Bitcoin's Tipping Point

Let's face it, the last three months have been nothing short of ugly for Bitcoin. Just about the entire Internet has called Bitcoin's time of death, tagged it's toe, and thrown it in the freezer, not even granting it a funeral worthy of pets.com.

Those of us who continue to guard the flame are confused, tired, and starting to ask ourselves if we're crazy. If Bitcoin is so great, why isn't it catching on?

Well, let's look at the facts:

1) Until a week ago, you had to know how to build a computer from scratch to secure your wallet. Okay, maybe that's an exaggeration, but it sure felt that way. At one point I had so many USB sticks and TrueCrypt files on the go, I felt like I could start an on-stage show at the Mirage, juggling flash-drives while singing Celine Dion songs in binary. Once I installed the new client, it took me two hours to undo it all and consolidate my Bitcoins into one secure wallet. Finally, I can tell my friends about Bitcoin, and I don't have to lay awake at night wondering if their Bitcoins are being stolen by crazy hackers from the Caribbean.

2) The Exchanges and E-Wallets are very new and legally ambiguous. There can't be a functioning Bitcoin economy until a solid, time-tested, secure network of exchanges is in place, all around the world. This summer has been absolutely brutal for hacks, stolen coins, and fraudulent website operators. None of this is doing the Bitcoin economy any good. It's going to take time for reliable sites to prove themselves, and for the legal schmozzle to sort itself out, before the average Joe is going to dare dip his big toe in the pool of freedom-coated Bitcoins. Sure, the blackmarket will continue to thrive and grow, but that's not going to help Bitcoin go mainstream.

3) Bitcoin is new, like, Facebook-with-1000 users new. If Bitcoin was a website, it would be on geocities with a bunch of "under-construction" gifs. It's going to take time to build the infrastructure and attract merchants to accept the currency. The last few months have seen a massive drop in Bitcoin value, yet a huge influx of new exchanges and services. Just imagine how many projects are on the go that we don't yet know about, or how many haven't even been thought of yet. Patience is a virtue, and it's desperately needed here.

Within a few years, we'll be looking back at 2011 the same way we look back, today, at the 10,000 BTC pizza, saying, "my God, what were they thinking? How could anyone have written off something that had so much potential?"

The tipping point will come eventually - I'm convinced it's inevitable - but it's not going to happen tomorrow. Anyway, what's the rush? In the meantime, put on your Alpaca socks, smoke some e-cigarettes, and play some bittleships.

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Banks to Circumvent Government-Imposed Fee Limits

The Wall Street Journal reported today that Bank of America, following in the footsteps of Wells Fargo, among others, will begin charging a monthly fee to customers who choose to use a debit card, in an effort to circumvent new fee limits imposed on banks by the US Government.

Bank of America Corp. plans to charge a $5 monthly fee for its debit-card users, joining a number of other banks that are pressing their customers to help recover lost revenue from new regulations.

Bank of America and other debit-card issuers, including J.P. Morgan Chase & Co., Wells Fargo & Co. and Regions Financial Corp., are trying to offset an estimated $6.6 billion annual revenue hit stemming from new limits on so-called debit-card swipe fees.

The limits, finalized by the Federal Reserve Board in June, take effect Saturday and will reduce the amount of money merchants pay banks to 24 cents per transaction from a current average of 44 cents. Bank of America has said it expects the caps to erase $2 billion in revenue annually.

In other words, "if we can't gouge the merchant, we're going to gouge the consumer."

Wells Fargo said it will charge a $3 fee for debit and ATM card customers in Nevada, Washington, Oregon, New Mexico and Georgia starting Oct. 14. Like Bank of America's, Wells Fargo's fee applies when a customer makes a purchase with the cards and not ATM transactions.

Brutal.

J.P. Morgan has been testing a $3 fee in a small market in Wisconsin since February. Regions Financial and SunTrust Banks Inc. also have added monthly fees for some debit-card customers.

Keep 'em coming.

