IRS Virtual Currency Guidance Questioned At House Committee

At 1PM on 4/2/14 in room 2360 of the Rayburn House Office Building, the House Committee on Small Business assembled for a hearing on Bitcoin: Examining the Benefits and Risks for Small Business. The House Committee on Small Business is chaired by Congressman Sam Graves [MO-06], other representatives on the committee are Tom Rice [SC-07], Chris Collins [NY-27], Kerry Bentivolio [MI-11], David Schweikert [AZ-06], Tim Huelskamp [KS-01], Richard Hanna [NY-22], Jaime Herrera Beutler [WA-03], Scott Tipton [CO-03], Mick Mulvaney [SC-05], Blaine Luetkemeyer [MO-03], Mike Coffman [CO-06], and last but not least Steve King[OH-01]. The full committee received testimony from a diverse panel of industry and academic experts in the matter. After the witness panel, most of the representatives took the time to ask meaningful questions during the Q & A session after the witness testimonies.

small business

The witness panel consisted of Jerry Brito of the Mercatus Center, Mark T. Williams of Boston University, Adam White of Coinbase, and Michael Couvillion of Plymouth Slate University. Their witness testimony can be found at this link. In Congressional and Senate hearings, the witness testimony is usually prepared and submitted in advance of the meeting; as such, the only real dialogue occurs in the Q & A. This Committee hearing’s Q & A was mostly dominated by Representative Mulvaney and Representative Schweikert, whom both took the opportunity to ask very hard hitting and revealing questions.

At one point, Representative Mulvaney asked the panel whether or not they felt the IRS Virtual Currency Guidance was correct. He only accepted ‘yes’ or ‘no’ answers and this is how the panel responded:

Michael Couvillion: ‘No’

Mark T. Williams: ‘Yes’

Adam White: ‘No’

JerryBrito: ‘Tentative Yes’

Representative Mulvaney went on to say:

“It strikes me that it is a way to tax the internet, isn’t it? That right now we don’t have taxes on most of the internet sales… It strikes me that this is a way to tax internet trade. if I can’t tax the transaction I will tax the currency that is used to do it.

He asked Mr. White to explain his answer of ‘Yes’ and Mr. Williams to explain his ‘No’ answer. Mr. White summed up many American Bitcoiners’ thoughts perfectly:

“I think what was surprising was the misalignment between the regulators. We had FinCEN come out last year and basically describe Bitcoin as a currency. They said, “companies like Coinbase that operate and provide Bitcoin services, please register as a money service business under FinCEN,” and we followed that guidance… With the IRS’s recent guidance that now Bitcoin is a property, there’s a mismatch there… How do you exactly describe this asset class? How do you describe Bitcoin? At Coinbase, obviously, we’re working with our counsel and working closely with the IRS to seek additional guidance because what we want to do is enable as burden-less of a process as possible for our users to be able to transact in Bitcoin. And right now with this guidance, it makes buying a $2 cup of coffee nearly impossible without additional products and services to track that cost basis.”

To counter, Mr. Williams “explained” that Bitcoin wasn’t a currency because of lack of stability and liquidity. He defended the IRS’s ruling by stating that Bitcoin is more like a commodity (property) than a currency: it is mined, stored, processed, resold in the market, and “actually has scarcity.” Given the choice between commodity and currency, commodity seemed to be the more logical choice. A point that Jerry Brito also eluded to when explaining his tentative ‘yes’.

To view the full exchange starting with Representative Mulvaney’s question: click here.

Otherwise, the entire video of the House Committee on Small Business hearing on Bitcoin has been uploaded to youtube by the government.

How Will The IRS Virtual Currency Guidance Change?

Later in the Q & A session, Jerry Brito mentioned that most American Bitcoin holders had long been anticipating an IRS Virtual Currency Guidance, and have likely filed for extensions. Additionally, it is naive to imagine that Bitcoin would never have been taxed by the U.S. government. The specific tax issue that rises from treating Bitcoin as property is the calculation of capital gains for all transactions no matter the size. If Bitcoin were classified as a currency by the IRS, then existing de minimis reporting exemptions on foreign currency transactions under $200 would alleviate the $2 coffee problem that is increasingly being referenced.

