Faster, cheaper bitcoin transactions? Check. But at what cost?

For bitcoin users, many of whom were drawn to cryptocurrency for its promise of financial sovereignty, bitcoin is still synonymous with privacy. But the gap between the vision and the reality, in which user transactions today must be published to a globally distributed ledger, has long been one of the technology’s biggest points of controversy.

“Bitcoin is Twitter for your bank account. Everything is public to everyone,” Ian Miers, the co-founder of the privacy-centric cryptocurrency zcash, told CoinDesk.

Compounding matters, however, is that as bitcoin users get closer to gaining a whole new way to send transactions, powered by an innovation called the Lighting Network, concerns are spreading that privacy could degrade from its already imperfect state.

On the surface, the idea might seem promising – because Lightning payments occur “off-chain,” the information isn’t included in the blockchain that all nodes store.

But while there is no Lightning ledger so to speak, payments in the scheme are still broadcast across nodes within the network. Essentially, to ensure routing is always available, those using Lightning channels need to trust other network users to help relay transactions.

Conceptually, this means that participants within the system could pry on a transaction, or even potentially sell that information to governments or advertisers. This is a risk that’s worsened if the network becomes centralized into a “hub-and-spoke” type structure, where hubs are large, well-known and often-used entities.

“Lightning likely won’t improve privacy, it may make it much worse from an average consumer’s perspective,” Miers added.

And like many, more speculative concerns surrounding the upcoming tech, the risk to user privacy may not be obvious until the network is deployed – an uncertainty that, combined with a wave of efforts on behalf of Lightning developers to include privacy features, has led to mixed sentiments as to what the future of private bitcoin transactions might be.

According to privacy researcher Kristov Atlas, in a worst-case scenario, privacy attackers could “thrive” on hubs “vampirically feeding off” the data as he wrote in a blog post.

However, the upcoming Lightning release does have some privacy features embedded, and there’s reason to believe that developers are at least making advances on the problem.

Onion-routing

To date, the most advanced privacy feature included within Lightning is called “onion routing,” and it’s part of the Basics of Lightning Technology (BOLT), a series of protocols that ensure the multiple iterations of Lightning can interoperate.

In onion routing, payments are passed through multiple channels, and only the minimum of information about that payment is exposed.

For instance, upon receiving an encrypted payment, a node can only know where that payment came from and to what node that payment should be relayed.

According to Olaoluwa Osuntokun, a leading figure in Lightning development who first suggested the scheme on the developer mailing list, the importance of this is that nodes can’t be selective when it comes to what payments they’re willing to take.

“Nodes shouldn’t be able to arbitrarily censor certain payments, or blacklist certain destinations within the channel graph,” Osuntokun explained.

Often compared to the Tor network for its use of onion routing, Lightning has occasionally been celebrated as a darknet for bitcoin payments – however, it’s comparatively untested, and could face some of the problems native to Tor as well.

“Similar to Tor, there exist known possibilities of timing leaks, and also unknown active attacks that may be viable,” Osuntokun said.

And according to some, there’s ways that onion-routing could be manipulated, leading to the loss of privacy, especially in an early Lightning network.

For example, the last node within a route, as well as whoever sent that payment, will know the transaction information, and theoretically, nodes could collude to break privacy, piecing together each layer of the payment in order to create a complete picture.

On top of this, there’s the risk of a “global adversary which is able to instantaneous monitor all channels on the network,” something that the current privacy protocol doesn’t address, Osuntokun continued.

Fixed identifiers

And there’s further defects to privacy on Lightning today as well.

For example, Lightning payments are currently given a fixed identifier that is repeated throughout the entire route. “This means that if an adversary has two non-contiguous nodes on the route, then they can trivially link a payment flow,” Osuntokun said.

That said, Osuntokun assured that there’s ways to correct this in future.

For example, if Schnorr signatures, a scaling method that works by aggregating public keys, are adopted into bitcoin, it could correct this issue in a “simple and attractive” way, Osuntokun said.