Citigroup Inc. said last week it was raising fees on certain checking accounts but would not charge fees for using debit cards.

Yup.

Trish Wexler, a spokeswoman for the Electronic Payments Coalition, a trade group that represents Visa Inc., MasterCard Inc. and several large banks, said the new fees are "unintended consequences that have come up as a result" of the Durbin amendment.

Unintended consequences? Unintended consequences? How does anyone fall for this b.s. anymore?

In other news, Bitcoin fees continue to hold at zero.

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Two Bitcoin Directories

I wanted to briefly mention two new Bitcoin Directories that everyone should have in their Bitcoin bookmarks folder:

- Stuffexists.com - a fantastic amalgamation of everything Bitcoin in a simple layout.

- Betwithbtc.com - a directory, created by yours truly, of Bitcoin gambling sites.

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Bitcoin = Mega-Value at $4.80

We don't know how much a Bitcoin will be worth on the exchanges on a day-to-day basis, but there are a few things we do know:

- Every day, more and more websites, e-businesses, and brick-and-mortar businesses accept Bitcoin as a means of payment;
- New software, apps, and services for Bitcoin are launched every week;
- Hundreds, if not thousands of very intelligent and experienced programmers and entrepreneurs are dedicating their time to Bitcoin's development;
- Bitcoin makes possible previously impossible or costly financial transactions.

What do the above mean? Continuous growth of the Bitcoin economy.

What is continuous growth divided by 21 million? A continuously increasing price for a Bitcoin.

The fall from $32 to $4.80 is literally a bump in the road. Makes you wonder how high it can go, doesn't it?

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New Bitcoin Software

I don't know about you, but I've been having trouble keeping up with all of the new services, apps, and other software that have been announced over the last four or five days. Here's a list:

BTCKink - Legal Payment Middleman
Bit-Pay Mobile Checkout - Mobile Payment App
CryptoXChanger - Bitcoin Exchange
BTC Trader - Charting Software
iPhone Bitcoin Monitor - iPhone Info App
Offline Wallet Generator - Java Wallet Generator
Bitcoinica Exchange - Leveraged Bitcoin Exchange
Safebit Bitcoin Wallet - Bitcoin Client
iBitcoin - iPhone Info App

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A Business Owner's Bitcoin Lament

Don't believe that doing business in Bitcoin will save you money? Read this quote from Roger Ver, CEO of Memory Dealers:

"If all of my overseas vendors agreed to accept Bitcoins, or even MTGOX vouchers, I could save over a thousand dollars a month in bank fees.

All of my vendors in China would also be paid more securely and not have to worry about any foreign exchange controls being imposed on them.

It would be a win-win situation for everyone involved.

I'm even more eager to have my customers start paying with Bitcoins rather than Paypal or credit cards.

There are thousands of dollars in fees per week that can be saved."

Now go help Roger and buy some memory, with Bitcoins of course.

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Bitcoin Radio Commercial

Anyone listening to any of these radio stations will hear an actual Bitcoin commercial starting today. Radio hosts will read out the same lines that you hear in this YouTube video.

The commercial is funded by Roger Ver of Memory Dealers, famous for, among other things, his $10,000 bet that Bitcoin will outperform gold by 100x over the next two years.

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Explanation for the 9/11 Volatility

In case you were wondering just what the heck was going on, here's your explanation. For the first time, traders have levered access the Bitcoin market, and it's showing. In just seconds, the market jumped nearly 50% on huge volume.

It remains to be seen if things will settle out, but for the time being, the market remains quite volatile. Bitcoinica is suddenly the second biggest Bitcoin exchange, by volume, and it's been open for less than three days.

***UPDATE*** Bitcoinica now posts their trading volume on their home page - it's now up to 19,000 BTC over the last 24hrs. Incredible.

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The Legitimization and Inevitability of Bitcoin

Beginning on the 13th of September, a French court will start working toward an important legal decision on Bitcoin, with the goal of answering the question, “is Bitcoin a virtual currency?”