Also in the Q & A, Congressman Mulvaney mentioned that Germany had ruled that Bitcoin was a type of “private currency” and that perhaps the US government should look into a new asset class for Bitcoin, as well. I couldn’t agree more, around the world other countries are ignoring the moneyed fearmongering and declaring Bitcoin as a “virtual currency.” The government needs to amend the IRS Virtual Currency Guidance so that it does not stifle the Bitcoin economy within America. I think it is incredibly likely that a Representative will eventually introduce a bill to the House that clarifies the whole US government’s stance on Bitcoin and other digital currencies. Similar action is already happening at the state level in California with AB 129, though the move is largely symbolic. The “misalignment” between government entities in the realm of regulation should not and will not be tolerated by the American people. In the case of Bitcoin, the world is watching.

source: http://www.cryptocoinsnews.com/uncategorized/irs-virtual-currency-guidance-questioned-house-committee-on-small-business-hearing-bitcoin/2014/04/03

Guugll Search

http://www.guugll.eu/irs-virtual-currency-guidance-questioned-at-house-committee/

Litecoin’s proof of work

Litecoin Development Team’s official position on Litecoin’s proof of work

Due to recent threads about some people wanting to change Litecoin’s proof of work algorithm, I figured we should have an official response from the Litecoin development team.

The coming of ASIC miners is scary. We understand where people are coming from. We share the desire for the status quo where Litecoin remains a GPU-only coin. Unfortunately, people will make ASIC Scrypt miners when it becomes profitably to do so. With the runup of Litecoin price last year, it made sense for people to invest in developing Scrypt ASICs last year. And it is apparent that the machines will be coming sometime this year.

At first glance, it makes sense for Litecoin to change the proof of work algorithm to keep mining decentralized. ASICs threatens the original goal of Litecoin and it threatens the mining profits of GPU miners. So I’m not surprised that whenever there’s a poll on this, most people vote to change the PoW algorithm. This is because most people don’t understand everything involved with this topic. I will try to explain this as best as I can.

We’ve actually thought about this problem for almost two years now. Every time it has come up, the consensus among the Litecoin developers is that the detriments of forking far outweighs the benefit of switching proof of work algorithm. As you may know, Litecoin was originally designed to be a CPU coin. The Scrypt algorithm made this possible. It made it so that everyone with a computer can mine Litecoin, which was Satoshi’s original plan. The Scrypt parameters were chosen to effectively balance the memory hardness with the performance of the client. At the time, it was thought that Scrypt with these params was GPU resistant. So when GPUs started coming on the scene, we considered tweaking the Scrypt parameters to make it more memory hard. Pooler helped me investigate how tweaking of the parameters would affect responsiveness with the client. In the end, we decided that it wasn’t a good idea to change it. It turned out that GPU miners did not kill Litecoin as some had feared. Then when there was rumors that a Litecoin ASIC is going to happen, we revisited this again. And for the same reason, we decided to not change.

Here’s are the reasons:

We have not come across a proof of work algorithm that is truly ASIC-proof and quick to verify. All alternatives will only delay the problem, and at a considerable cost.

Hard fork is dangerous if not handled correctly

Forking a coin into 2 coins is confusing to users and can easily destroy confidence

Warren will soon post the technical analysis we’ve done on the various alternatives proofs of work and why they fail to accomplish desired goals.

I will spend some time to talk about hard forks. A hard fork due to changing the PoW algorithm is different from a hard fork due to fixing a bug in the protocol. Fixing a bug in the protocol is a pretty compelling thing that the developers can easily convince everyone (pools, exchanges, miners, users, etc.) to adopt the alternate code. Changing the PoW algorithm is a lot more contentious. You would need buy off from every party involved. Otherwise, you will have splintered the coin and created two forks. This, in our opinion, would kill the coin. Imagine a merchant receiving litecoins from a customer. If the merchant is running the original code and the customer is running the alternate code, then the merchant will never received the “litecoins.” The fungibility of Litecoin would be destroyed. And it becomes a huge mess if half the exchanges are on one fork and the other half is on the other fork.

