[dropcap size=small]T[/dropcap]he ever-rampant scams and heists that seem to proliferate within the Bitcoin ecosystem, such as we saw with the popular combination payment processor and web wallet MyBitcoin.com. Back in July of 2011, the owner ran off with nearly 79,000 BTC in customer funds. In March of 2012, several sites hosted on Linode were also hacked (including Bitcoinica) for a total of nearly 47,000 BTC lost or stolen. To add insult to injury, Bitcoinica was hacked again two months later (for yet another 19,000 BTC); which ultimately resulted in Bitcoinica’s shutdown. Then there’s Bitfloor, Inputs.io, BIPS and BidExtreme, just to name a few others; all of which have reported extensive losses to hacking and theft. Much more recently, we now see the devastation left behind from the Mt Gox fiasco.
Nearly every one of these BTC heists could have been avoided via Open-Transactions, and even more so once the voting pools feature is rolled out. Open-Transactions already facilitates seamless peer-to-peer trading (via Nyms, which are similar in a public Bitcoin wallet address), as well as full support for trustless escrow via smart contracts. Additionally, Open-Transactions can also facilitate Chaumian blinding (aka “Chaumian cash”). This would completely avoid having to hand your bitcoins over to a third party.
Outside of Open-Transactions, exchanging between Bitcoin and fiat currencies ultimately involves a centralized entity which controls all the funds. Consequently, this makes trust and solvency serious issues. By way of federated Open-Transaction servers and smart contract-based trustless escrow, conventional exchanges as we know them today will simply cease to exist. Or at very least, they will have to allow themselves to be publicly audited in order to verify their solvency. From a purely practical standpoint, any time that you deposit your bitcoins into an online trading platform or wallet, those bitcoins cease to be yours. Only when you store your bitcoins in a secure offline / cold storage wallet (such as Armory) are they truly yours.
Open-Transactions is a cryptographically-based financial library developed by Chris Odom (aka FellowTraveler on the Open-Transactions forums). Odom is also the co-founder of Monetas. It was designed to accommodate secure marketplace trading and execution of virtual corporations, digital trade instruments and smart contracts via Nyms (short for “pseudonyms” and cryptographically-signed receipts (that are also Chaumian blinding-capable). In this regard, Open-Transactions perfectly compliments the security features already inherent in the Bitcoin protocol and blockchain with a number of additional features not provided by Bitcoin alone. For example, Open-Transactions provides proof of ownership by way of tokens which essentially boil down to a cryptographically-signed receipt; whereby only one Nym can be in possession of any one token at any one moment. Each time a token changes hands, the receipt is then updated accordingly.
Advantages To Voting Pools
By adding multisig voting pools to Open-Transactions, many other highly desirable be. For example, it will no longer be possible for a hacker to steal BTC by compromising a single server. They’d have to compromise almost all the servers in the pool. Consequently, customers who only do business with companies that use voting pools will enjoy far higher funds availability. Because even if one Open-Transactions server within a pool is down, the withdrawal can still be processed via any other Open-Transactions server within that voting pool.
You can discover more about Open-Transactions at OpenTransactions.org.
Last modified: May 23, 2014 08:53 UTC