At present, there is nothing inherently illegal about accepting Bitcoins. When questions arise in the community about such issues as income-tax implications, it is oft-quoted that trading in Bitcoins falls under the laws that govern bartering. So what’s the difference between trading in Bitcoins and trading in bananas? Really, it comes down to the potential for money-laundering (bananas are an inefficient medium for laundering money), which is why it’s essential that a legal framework be put in place to govern businesses that facilitate Bitcoin transactions, like the exchanges.

As far as merchant risk is concerned, the legal status of Bitcoin is a non-issue, as it really is nothing more than a new type of payment processor, like Visa or PayPal, only cheaper and more efficient to use. Worst case for most merchants, if there was a legal problem with Bitcoin, they could instantly remove the functionality and carry on with business as usual.

The likely outcome of the court ruling will be that Bitcoin exchanges and banks, at first those doing business in France and then eventually elsewhere, will be required to have their customers and transactions documented to satisfy the laws to which fiat currencies are bound. While this might come as a blow to those who bank (excuse the pun) on the pseudo-anonymity of Bitcoin, it actually represents the next step toward its legitimization and mainstream acceptance. It is likely that many businesses are currently reluctant to dabble in Bitcoin due to its disproportionately reported association with the drug trade and money-laundering, however, if the currency is given billing as a legitimate currency, albeit virtual, it will surely mark the kick-off of the inevitable next phase of significant growth in the Bitcoin economy.

Ahh, but you ask, "why is it inevitable that the Bitcoin economy should grow?" The answer is simple: efficiency.

We now live in a globalized economy with ever-expanding free-trade agreements and reduced trade tariffs, yet moving money internationally is still slow and wrought with fees, and that's for your average business, let alone an individual.

The adoption of almost every major technological development, from the telephone to computers to email, has been driven by one common goal: increased economic efficiency. Any business that uses new technologies will have an advantage over its competitors. This advantage gives early adopters of these technologies the choice to increase profits or to pass savings to their customers, both being good for business. Those who don’t adopt new technologies will not be competitive.

At present, the efficiency gains are there, but have not been completely realized; merchants still need to convert Bitcoins to local currency to pay their bills and re-stock their shelves, with typical currency conversion fees on Bitcoin exchanges in the range of 0.6%. Volatility risk and currency exchange fees can be absorbed by payment processors like bit-pay at a cost of two percent, which still beats services like square, who charge 2.75% for processing credit-cards. That fee, however, does not take into account charge-backs. For merchants, Bitcoin has a major advantage over its competitors in that transactions are non-reversible. For consumers, the finality of a Bitcoin payment is not a show-stopper, as long as they're dealing with reputable merchants. When dealing with merchants of questionable integrity, services such as ripple will eventually fill the gap.

Imagine Bitcoin tomorrow: merchants will be able to keep their money in Bitcoin as they become able to pay their suppliers, anywhere in the world, without converting currencies. Volatility risk will subside as the economy grows and the Bitcoin production rate drops; efficiency gains will be fully realized.

We can share any piece of information with anyone in the world, instantly, yet financial transactions lag behind. This post is actually being written by two people at the same time. We live in different countries, and I can see his typing and he can see mine, yet before Bitcoin, I would not have been able to share money with him (not that I'm making any money with this post!) without losing a significant portion of it to a middle-man (likely PayPal) in both transaction fees, currency exchange fees, or both.

Using PayPal, assuming no transaction fees and only exchange fees, if I sent 10 USD (worth 9.97 CAD at current exchange rates) to a person who wanted CAD, they would receive 9.70 CAD on their end, after fees were deducted, resulting in a 2.8% charge.

Bitcoin is, quite simply, a more efficient way of moving money than has ever existed before, and with the growth of the Bitcoin economy and the adoption of some of the enhancing applications that are soon to come, like Open-Transactions, its efficiency will only improve.

It will be interesting to see how the French court words its ruling, but the fact that they're even speaking the word "Bitcoin" is significant. This important step toward realizing mainstream legitimacy, combined with already existing and ever-improving efficiency gains, will accelerate growth of the Bitcoin economy, propelling it toward inevitable wide-spread adoption.

