Hi Drazvan,

Here are the advantages for a web change service that I had in mind-

These two you have already pointed out:

-Speed of receiving pre-confirmed (and certified) coins is the main advantange of using a web-service for change.  The service will be more or less instant when compared to creating change coins on the block chain and waiting for them to confirm at the time of the transaction (in cases where the receiver insists on confirmed coins).  

- Anonymity offered to the sender since they're not using their own wallet address to create the coin, the person recieving dosen't get to see any of the wallet addresses of the sender.


There are also a couple of others that I have thought of:

- You can offer a service guarantee that all the coins that you have personally created and certified are clear of taint from the major theft events (clear of publicly recorded/verified affected addresses atleast).  The person receiving the coins doesn't have to check them against the block-chain for taint.

- it may be cheaper to use the web-service.  Since the web-service has plenty of time to pre-make coins it can use lower-priority transactions (even feeless ones if the service operator waits a long time).  So the web-service can sell their change coins cheaper than a person can make them for themselves if the person has to make it confirm quickly (ie: in the next block) at the time of the transaction.  


The speed and the cheapness form the main economic case that I can see for the web-service being successful/profitable.

I don't understand what you mean.  Which server are you talking about?   Drazvan's system doesn't rely on a 3rd party server,  it is a private key exchange between two people.

Perhaps you could use denominations based on binary,  ie: 10uBTC, 20uBTC, 40uBTC, 80uBTC,.... .  To cover the 10e6 fold range from 10uBTC to 10BTC you only need a maximum of 20 keys if you sum it the most efficient way.  (I started at 10uBTC to allow for transactions such as paying for reading an item of news from a web-site, or paying to get change from an internet change site , etc.)

Is twenty keys too many for a QR code?

Of course most people would have trouble working out how to represent arbitrary amounts in binary but the phone/computer would do this behind the scenes anyway.  All they would really need to know is the total amount they hold while the computer handles using the correct change in a transaction.   By default you could just have their total displayed with a option to display a summary of the holdings of each denomination and a further option to show the details of each individual coin's key/wallet.

Each time a person engages in a transaction their phones could automatically negotiate with each other to top-up with any coins they need if one has excess in some denominations but shortage in others  (the phone could even monitor the owner's usage pattern over time and determine their most commonly used denominations and build up a store of them).  This would lessen the need for people to use 3rd party online change services.

To ease the use the smartcard key exchange for purchases I envision that it would be best if people had many wallet keys (from now on I will call them coins) with balances of standard denominations (example denominations: 1 uBTC, 10uBTC, 100uBTC, 1mBTC, 10mBTC, 100mBTC, 1BTC, 10BTC, etc) so that they can give the exact amount or be given return change by totalling multiple coins in the manner similar to normal fiat eg: to give 0.8253BTC use 8x100mBTC + 2x10mBTC + 5x1mBTC + 3x100uBTC.   You could quickly top-up your smartcard with more coins by asking other people directly for change or using a change service over the internet.

By-the-way Drazvan,  this is what I was going to write an email about to you a couple of months ago.  I am now sending a PM with some further details that you may be interested in.

Hello Drazvan,

How are you going and how is the project coming along?

I'm curious to know what are the limits regarding how many keys the card can hold at once,  could you please tell me?

Thanks
Beeblebrox

Hello Drazvan,

I think what he might be asking here is whether or not or can do a series of off-chain transfers without having to put it back on-chain in betwen each transfer (ie: you transfer it to your friend as a loan and they transfer it to a shop for a purchase, the shop transfers it to some other customer as part of change, the customer transfers it to another shop, etc..). 

So: Yes alex04210, you can do an infinite number of sequential off-chain transfers and every transfer is completely free!   (Of course, the original transfer from the block-chain to the coin is on-chain and involves the standard bitcoin network transaction fees).

(By the way Drazvan, I've been meaning to contact all last week and discuss some things.  Is it possible for you to private message me your email?  )

More people have phones than have desktop/laptop computers.  It makes more sense to use phones than computers (by-the-way: you can easily adapt this system to use a desktop anyway).




What  does the battery charge life have to do with it?  The coins don't disappear if the battery is completely  drained.  Neither do you have to continuously run the software. You only need run the software when doing an actual transfer and it uses a very small amount of energy.




I don't even know how to reply to this?  What are you talking about?

When preforming a transfer operation the smart card only ever gives the private key to another smart card of the same type (they do a formal handshake involving secret keys to convince each other that they are genuine cards).  You are relying of the smart card hardware.  Now some people here claim that smart cards are be hacked-- this is true, however it is a very, very hard thing to do.  It is harder to crack a smart card then a desktop computer.  Also, the system uses a spilt key-- you need compromise both the smart card and the phone.  If you're paranoid and have access to the Internet you can check via the blockchain that the balance of public address hasn't already been spent before accepting. 

Personally, I'd feel comfortable having a thousand dollars worth of BTC on such a card-- however some people may not like to store such a large amount so they might limit themselves to only a couple of hundred or even just tens of dollars.   You don't have to put all your bitcoin on the card.  Even with just $40 dollars a day on a card most people could cover their daily small expenses, eg: coffees, smoko/lunch, parking, newspapers, lending a 10er to someone, small purchases on the Internet such as music, movies or reading material (yes this system can also be used over the internet as well as locally face to face), etc..

