Understanding Coinffeine’s protocol (I)

Deal
Photo: Brian Alano CC BY 2.0, (Not changes made)

Coinffeine is a company, a desktop application and, most importantly, a protocol that allows decentralized exchange of bitcoins. This is the first of a series of posts in which we will explain the basics of Coinffeine’s protocol.

Let’s start with the following scenario, by the way very cinematic, in which two people who do not trust each other want to trade. This scenario implies a risk, because if the first person surrenders his briefcase before the other person gives him the goods, he runs the risk of being left with nothing and vice versa.

Trust without a third party

This situation is analogous to what we have in an exchange of bitcoins in Coinffeine: briefcase → FIAT goods → bitcoin. It does not exist trust between the parties, because there is not a third party that both trust. The parties have been matched without knowing who is their counterpart.

This situation seems unresolvable in principle, except for the fact that we can rely on two powerful tools: The first is that we are talking about rational agents, that is, looking for their own benefit, and the second is that we assume the presence of bitcoin. To solve the first we can use game theory to analyse the problem, and thanks to the second we have mechanisms such as multisig, allowing us to use the funds in new and creative ways.

Game theory

In this post we will focus on the first tool – game theory – which is a discipline midway between mathematics and economics, and applicable to situations in which rational agents make decisions in a well-defined scenario.

Although there are reminiscences of the kind of reasoning that is done in game theory in many ancient texts such as The Art of War by Sun Tzu or in the work of Charles Darwin, one can say that this concept appears in 1944 with John von Neumann and Oskar Morgenstern’s book entitled Theory of Games and Economic Behavior. Von Neumann is an old acquaintance of computer engineers because he is, along with the great Alan Turing, one of the fathers of computing.

Game theory fits well with the era in which it was formalized, and during the Cold War it seems like military terminology leaked and was adopted as the jargon of this field. The “games” can be seen as war scenarios, and the term “strategies” is frequent… The Cold War was actually brought to an end through mutual assured destruction. This is another game theory concept, which we will discuss in greater detail in the next post.

The Prisoner’s Dilemma

A good starting point to get into game theory is the prisoner’s dilemma. It is probably the best known game, and it will serve to identify the elements in the games before we can analyse them and draw conclusions. The game is set in a police station, where we have two members of a criminal gang arrested and imprisoned. Each prisoner is in solitary confinement with no means of speaking to or exchanging messages with the other. The rational actors will be, in this case, the two prisoners.

The next thing to consider in any game is the available actions of each actor. In this case, both prisoners face a difficult decision: the police are pushing them to collaborate with justice and testify (or defect, D), but they can as well keep strong and silent (and collaborate, C, with the other prisoner). The police admit they don’t have enough evidence to convict any of the prisoners on the principal charge, and plan to sentence both to a year in prison on a lesser charge. Each prisoner is given an opportunity to freedom: testifying that the other committed the crime for which he will be sentenced ten years in prison. However both prisoners have a problem. If both of them decide to collaborate with justice they will both go to jail, but only for five years each. These sentences are possible incentives or costs of this game, and is the third element to look for when characterizing a game.

We can set all the options on a table. The rows represent the possible actions of one player and the columns of the possible actions of the other player. In the cells we place the appropriate incentives to each of the scenarios. The result is known as a normal-form game, and in the specific case of the prisoner’s dilemma it looks like this:

The players actions and incentives in the prisoner’s dilemma

Prisoners Dilemma

Dominant strategy

Now we have enough elements to analyse this game. For our example, we can apply a simple concept called dominant strategy. In other cases you have to use other solution concepts that are more complicated. Strategic dominance are those moves that are the best answer to anything the other player does, and by definition, will be the preferred strategy by the player.

To analyse the dominant strategies of the blue prisoner, we have to look at the most convenient depending on the actions of the orange prisoner:
– If the orange prisoner decides to cooperate (C), and the blue prisoner does so as well (C) both will get only one year in prison. But if the orange defects (D) he will be set free, so in this case the blue prisoner should choose D.

– If the orange prisoner decides to defect (D), the blue prisoner will prefer to do the same and spend five years in jail rather than the 10 years he would get to cooperate (C) and be betrayed.