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True Market Value

These two screenshots were taken at the same time:

The Canadian market, courtesy of Cavritex:

The US market (MtGox), courtesy of Bitcoinity:

Note: 1 CAD = 1.0034 USD (the two currencies are virtually at par).

Wherein lies the truth?

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Bitcoin Stack Exchange

As promised, here's a link to the Bitcoin Stack Exchange, now in public beta.

http://bitcoin.stackexchange.com/

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Interview Series Part 3: David Sterry - ExchangeBitcoins.com (ExchB)

Interview Series Part 1: Josh Strike - Strike Sapphire Casino
Interview Series Part 2: Bruce Wagner - The Bitcoin Show / OnlyOneTV / BitcoinMe.com

Watching the markets over the last couple of days has been exciting, no doubt. Value fluctuations, however, are not important in the long term. What truly matters in these formative years for Bitcoin is the incredible amount of talent and effort going into the development of Bitcoin's infrastructure. A great example of that talent is the ExchangeBitcoins.com site developed by David Sterry and his team out of California. David is president of ExchangeBitcoins.com (also known as ExchB) and joined us to answer some questions about the exchange.

BT: David, the first thing I see when I go to your website is that ExchB was the first US Bitcoin exchange. How did the site come to be, and when did it first open?

DS: At the beginning of May, I was interested in funding a project from a large number of small donations and payments. Having read about Bitcoin last year when Slashdot covered it, I decided to revisit Bitcoin. At that time the price had just crossed $1 and lots of people were taking notice.

As I read more and more about it, it became hard to focus on anything else. The Bitcoin system is brilliant and every time I tried to knock it down, it kept getting back up. Seriously, Bitcoin.

At that time, people were also asking for more diversity in exchanges and I had a tingle down my spine as I thought about creating one. Over the next few days I started designing the foundation and ExchB was born.

After a month or so of development and testing, ExchB opened on June 15th, 2011. We've been steadily growing and innovating ever since.

BT: Your affiliations with Chase and Wells Fargo have significantly improved the process, for Americans, of buying Bitcoins. Has that translated into increased volume on the exchange?

DS: We're extremely pleased with the instant cash deposit feature and improving the process of buying Bitcoin is what we're all about. Our volume is steadily increasing with cash deposits providing more consistent growth of volume than any other source.

Many people who deposit cash with us are new to Bitcoin. I have to say we provide a pretty optimal purchase experience and that's good for everyone who owns or uses Bitcoin.

BT: The vast majority of Bitcoin trading marketshare still lies with MtGox. Do you think that will ever change? As president of ExchB, can you give us some hints as to how you plan on acquiring a greater portion of the market?

DS: We can't discuss future plans but of course we feel volume will shift as the Bitcoin economy matures. We started by building a solid, easy-to-use and reliable exchange. Our investments in reliability and the backend are what we feel will position us to lead when serious businesses consider transacting in Bitcoin.

Customer service is another area where we excel. We have a phone number and respond asap to email. If you've had a good experience with ExchB, let people know! If anything about ExchB was less than optimal, I will personally see that it's remedied.

"...people think that when they see something as good as Bitcoin, that there must be a catch." -David Sterry

What can we say about the future? There are some problems that are impeding Bitcoin's widespread use and while many think it will take years to solve them, we feel ExchB will help solve these problems in the next three to six months.

BT: Since you first became aware of Bitcoin, how have you seen it change, and where do you think it's going from here?

DS: Since the time I learned of Bitcoin it went from sub-penny prices and no exchanges to tons of businesses now opening to serve the Bitcoin community. Now we're learning some tough lessons on how to stay safe as a community with such a fluid payment system as we have with Bitcoin.

Next, we as a community will increase efforts to reach out to established businesses and organizations. Our explanations of Bitcoin's benefits are becoming clearer and people with real business experience are getting involved with Bitcoin. We see a bright future ahead.