The keys are not stored on the phone alone.  It stores the key on a microSD smart card.  (Actually, it uses a split key system, which requires both the phone and the SD card to recover the key-- which is even safer-- you can read about it here: http://www.othercoin.com/OtherCoin.pdf )

It prevents counterfeiting with tamper resistent SD smart cards.  

If this is not satisfactory for you then don't use it-- it's a voluntary thing.  However, the vast majority are prepared to use similar technology *everyday* to do small quick transactions, eg. Billions of dollars worth of transactions are completed using smart cards daily (traditional smart card technology).  In my home town alone all the public transport systems use smart cards-- a few million dollars worth of train, bus and ferry trips everyday. Now, personally I wouldn't feel safe putting more a $1000 dollars on a smart card and most people only recharge them to $100 or less but this is enough for the majority of daily small transactions such as coffee's and take-away.  
Just to give an exteme example of how willing the general population uses them I know of a small art gallery that has $10,000,000+ dollars worth of artwork and it security system is based around smart cards.  
Again, in summary- if this isn't good enough for you then don't use it but it's good enough for the majority.

(By-the-way: it's not my system. I've not developed it, I'm just a supporter of it.)

You have the one SD card with many keys inside (instead of many SD cards with just one key).  You can actually see this in the video produced by the creator of this system:  http://www.youtube.com/watch?v=ZR8gz0uVBHk&feature=youtu.be

People will naturally tend to add keys for addresses that have balances with sensible denominations such as  100uBTC, 200uBTC, 500uBTC, 1mBTC, 2mBTC, ...., etc,  just like regular fiat currency.  When you wish to pay someone say for a coffee say of 4700uBTC you give them four 1mBTC coins + one 500uBTC + one 200 uBTC coins  (of course eventually the software will automatically do this for you I'd imagine-- its just a knapsack problem algorithm).  Also, I imagine that community minded people would set up change vending internet sites or local physical machines where you can exchange your larger coins into smaller or smaller to larger as you require.

I think you guys don't realise that ability to do off-chain transactions electronically already exists: https://bitcointalk.org/index.php?topic=321085.0

It is quite easy to extend this system to do off-line NFC transactions also (in fact the creator of the project intends to implement this I believe).

The way these off-chain transaction work is basically an electronic equivalent of a Casascius coin.  A Casascius coin is a physical token with a private key that remains hidden (unless revealed- in which case the reveal will be evident) so that the token can be exchanged like a normal fiat coin.  Whereas in this system linked above the private key is stored on an SD card and remains hidden on the card .  To perform a transaction the SD card will copy the key to another similar SD card without ever revealing the key to anything else and deletes its original copy.  To reclaim the money on the blockchain the SD card will reveal the private key and deletes it own copy.  

The important thing to notice about this above system it that it is off-chain, completely anonymous and totally free to make the transactions.  However, currently the software that handles the exchange does need to be aware of the current state of the block-chain (the SD card itself only stores the private key so it doesn't know what balance- if any- is associated with it) so the software needs to determine what the balance is by looking at the blockchain or by using a 3rd party such a blockchain.info.  Although, even this requirement will most likely be lifted in future revisions of the software because at the time of loading the SD card with the key the software can electronically sign the balance that is associated with it.  At this point it will be: off-chain, off-line, completely anonymous and totally free.

Hello Razvan,

This is a reply to your post requesting a loan for the project in the other thread.

I've just sent you the remaining 10BTC that I pledged.  This is yours to use freely as you wish.

Also, I've just separately sent you 20BTC as a loan.  These funds are for the commercial advancement of your project.  This loan is on an informal "Gentlemen's Agreement" basis meaning that a loan contract has not been formally drawn up and I'm taking you at your word that you will use these funds for your project and that you will repay me when convenient for you with respect to the commercial success of your project.   I am counting on your honour that you will make a best effort to bring your project to commercial success.  I will not be taking any action to recover the funds if your project is not a commercial success.

Address for loan repayment : 1Gip2pyyeH5igAyB1e81xPtsr3AdxK4rZJ

Best of Luck.

I'm going to reply to this in the other thread since what we are discussing is more relevant to "Project Development" than Bitcoin "Development and Technical Discussion".

Yes, I should have realised  that Knox wouldn't allow communication to external storage such as the SD card.  But good to see that you've wrapped the parts anyway-- I am sending you 0.5BTC for that.




Anytime you wish to take my up on the offer just post a message here or in the other thread (which I've just discovered) about this project in the Project Development area and I'll send it to you.



PS: regarding buying distribution rights.  For me personally I would require that you have some sort of patent protection so that other competitors couldn't steal the market with alternative products.  Unfortunately, the basic concept of off-chain electronic transactions by  secure private key exchange would most likely not be patentable since the mechanism has been publicly detailed previously by others.  However, your idea of splitting the private key across the phone and card offering further customer protection I believe is novel (not only novel but also a great idea too   ) and should be patentable.  The split key feature could provide a selling edge to establish your product in a market dominating position-- a dominating position in this market is golden due to the fact that it has a native lock-in factor owing to the compatibility issue surrounding the cards being able to talk to each other and establishing secure connections.  