Regardless of what the other player does, the best response for both players is to defect. This is because the game and table are symmetrical and it is said that there is an equilibrium in (D, D). This game and its solution are very interesting because it helps us to understand why it may be wise to be rational and not cooperate in certain situations, although you could gain from it.

Games in everyday situations

There are many situations around us that can be expressed through games with incentives that have different values, but with the same relationships among them and with the same practical result. This helps us understand why it is rational not get informed before voting (rational ignorance), or why it is so hard to take care of the environment (tragedy of the commons), among other situations.

Let us go back to our cinematic scenario and the exchange of bitcoins in Coinffeine. It is clear that there are rational players, who can take a number of actions and that we can conceive this situation as a game. However, we still do not have all the pieces. We have to design the possible actions so that instead of no collaboration, as in the prisoner’s dilemma, both players choose to collaborate as the only option. In order to achieve this we need to understand the concepts of mutually assured destruction and throwing away the steering wheel. But, that is the topic for the next post.

If you want to go deeper into game theory:

– Game Theory: http://en.wikipedia.org/wiki/Game_theory

– Good introductory book: http://artofstrategy.net/

– Introductory course in Coursera: http://online.stanford.edu/gametheory-wi13

Understanding Coinffeine’s protocol (I)

Coinffeine opens 2015 in New York

New York
Photo: Roman Iakoubtchik,CC BY-SA 2.0, (Not changes made)

We begin 2015 crossing the Atlantic Ocean again. This time Coinffeine‘s destination is New York, where we will participate in a market accelerator program organized by VentureOutNY.

From January 10th and for the next ten days, our CEO Alberto will be in the Big Apple, a city that serves as an important stepping stone in the world of Fintech. The timing for this trip could not be better for Coinffeine. We are working to close the investments of our Serie A, and Manhattan may just be the perfect place to attract interest from new investors. It is a great opportunity to show the potential of Coinffeine´s protocol as a framework for traditional banking and the future that Bitcoin brings to the world of finance and financial institutions.

On our recent trip to San Francisco we learnt, among many other things, how to move in the US market. Coinffeine will use all the experiences from our last trip to increase our network in the US and seek to extend our funding.

The VentureOutNY program will present us to acceleration programs and venture investors in the city, as well as the training required to meet the specific market characteristics of New York through workshops and networking.

New York is known as the city that never sleeps, and it seems like Alberto have to conform to that. It will be a trip with a busy schedule of meetings with investors, banks and Bitcoin ecosystem companies. We also hope to have meetings with the local Bitcoin community in order to deepen their reality, share experiences and create synergies.

Again, we are proud to participate in this programme. It is surely an incredible experience for a Spanish Bitcoin startup. We hope the Big Apple is where Coinffeine gets the momentum to break into the American market.

Coinffeine opens 2015 in New York

Goodbye to an eventful 2014

Fireworks
Photo: GoToVan, CC BY 2.0 (Not changes made)

Throughout 2014 we have been working hard, really hard. We received the year working on Coinffeine, and even if we say goodbye in the same way, we are now starting to see how we can change the world.

Just over a year ago, the four of us had a clear commitment for the technology behind Coinffeine. At that moment the project did not even have a name. 12 months later Coinffeine is much more than a name: it is the first company to establish itself with share capital in Bitcoin, it is a team that has seen the hard work recognized and supported by the Bitcoin community and it is the materialization of our passion for programming. The protocol is changing the way financial institutions, such as pay processors, understand Bitcoin. Coinffeine is, basically, our bet.

We gave up a lot of things for Coinffeine, but we have also got a lot in return. To embark on your own project has got many implications, but today we can say that it was worthwhile. We are, without a doubt, proud to have founded Coinffeine.

We wrap up a 2014 that has been a happy year both personally and professionally. And we enter 2015 more eager than ever for Coinffeine to be a project for everybody, and to open a new important niche in the Bitcoin ecosystem.

We are sure that the next months will bring many challenges, many satisfactions, many worries, many mistakes, many things done right, many risks, many new responsibilities, many commitments and a lot of hard work! But we are also sure that all of those moments will be unforgettable and will contribute to write the history of Coinffeine and the Spanish Bitcoin movement.

Thanks for joining and supporting us during 2014 and we hope that in 2015, we are many more!

Goodbye to an eventful 2014

Hello World!