If we were to try to convince everyone to switch to an alternate PoW algorithm, it will be next to impossible. Let’s look at each party involved:

Users — Users will be split. Some will switch to the alternate client. Some users will not know or understand this change or decide to stick to the original client. This would leave them on the original fork where they can only send coins to other people on their chain. Coins sent between users on different forks will be lost. User confusion over what is a “Litecoin” would be an issue.

Miners — In general miners will mine any coin that is most profitable for their hardware at that moment. So it is easy to convince GPU owners to mine an alternative coin as the majority of them do not care about what they are mining. This is so true that most alt coin miners do not even keep a blockchain for the coins they are mining.

Pools — Similar to miners, pools do not care about the particular coin. They will service miners to mine whatever coin is most profitable at that moment.

Merchants — Merchants WILL have to make a choice. Most will likely stay on the original fork, because why change something that’s not broken and because most merchants will not be aware of this change. A few merchants will accept coins from both forks and will cause total confusion. A few merchants will switch to supporting the alternate fork and will have to put some text on their website telling users of this. Merchants processors will have to make a choice. One of the reasons Coinbase is not currently supporting Litecoin is because of user confusion. The confusion from two things claiming to be called Litecoin would just make matters worse.

Exchanges — Exchanges WILL have to make a choice or support both coins. My guess is that BTC-e will not change as they wouldn’t want to risk it since Litecoin makes them so much money. Cryptsy will likely support both coins. It will just add the alternate fork as one of the many currencies it supports. Exchanges will have to specify if they support the alternate fork or the original fork.

In the end, it’s basically creating a new coin that comes with it a huge pre-mine. And if we try to call it Litecoin or any derivation of that name, it will create a huge mess of confusion. The bottom line is that, in our opinion, the chance of ASICs killing Litecoin is far less than the chance of us killing Litecoin ourselves by trying to change the algorithm.

Would ASICs kill Litecoin? No

Would it be better if Litecoin’s PoW is ASIC resistant? Yes

Is it worth the risk to change it now? No

We, the Litecoin developers, do not believe that we can pull this off without hurting or even destroying the coin. So to the developer(s) that is trying to pull this off, you will only manage to hurt Litecoin and cause chaos for everyone involved. If you really have spare development cycles, why not join us and help make Litecoin better?

And if you insist on doing this, please name your coin something other than Litecoin as to not cause any confusion. We do understand that Litecoin is open source and people are free to fork it as they see fit. And forking the blockchain in addition to the code is an interesting approach to create an alt coin. But please do not try to pass this off as Litecoin, as it is not. And it is not in the best interest of everyone involved.

And to those people that are screaming the sky is falling because of ASICs, please keep in mind that ASICs will not kill Litecoin. When ASICs came on the scene for Bitcoin, it helped strengthen the security of the network. It also forced every other SHA256d coin to be merged mined if it didn’t want to be destroyed by ASICs. And the Bitcoin price shot through the roof. It’s worth noting that multiple companies investing millions in Litecoin-specific hardware is a big sign that Litecoin has succeeded.

Litecoin is on a roll right now. Major exchanges (BTCChina, Huobi) have started to support Litecoin. The few exchanges that aren’t supporting Litecoin right now have started to take notice that they are leaving money on the table if they stick to their Bitcoin-only plan. And new exchanges (AtlasATS) are launching with Litecoin support from the start so they don’t miss out. I can’t even count how many times people have approached me at various conferences and said “we are launching an exchange in [country] and we will trade Litecoins.” Venture funds are investing millions of dollars in companies (Kraken, OKCoin, GoCoin) that support Litecoin. Merchants can now use merchant processors (GoCoin, CoinPayments) to help them accept litecoins. Litecoin ATMs (Bitcoin42) are being deployed around the world. Even BitcoinShop has started to accept litecoins! Major players are starting to pay attention to Litecoin.

source: https://litecointalk.org/index.php?topic=18166.0

Guugll Search

http://www.guugll.eu/litecoins-proof-of-work/

It’s “Obvious” Bitcoin-Like Currencies Are “Inevitable”

Google Director of Ideas and former technology advisor to former Secretary of State Hillary Clinton, Jared Cohen, says that digital “crypto-currencies” like Bitcoin are here to stay.