 (Actually, as-an-aside: In my particular case of Australia it may even be the case that you cannot patent the split key idea as it is my understanding that our law requires that the idea never be published before the patent application-- however I think this is the exception of most countries than the rule.  I believe that in places such as the USA you have up to one year after publicly detailing the mechanism to patent it-- but I'm not a lawyer so not so sure.)

Congratulations on achieving demo status for your project.  This is a game changer for Bitcoin- the greatest innovation in a year since Bitcoin ATM's.  I can't understand why this isn't the top comments thread of the month  -- no comments anywhere yet?.  I think most people here just don't understand what this project is.

Previously I pledged 15 BTC on this thread to you for this- I have just sent you 5BTC and will send another 10 when it has the finishing touches and is publicly realeased.  Please spend this as you see fit (preferably on the project though I don't mind if you spend it otherwise-- you deserve it!).  

I'm interested in knowing if you familiar with the Samsung Knox Android phone- it has very strong privacy and security feature with allow apps to run in secure isolated containers.  Knox would be a great match for this project.  I'll give you another 0.5BTC if you port your software to make use of the available Knox features.  This shouldn't be too hard or take too long, from what I understand you contract Samsung and provided they approve the app they assist in wrapping the Android files to make use of the Knox features.

Have you thought about patenting your split key idea of using both the phone and the card?  It would be a good idea even if you are motivated to introduce this system for the benefit of bitcoin and not so much for your personal gain because it would help your system to become standard.  The widespread use of electronic off-chain private key exchange needs/requires very few solution providers so that people can exchange with others without compatibility issues.

Also how do you plan to advertise/introduce it to the bitcoin community.  I imagine that you could perhaps gain access to users by introducing it to local bitcoin groups and retailers.  This project needs to penetrate where people meet face to face regularly to conduct bitcoin transactions.

By-the-way:  I want this project of yours to succeed, so if it would help it I can lend you interest free up to 20 BTC to be paid back at your leisure as a gentlemen's agreement.  If you would like more I could lend it to you interest free up to 250BTC but this would require a formal agreement (you would have to pay the costs of drawing up a contract).  Even more is possibly available but it would require that I receive benefits in return (eg: exclusive rights to sell in my country, or a part of the business, etc.)

This is already being implemented.  The first release was just this week.  https://bitcointalk.org/index.php?topic=321085.0  .  

However NFC exchange is yet to come-- although very easy to implement.  At the moment you have to take a photo of a QR code on the recipient's phone (I think) to set up the exchange (this is probably safer than using NFC anyway and not that much less convenient).

PS: It surprises me that no-one here has been talking about this project since it is the biggest technological advance in Bitcoin in the last year or so.

Has anyone mentioned off-chain transactions yet? 

My guess is that they're not likely to be a problem for at least 6 reward halvings (ie: 24 years) but after 14 halvings (ie:56 years)  I would expect them to have already started impacting the hash rate and thus blockchain security in a major way.  That is, somewhere between 6 and 14 halvings total payout (block reward + transaction fees) in equivalent fiat at today's dollar value for mining a block will peek and start decling thus causing a peek and decline in mining.

I'm not sure if this reply is directed at me or at  justusranvier.  If it was at me,  I would like to say that I do understand what you scheme is: it is very similar to this one that I outlined as an example of an electronic off-chain transaction using DRM on personal computers and phones- https://bitcointalk.org/index.php?topic=148232.msg1578079#msg1578079 (elsewhere in that thread I even say that it is possible to use smart cards).

The reason I mention bank-like off chain transactions above was because for most people conducting off-chain transactions with large amounts of money they would prefer the safety and reassurances that a bank like institution provides (eg: similar to how in the real world not many every day citizens by new cars/houses/businesses with cash-- they use bank cheques and the like).

Local off-chain electronic private key transfer is a great alternative for smaller items and would appeal to the masses, it would be very convenient for transactions like buying groceries and petrol etc.  Most people would accept the security risk associated for small amounts like this (eg: in the current fiat world few people here in Australia have reservations loading bus cards with a $20-to-$100 or so).   However, personally I wouldn't use private key transfer for anything more than a few thousand and I think will you find that many people wouldn't even use it for that much-- maybe just a few hundred.

There is a real need for your scheme and it is a great development.  Previously I've offered 50BTC for an open-source smart phone version for secure private key transfer, however at the moment smart-phones don't seem to have the necessary hardware-- Samsung KNOX comes close.  So I'll pledge 15BTC to your smart card idea on successful completion and public release (non-open source accepted).
  

And these people include almost everyone here,  indeed I'll speculate and assume you yourself have participated in an off-chain transaction. 

Ask yourself this question: "Have I ever used an exchange to buy or sell bitcoin?"-- cause if you have then it most likely involved an off-chain transaction.