Plus, there’s other, “more heavy weight solutions” such as using zero-knowledge to encrypt payments. However, because this encryption device is heavy, it will “significantly increase the amount of data one needs to send in order to complete a payment,” Osuntokun said.

According to Osuntokun, the “lowest hanging fruit” is to obscure this payment identifier with random numbers as the payments pass through the network.

Hub and spoke

Even more speculative risks exist as well, but according to Miers, it’s all highly contingent on the structure that the Lightning network will take.

“Some people think the amount of money you need to lock up in a channel and the costs of running nodes will inevitably lead to centralization,” Miers said. “And then there’s clearly no privacy.”

Because onion routing works by passing payments through multiple nodes, in the case of a highly centralized network, active nodes could have perfect visibility of the payments.

However, Blocksteam engineer Christian Decker told CoinDesk that the development teams are  creating “counter measures” against this risk of centralization.

Programming the system to open channels at random, Lightning “tries to avoid having hubs that can observe traffic,” Decker explained, which has the added benefit of “strengthen[ing] the network as a whole against single points of failure.”

Decker said that this randomness could be extended to how routes are formed on the network, making payment paths less predictable but potentiality increasing fees.

Other researchers maintain the risk involved in maintaining a node with high throughput will stave off the formation of centralized hubs.

Miers concluded:

“We will see which one actually ends up happening.”

The post Will Lightning Help or Hurt Bitcoin Privacy? appeared first on CryptoVila.

Bitcoin Price Key Highlights

• Bitcoin price is still in correction mode but appears to be bouncing off the trend line support.
• Applying the Fibonacci extension tool shows how high price could go if the trend line holds.
• Technical indicators are signaling that the uptrend is about to resume.

Bitcoin price is finding support at the area of interest on the trend line, 200 SMA, and $10,000 mark so the rally might resume from here.

Technical Indicators Signals

The 100 SMA is above the longer-term 200 SMA on this time frame so the path of least resistance is to the upside. This means that the rally is more likely to resume than to reverse. Also, the 200 SMA lines up with the rising trend line connecting the latest lows.

Stochastic is pulling up from oversold levels to signal that bullish pressure is returning. Similarly, RSI is also turning higher to show that buyers are ready to jump back in.

A bit of bullish divergence can be seen on stochastic as the oscillator formed higher lows while price had lower lows. A bounce could take bitcoin price up to the 38.2% extension around $11,000 or the 50% extension at the swing highs.

The 61.8% extension is located at $12,000 or another long-term area of interest. The 76.4% extension is at $12,788 then the full extension is at $13,590.

Market Factors

The US dollar enjoyed another wave higher on hawkish FOMC minutes and risk aversion. Policymakers agreed that stronger growth momentum could warrant further tightening in the months ahead.

This led to higher bond yields and another weak close for US equities as business and consumer activity could be dampened by higher interest rates. Note that bitcoin price has been trading alongside stocks and commodities, so the dip also affected the cryptocurrency.

Nonetheless, it’s still worth noting that bitcoin sentiment has improved after a few nations have expressed the need to keep the door open for industry developments. Then again, some top financial officials have made negative remarks on bitcoin, particularly on its ability to be a store of value.

The post Bitcoin Price Technical Analysis for 02/22/2018 – Potential Bounce Targets appeared first on CryptoVila.

The Israel Tax Authority (ITA) recently announced that Bitcoins and cryptocurrencies, in general, would be treated and taxed as property and not as an asset. On February 19th, the ITA through a professional circular declared, “Bitcoin is an asset and not a currency.”

The above mentioned circular read,

“For purposes of income tax….. a person whose activity as aforesaid does not reach a business is only entitled to capital gains tax and the person whose activity in the field reaches a business (trade in a distributed method of payment and Such a measure), tax will be paid for any business activity.” 