“I think it’s very obvious to all of us that crypto-currencies are inevitable,” he told the audience at SXSW, in conversation with Chairman Eric Schmidt, to promote their co-authored book, The New Digital Age.

The most popular digital currency, Bitcoin, has caused media and political firestorm for its wild swings in value, strong support from the libertarian hacker community, and association with the black market. “There’s lots of value to it,” he argues, but “there’s a danger to it not being regulated.”

Google Ideas is the search giant’s residential think tank that deals with governments, especially oppressive regimes. Bitcoin’s reputation has suffered from recent mass thefts, leading some critics to declare “Bitcoin is dead .”

If Google’s own lead on these types of issues believes that the inevitability of cryptocurrency is “obvious”, it’s a resounding validation of the beleaguered technology.

Now, Bitcoin itself may not last.”Is Bitcoin the model, or the master of crypto-currencies?” Cohen questioned.

Anyone can create an anonymous completely digital currency. Like all currencies, Bitcoin just depends on two parties having confidence in the exchange value. Indeed, just this week, another technology blog, Ars Technica, decided to create one of their own, lovingly called “arscoin “.

Cohen says the long term threat to digital currencies is safe storage. Certainly the theft of $400 million worth of Bitcoin from popular exchange service, Mt.Gox, shook the industry. But, even with that embarrassment, Bitcoin is still retaining value.

The controversy has reached congress. Some members are calling for heavy regulation to curb the impact on susceptible consumers. In response, Congressman Jared Polis made headlines for cheekily calling for a ban on the U.S. dollar, with a clever letter comparing the frailty of the U.S. dollar to Bitcoin.

Google Lets Slip That It’s Exploring Possible Bitcoin Integration Plans

Since Overstock.com OSTK +3.1% began accepting Bitcoin payments earlier this month, the cryptocurrency community has been buzzing with speculation about which tech company will integrate Bitcoin next. So Jarar Malik decided to ask.

“After the whole Overstock thing, I said ‘f–k it,’” says Malik, a Bitcoin early adopter, online marketing manager and musician with a following in Pakistan. “‘Let me email the head guys at a bunch of tech companies and see what they say.’”

He started with Jeff Bezos and Tim Cook, asking if Apple AAPL +0.91% or Amazon had any plans for the cryptocurrency. No response. Then he tried the Google GOOG +1.83% triumvirate Larry Page, Sergey Brin and Eric Schmidt. When they also ignored him, he moved down a rung to Google’s Senior Vice President Vic Gundotra.

To his surprise, Gundotra wrote him back. He also forwarded Malik’s query to another Google staffer and started a series of email exchanges that led to one Googler telling Malik that the company is indeed pondering how it can make use of the world’s first form of decentralized digital cash.

“We are working in the payments team to figure out how to incorporate bitcoin into our plans,” wrote Google Senior VP of Ads and Commerce Sridhar Ramaswamy at one point in the email exchange that Malik forwarded to me. He promised to get back in touch “when we are a little more sure.”

When Malik posted Ramaswamy’s response to the Bitcoin forum on Reddit and immediately got an positive response from the site’s bitcoiners, Google Wallet exec Ariel Bardin followed up by asking Malik to serve as a moderator on a Google survey posing the question “What would I want Google to do with Bitcoin?”