Trial Demostration
Photo: David Cid

The last 18th. of December was a great day for Coinffeine. No doubt about it! Our meetup in Madrid was supported by an exclusive and dedicated audience. For us this alone is a great success.

The event looked promising, as it was fully booked one day in advance. But you never know with these things… Luckily it materialized, and the venue at Impact Hub was packed full, something of which Coinffeine are infinitely grateful. Again we felt that support from the Bitcoin community which have followed us since the very beginning of this adventure.

Alberto, our CEO, remarked many times during his speech, that the fact that we were “at home” made the day even more special. And Madrid became the perfect place to emphasize what has marked Coinffeine’s personality as a company and as software, and that it is all about the people behind it.

Alberto, Ximo, Álvaro y Sebastián worked together in a high performance team in a previous professional adventure, and since then they have been sure that their teamwork was a safe bet. The implementation of the mathematic problem of Game Theory, which Alberto had sketched out earlier in an international publication, became the perfect excuse to get back together and create Coinffeine.

To manage the seed capital in less than 6 months, or milestones such as being the first company in the Bitcoin ecosystem with an investment from a bank, or being selected by the Spanish Institute for Foreign Trade (ICEX) as one of twelve Spanish startups with the greatest growth potential, confirm the intuitions of the founders of Coinffeine.

“This is not a here it is, this is a Hello World, soon we will be ready!” Alberto assured before Álvaro took over the demonstration. He showed the application publicly for the first time, not without some technical problems due to the internet connection, but the time was used to clear all the doubts from the audience.

Then Sebastián gave a brief but inspiring talk about Game Theory, which is the theoretical and technical base behind the Coinffeine’s protocol. The dazzling presentation was praised by many in the audience.

The ten first participants to post a tweet with the hashtag #coinffeineuser got the valued voucher that has allowed them to be the first to install the application and participate in the private testing. The experiences from this testing stage will help Coinffeine’s team of developers to make the application more efficient, fast and fun to use.

And this has been our main focus for the last days.

 

P.S. We share a few photos of the event and a short video.

Hello World!

Come and see the BitTorrent for your Bitcoins!

18
Photo: Patricia M, CC BY-SA 2.0 (Not changes made)

Christmas is just around the corner, and the agendas are filled up with social events for the holiday season. We are meeting up with friends and family, having dinners with colleagues and ex-colleagues… any excuse for a celebration is warmly welcomed. This year Coinffeine add another excuse for bitcoiners and developers; the launch of the Trial version. And since a next generation exchange platform for Bitcoin is not an everyday event, we hope that you can clear space in your already busy pre-holiday agendas.

We will celebrate our meetup Thursday 18th December at the very heart of the Letras neighborhood in Madrid. Those who come to the Impact Hub at 19.30, will see how the BitTorrent for your bitcoins actually work. And if you are interested in participating in our private testing, this is the place to be. We will give you the chance to try it for yourselves! The more of you that participate in this the better it is. The ten first advanced users that sign-up will leave the event with our software installed on their laptops, and we will gradually include more users as we advance in the process.

For us it is important that you play with the application, that you explore it, try it, leave it for a while, only to return to buy some more bitcoins. At this stage all your experiences, opinions and comments are valuable to us. It will help us to polish the application down to the very last line of code. Any thought or suggestion is useful. Do not worry about insisting on details, because patience has been one our trusted companions on this adventure…

We want to remark that it does not cost a penny to participate in the testing. We have been mining “bitcoins” from our own net for months, and the euros we give you are just mock-ups. So there are no excuses! Come and trade bitcoins for euros and vice versa with no strings attached! And for the ones of you that put in the most effort, we have prepared a small reward.

On top of this, we will share some pizzas, talk about our trip to Silicon Valley, network and clear out any doubts about Coinffeine…

Enough said, update your agendas:

Topic: Meetup Coinffeine.

Date: Thursday 18th December, 7:30 p.m.

Place: Impact Hub (C/ Alameda, 22, 28014 Madrid).

Sign-up is very easy!

 

Join: Yes!

Perfect, see you there!

Come and see the BitTorrent for your Bitcoins!

Our small but powerful protocol meets the world

pizza
Photo: Divya Thakur, CC BY-SA 2.0 (not changes made)

Until now our software has been an idea that we have worked on around the clock, but now it is a reality. Line by line the code has taken shape to be a real desktop application. It is ready to be used, and more importantly, it works!

