so simple, but so strange at first sight, that it can go unnoticed," Lerner said in his 2013 publication, inspired by a discussion of the Bitcoin Forum [19659002] . "The idea is that people can use fiduciary notes as a means to transfer bitcoins, for off-line Bitcoin payments."

Link a bitcoin value with the serial number of a banknote, so that the last bearer can redeem it, it seems impossible to do so in a sealed and decentralized way, but perhaps a central operator could implement a similar scheme.

Lerner's solution is simpler: "[If] we transferred some BTC to a [unspendable] result describing the banknote (for example, country, denomination and serial number), we could link the BTC to the banknote for always, as long as people believe the ticket represents those BTC & # 39; destroyed & # 39; "he said. "[For] the system works, everyone must accept that those BitBanknotes really have the value of BTC, but you can count on me: I would agree, why not?"

Lerner's own project to develop physical bitcoins nicknamed " Firmcoin ", seems to have disappeared. But it is plausible that new implementations of untraceable electronic cash, driven by strong cryptography and NFC enabled smartphone applications, may resurface at any time to pose a very strong challenge to monopolies and state regulators.

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