I reached out to Google, and the company responded in a very different tone, but didn’t deny that the comments Malik posted to Reddit were real. “As we continue to work on Google Wallet, we’re grateful for a very wide range of suggestions,” a spokesperson writes. ”While we’re keen to actively engage with Wallet users to help inform and shape the product, there’s no change to our position: we have no current plans regarding Bitcoin.”

source: http://techcrunch.com/2014/03/08/googles-jared-cohen-its-obvious-bitcoin-like-currencies-are-inevitable/ & http://www.forbes.com/sites/andygreenberg/2014/01/22/google-lets-slip-that-its-exploring-possible-bitcoin-integration-plans/

Guugll Search

http://www.guugll.eu/its-obvious-bitcoin-like-currencies-are-inevitable/

IRS Guidelines on Bitcoin

The recent IRS Tax Guidelines on Bitcoin has everyone in a stir. If you haven’t read about it, go ahead a read it now.


The full release is here.

Essentially, the Inland Revenue Service will be treating Bitcoin as property for tax purposes. What this means is that you will have to pay retroactive taxes on its gains from the original price you bought it. The capital gains tax, for those who do not know what it is, is a tax on a non-inventory asset that gains value, like stocks, bonds and precious metals.

The IRS defines it as such:

“Almost everything you own and use for personal or investment purposes is a capital asset. Examples include a home, personal use items like household furnishings, and stocks or bonds held as investments. When a capital asset is sold, the difference between the basis in the asset and the amount it is sold for is a capital gain or a capital loss.”

In the US, the long-term capital gains tax for individuals making less than $36,250 is at 0%, for individuals making $36,250 to $400,000 is at 15% and for $400,000 to $450,000 is at 20%.

For the short term tax rates, they could range from 10$ to 39.6% depending on your income.

Additionally, those making $200,000 or more will have an additional 3.8% investment tax aimed at funding Medicare.

Therefore, if you buy anything with Bitcoin in the US, you are technically required to calculate the price at which you spent the Bitcoin minus the price you originally bought the Bitcoin multiplied by the amount of Bitcoin you spent.

Tax = ( (Spending BTC Price – Original BTC Price) * amount of BTC spent ) Applicable tax rate

As you can see, this may get very confusing. What if I bought 1.3 BTC at $250 and then bought .5 BTC at $450. Then I spent .002 BTC at $600. Which is the original price? How will the IRS verify that? and so on and so on. This IRS guideline kinda throws a wrench in Bitcoin’s fungibility.

What could this mean for BTC businesses?

Said the IRS:

Q-3: Must a taxpayer who receives virtual currency as payment for goods or services include in computing gross income the fair market value of the virtual currency?

A-3: Yes. A taxpayer who receives virtual currency as payment for goods or services must, in computing gross income, include the fair market value of the virtual currency, measured in U.S. dollars, as of the date that the virtual currency was received. See Publication 525, Taxable and Nontaxable Income, for more information on miscellaneous income from exchanges involving property or services.

Overstock Patrick ByrneOverstock.com has remarked on the huge success of Bitcoin in their business. After amazingly exceeding their expectations by months ahead of projected returns, they have stated that they keep 10% of their BTC revenue instead of immediately cashing out. However this taxing guideline may seem, I asked media representatives from the Big O and this is their statement:

“ A year ago, commentators were discussing the tax treatment of virtual currencies, and many in the virtual currency community were not surprised by the IRS notice. One thing is clear: The IRS notice brings certainty to the domestic tax treatment of virtual currency, and settled tax treatment is one more step in what we hope will be a growing acceptance and use of virtual currency. The notice doesn’t dissuade us from accepting or holding the 10 percent of bitcoin we chose to retain. While it is hard to know how the IRS ruling will effect consumer behavior, those people who bought bitcoin at prices much higher than current rates might spend that bitcoin at Overstock.com as a way of realizing a capital loss. “

Coinbase also ‘coined’ in on the matter:

“ The IRS ruling provides clarity and validation which enables bitcoin to be accessible to the masses. Coinbase is prepared to help consumers and merchants meet the guidelines. ”

What could this mean to BTC individuals?

Breaking: Vircurex Halts WithdrawalsIt depends on the individual, but this writer has his doubts on the ability of the IRS to verify BTC ownership. For one, the pseudo anonymity of the Bitcoin protocol will make it significantly difficult to tie individuals to Bitcoin accounts.

Furthermore, the IRS says that they do intend to tax the miners as well.