This represents an important step, and is something we want to share with all of you that have followed us throughout this long process. It has been many hours of work, many lines of code typed and corrected, many ideas exchanged, and a lot of trial and error… Basically a lot of effort that has without a doubt been worthwhile!

We are launching the Trial version. The Beta version is still some months away. We are aware that there is still a lot of work to be done, but Coinffeine enters the next stage: the time for our small but powerful protocol to meet the world has arrived. We want to celebrate this important milestone in style.

The last weeks have been full of good news. The international Bitcoin community has welcomed the announcement of Bankinter’s investment in Coinffeine with open arms, and the news got worldwide media attention. Our recent trip to Silicon Valley has, among many other events, helped us to further strengthen our business vision. With Coinffeine we have established a framework where both banks and Bitcoin users feel comfortable.

We think all these are good reasons for Coinffeine to organize a meetup. There we can talk face-to-face between bitcoiners about Coinffeine’s latest experiences, and more importantly, let the public know our product.

And of course we will do it Silicon Valley-style!

You are all invited, and we will provide details in a few days. But we can disclose some of them; we will give the first public demonstration on how our platform works, there will be pizzas and more surprises. Some of you can as well leave with our software installed on your computers.

Coinffeine is launching a phase of private testing. With this as an aim, we have been mining “monopoly money” for months. Testing our application will not cost you a penny, but it will require effort. We have a modest plan to reward the ones of you that puts in the greatest efforts. All your experiences using our application are valuable to us. We want to polish the code right down to the last detail, so don’t be shy.

We are ready. Are you?

Our small but powerful protocol meets the world

Coinffeine breaks new ground in Silicon Valley

San Francisco
Photo: Mike Behnken, CC BY-ND 2.0 (Not changes made)

A few months ago we were selected by the Spain Tech Center (STC), as one of twelve Spanish companies with the greatest growth potential, to participate in the Immersion Program in Silicon Valley. This pioneer program aims to strenghten internationalization of Spanish tech companies by organizing a trip to Silicon Valley, the global epicenter of innovation and technology.

It is undeniable that Bitcoin has made its mark in this Californian valley, so to Coinffeine this has been a great opportunity that we wanted to get the most out of as possible.

Alberto, our CEO, stuffed his suitcase with the motivation that characterizes him and a strong desire to learn from this experience. When he touched the ground on Monday 10th of November, there was not even time for jet lag. Ahead he had two weeks with an intense and busy schedule: mentoring sessions, workshops, company visits and presentations to international investors.

So far, leading companies in the Bitcoin ecosystem, such as Ripple Inc, have been able to learn about Coinffeine. We have also had the opportunity to introduce our company to respected investors, VC´s, corporate venture partners and Angels. Spain Tech Center, RocketSpace, Silicon Valley Forum and the California Spain Chamber of Commerce have been some of the scenarios in which Alberto has been sharing experiences and had inspiring and productive conversations.

During these days, the feeling of empathy with fellow bitcoiners has been constant. Before our departure for Spain, we made a firm proposition to establish contact with the Bitcoin community in San Francisco. We have, without a doubt, felt more included than we ever could have imagined. Many important Bitcoin companies wanted to know more about us, and one of Alberto’s most successful pitches was one that he improvised in a Bitcoin meetup. The attendants understood the tremendous effort that has gone into developing such a technology in a country where entrepreneurship is not easy, and where the national banks are considered among the most important in the world.

The news of Bankinter’s investment in Coinfeine was made public during our stay, and has been a key element to make us noticed. We are proud to have managed to transmit our firm belief that the technology we are developing is a perfect bridge between the banks and the Bitcoin ecosystem, and that we are creating a product that is satisfying to both sides.

Another goal we have accopmplished was to meet with payment processors and banks such as Bank of America and Standard Chartered Bank. Our main intention with these meetings was to learn more about their needs and interests, in order to offer better services to our actual partners in the future.

Back in Madrid, Alberto brings back a suitcase bursting with even more motivation to make Coinffeine grow and tonnes of new knowledge. It has been an unique experience sprung out of breathing San Francisco’s air of innovation.

A breath of fresh air that will undoubtedly help us to continue programming.

Coinffeine breaks new ground in Silicon Valley