Israel is going forward with a two-pronged approach when it comes to taxing cryptocurrencies. The tax slab is going to be divided into two categories. The first one includes people who hold these virtual currencies in order to gain profits, i.e, create a capital gain and the second one includes businesses (or individuals) which ‘engage’ in Bitcoin for ‘business’ purposes.

The people in the first category will be liable to pay a capital gains tax, which currently is at 25% in Israel. The people in the second category will have to pay 17% as value added tax (VAT) in addition to the 25% as capital gains tax. Hence, a businessman engaging in cryptocurrencies to carry out business activities could potentially have to pay 42% as taxes.

Chairman of the Israeli Bitcoin Association, Manny Rosenfeld commented,

“The digital currency revolution is here to stay……. Tax Authority has made several amendments to the circular in accordance with the positions we presented.”

David Lewinson, a cryptocurrency trader from Israel commented,

“This decision by the government has both pros and cons. The pros being that this decision shows that cryptocurrencies are legitimate currencies and will instill confidence in the investors and the cons being that such a high rate will result in lower number of blockchain startups and will possibly result in locals shifting to other countries with friendlier tax laws to start their business.”

Gwen Wayne, an accountant from the US says,

“Profit from Bitcoin and other altcoins should be taxed just as profit from other trades is. How is it any different? At the end of the day, capital gains is taxable and so is cryptocurrencies.”

An interview with a couple of business owners in Tel Aviv and Jerusalem have had mixed reactions where everyone is happy about the acceptance of cryptocurrencies in Israel but unhappy with the 42% tax bracket on cryptocurrencies. Sources from within the ITA say they would like to discourage the use of cryptocurrencies but would not want to ban it considering the adoption and use cases in various industries.

The post Endangered species protection finds blockchain and Bitcoin love appeared first on CryptoVila.

The Israel Tax Authority (ITA) recently announced that Bitcoins and cryptocurrencies, in general, would be treated and taxed as property and not as an asset. On February 19th, the ITA through a professional circular declared, “Bitcoin is an asset and not a currency.”

The above mentioned circular read,

“For purposes of income tax….. a person whose activity as aforesaid does not reach a business is only entitled to capital gains tax and the person whose activity in the field reaches a business (trade in a distributed method of payment and Such a measure), tax will be paid for any business activity.” 

Israel is going forward with a two-pronged approach when it comes to taxing cryptocurrencies. The tax slab is going to be divided into two categories. The first one includes people who hold these virtual currencies in order to gain profits, i.e, create a capital gain and the second one includes businesses (or individuals) which ‘engage’ in Bitcoin for ‘business’ purposes.

The people in the first category will be liable to pay a capital gains tax, which currently is at 25% in Israel. The people in the second category will have to pay 17% as value added tax (VAT) in addition to the 25% as capital gains tax. Hence, a businessman engaging in cryptocurrencies to carry out business activities could potentially have to pay 42% as taxes.

Chairman of the Israeli Bitcoin Association, Manny Rosenfeld commented,

“The digital currency revolution is here to stay……. Tax Authority has made several amendments to the circular in accordance with the positions we presented.”

David Lewinson, a cryptocurrency trader from Israel commented,

“This decision by the government has both pros and cons. The pros being that this decision shows that cryptocurrencies are legitimate currencies and will instill confidence in the investors and the cons being that such a high rate will result in lower number of blockchain startups and will possibly result in locals shifting to other countries with friendlier tax laws to start their business.”

Gwen Wayne, an accountant from the US says,

“Profit from Bitcoin and other altcoins should be taxed just as profit from other trades is. How is it any different? At the end of the day, capital gains is taxable and so is cryptocurrencies.”

An interview with a couple of business owners in Tel Aviv and Jerusalem have had mixed reactions where everyone is happy about the acceptance of cryptocurrencies in Israel but unhappy with the 42% tax bracket on cryptocurrencies. Sources from within the ITA say they would like to discourage the use of cryptocurrencies but would not want to ban it considering the adoption and use cases in various industries.

The post Bitcoin considered Property in Israel – businesses accepting crypto to pay heavily appeared first on CryptoVila.