Q-8: Does a taxpayer who “mines” virtual currency (for example, uses computer resources to validate Bitcoin transactions and maintain the public Bitcoin transaction ledger) realize gross income upon receipt of the virtual currency resulting from those activities?

A-8: Yes, when a taxpayer successfully “mines” virtual currency, the fair market value of the virtual currency as of the date of receipt is includible in gross income. See Publication 525,Taxable and Nontaxable Income, for more information on taxable income.

Will it be for the IRS to take on miners? Mining pools may be targeted, but individual miners? Only time will tell. It’s very possible that there will be a number of examples made of some Bitcoin users who failed to correctly or fully respond with the tax guidelines on Bitcoin. Prepare for some over-sensationalized news on some jailed bitcoin users.

However, I must remind readers that CryptoCoinsNews does not endorse criminal actions including tax evasion. The best thing for the crypto-community to do is to attain legitimacy and following local tax laws may be an avenue to do so.

source: http://www.cryptocoinsnews.com/news/irs-guidelines-bitcoin-may-affect-crypto-community/2014/04/02

Guugll Search

http://www.guugll.eu/irs-guidelines-on-bitcoin/

Canada Starts Bitcoin Regulation

Last Friday, Canada’s new Minister of Finance Joe Oliver presented the first of two 2014 budget implementation bills to the House of Commons.


The bill , that was tabled, was written by recently-resigned former Minister of Finance Jim Flaherty. Flaherty has previously revealed his negative view on Bitcoin in a speech about his 2014 budget implementation plans. As has become increasingly prevalent in the last few decades, the biannual budget implementation bill often becomes bloated with “unrelated measures” that are pushed through the House of Commons on the ruling party’s agenda. This year, nestled with provisions that would change ‘the Canadian Navy’ to ‘the Royal Canadian Navy’, is a provision about virtual currency.

Canada-embraces-bitcoin

The full text of the new Budget Implementation Bill can be found here.

The “Virtual Currency Provision” of the recently tabled Omnibus Federal budget implementation bill (emphasis mine):

- Allows the government to police online casinos, and requires dealers of virtual currencies, such as Bitcoin, to report suspicious transactions, or those over $10,000, to a government watchdog.

Though the proposed budget implementation bill will likely receive some changes from the opposing party in the House of Commons before it becomes the 2014 budget implementation act, it is incredibly unlikely that the “virtual currency provision” will be touched. Canada will either establish a new government watchdog, or rule that virtual/digital currencies suspicious activities are under the jurisdiction of an already extant agency.

The goal is to force Canadian Bitcoin exchanges to operate more like banks, reporting any transactions larger than $10,000, to a government watchdog. In the mind of governments everywhere, transactions larger than $10,000 are automatically suspicious. Needless to say, some Canadians may not be OK with that particular interpretation forced upon the inherently free digital currency community. On the other hand, compliant virtual currency dealers/exchanges should already be keeping track of fiat transactions larger than $10,000 for tax and AML/KYC compliance purposes, this merely expedites the reporting process.

Senate Banking Committee Set To Study Digital Currencies, Bitcoin

As revealed by Senate Banking Committee member Doug Black in a blog post on 3/25/14, the Senate Banking Committee has recently started to study Digital Currencies, and Bitcoin before attempting to craft comprehensive legislature. Last Tuesday, the Senate approved the following study mandate:

That the Committee be approved to examine and report on the use of digital currencies in Canada and report on their risks, threats, and advantages by June 30, 2015

In the coming months, the Senate Banking Committee will receive testimony from academic, financial, and government experts from across Canada. The committee plans to hear from both detractors and supporters, so they can properly weigh the risks and merits of Digital Currency. The end result will be a series of recommendations on the use of Digital Currencies in Canada.

Senator Black went on to say:

By analyzing the use and regulation of emerging digital currencies, such as Bitcoin, the Senate can make an important contribution to keeping Canada ahead of the digital currency curve.

As the committee continues to hear from academics, economists, and leaders in government and banking, I will update this blog post with new information on our findings.

The Early Days Of Regulation

Former Mayor of Ottawa Larry O’Brien, arguably the most up to date Canadian politician in regards to Bitcoin, had this to say:

The Canadian Government is in the early days of regulation and it seems to me that Canada will likely follow the U.S. as it relates to taxation. Regulations will likely be different as it relates to exchanges and wallets because our Government is open to financial technology innovation.

For now, Canadian Bitcoiners will have to wait until July of 2015 to hear what guidelines the Senate Banking Committee comes up with regarding Digital Currencies. It will be even more interesting to see specifically what legislation comes of the committee’s research. In the meantime, Canada has not targeted any of the large Bitcoin services, such as Havelock, that reside within its borders. In fact, many Bitcoin startups, such as Bylls, are rising up in Canada to harness the growing Bitcoin economy to the north.

source: http://www.cryptocoinsnews.com/news/canada-starts-bitcoin-regulation-virtual-currencies-mentioned-2014-budget-implementation-bill/2014/04/01

Guugll Search

http://www.guugll.eu/canada-starts-bitcoin-regulation/

BitcoinFlood

Looking for a unique way to earn cryptocoins along with advertise your products, services or referral links?


Then check out this awesome and unique site that offers it all. (Bitcoin, Mooncoin, Dodgecoin, LottoCoin)

http://bitcoinflood.com/te/?rid=2744

Guugll Search

http://www.guugll.eu/bitcoinflood/

Cheating The System – Auroracoin Edition

As I’m sure you’re aware, the auroracoin airdrop started two days ago.


Predictably, the price has been tanking as people have been getting a hold of these coins, but who exactly are these people? How fairly is the airdrop being conducted?

To establish proof of Icelandic residency, the website requires that you provide a kennitala. A kennitala is basically the Icelandic equivalent of a social security number but with one key difference: It’s public knowledge. Anybody with an icelandic bank account can, if they’re aware of this, query the national database and retrieve every kennitala. Unfortunately, I do not have a contact in Iceland who can pull this database for me… But the system can still be gamed in other ways. I did my research and wrote up a quick GUI interface in visual basic that generates valid kennitala.

However, just because it’s valid doesn’t mean it exists in the national database. About 1 in every 10 referred to an existing person, which allowed me to get past the first stage of verification.

The second stage of verification is a bit trickier. You have two options. Provide them with an icelandic phone number (That’s linked to your kennitala on http://ja.is) and receieve an SMS message allowing you to proceed. This is the more difficult of the two methods, so I opted to try out the second method: facebook verification. This involves providing them various information associated with your facebook profile, and they run it through some sort of algorithm to see if you’re really from Iceland.

At minimum, your birthday and real name are associated with your kennitala. Figuring out the birthday is not a problem, this information is part of the kennitala itself. Getting the full name of the person who the kennitala belongs to is a bit more difficult. I won’t reveal how or where, but after searching for a while I found a place that inadvertently revealed this information… So now I was in business. I took an old facebook account, changed the name, changed the birthday, and updated my location to Kópavogur. Also notice that the app combs through your friend’s information too, so I deleted all non-icelandic friends and added a few dozen legitimate Icelanders. I took the extra step of liking some Icelandic pages as well, and setting up an account on ja.is

So, now I had a facebook profile, created years ago (this is another requirement of redemption), that to the eyes of an algorithm should appear to be a legitimate Icelandic citizen, with all personal information lining up with that of the kennitala. I connected to the auroracoin website through an Icelandic VPN, plugged in the kennitala, and attempted to link it to the facebook profile… And the results?

Rejected. Whatever algorithm they’re using to verify residency is surprisingly more aggressive than I thought it would be. So aggressive, in fact, that legitimate Icelanders are complaining about the system denying them. Color me surprised. Of course, we can’t rule out the scenario of Baldur himself laundering coins through the airdrop (for the record, I don’t think this is occurring), but as far as the airdrop system itself goes, I believe that it is set up pretty fairly. I’m rather impressed with it.

source: http://cryptolife.net/cheating-the-system-auroracoin-edition/

Guugll Search

http://www.guugll.eu/cheating-the-system-auroracoin-edition/