BT: Are you working with any developers to build new applications for Bitcoin?

DS: We're constantly talking with developers and businesses about potential partnerships. ExchB only succeeds if Bitcoin succeeds and judging by the ideas and plans we're hearing, and in some cases helping to implement, some really exciting applications are coming.

BT: Is there anything else you'd like to share with us?

DS: Yes, I would like to say something about Bitcoin’s current and future value.  People ask, "why is Bitcoin valued in the under $10 range when it has so much potential?"

In a way, Bitcoin is a victim of its own potential. Bitcoin will enable many wonderful things but we as a community are still developing the tools to take Bitcoin mainstream. Until Bitcoin goes mainstream only those with a very active imagination can envision that potential.

At the core of Bitcoin’s current price is that people are unsure of how to value Bitcoin. Additionally, people think that when they see something as good as Bitcoin, that there must be a catch. This understandably leaves them skeptical.

Many miners have costs which they must cover through the sale of Bitcoins. They then keep the remaining Bitcoin as investment in the future. Their need to sell drives the price down.

The short term speculators seem to value Bitcoin based on sentiment: good news about Bitcoin means Bitcoin is worth more. Bad or no news means Bitcoin has less value.

"In the future, Bitcoin will be for reputable transactions and credit cards for unsavory transactions." -David Sterry

There are people who get the Bitcoin concept and who are not willing to sell Bitcoin for under $1,000. They’ve bought as much as they can and they would buy more if they could. Unfortunately, they don’t influence the price of Bitcoin much.

About the future price, here are a few of possibilities I see:

As Bitcoin use becomes widespread, even non-investors will benefit from Bitcoin as they see a two to there percent discount on everything they would have bought with a credit card.

In the future, there will be a complete reversal from today’s perspective. With large established merchants, like Amazon, consumers will use Bitcoin and enjoy a two to three percent discount. With smaller vendors that consumers only buy from once, don’t know well, or where they would like buyer’s protection, they will use a credit card. In the future, Bitcoin will be for reputable transactions and credit cards for unsavory transactions.

One final possibility I’d like to share is what happens when large industry adopts Bitcoin. Credit card companies charge gas stations a two percent transaction fee, which is equivalent to their profit margin. By eliminating credit card transaction fees, gas station owners could double their profits. The US consumes 65 billion gallons of gasoline per year and at $3.70 per gallon, this could be $240 billion dollars going through the Bitcoin economy per year. If the market cap for Bitcoin was $240 billion, each Bitcoin would be worth $34,000 dollars.

And finally, Bitcoins are now under $10 each. If you don’t have even one or two, you should definitely get a few today at ExchangeBitcoins.com.

---
David Sterry is founder and president of ExchangeBitcoins.com, the first Bitcoin Exchange to be launched in the United States. 

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Bitcoin Evolved - An Overview of Open-Transactions

An individual by the name of "fellowtraveler" is finalizing a piece of software that is incredibly important to Bitcoin. If you thought Bitcoin was amazing before, wait until you see what's coming. It's called Open-Transactions (OT), and I'm going to briefly explain what it means to Bitcoin.

1) Truly anonymous transactions. Bitcoins are no longer assigned from one wallet to another, but from user-to-user using contracts on a network of federated OT servers.  They therefore cannot be traced.  The Bitcoins are held by the servers, as a reserve, but don't have to move afterwards. Think of it this way: instead of sending someone Bitcoins, they're held in escrow by a trusted issuer, and a contract is written (like a cheque) saying that someone else is entitled to a certain quantity of the Bitcoins. The contract is as good as holding the Bitcoins, but is easier to transmit and easier to conceal. Think of it like your standard banking transaction: if you write someone a cheque, cash doesn't physically move from one account to another, just the balance.

2) Instant transactions. Bitcoins are no longer moving - contracts are. Contracts move instantly.

3) Security through redundancy. Your Bitcoins can only be sent to another wallet if all of the servers agree that permission has been given to send them, through what fellowtraveler calls "voting pools." He explains that a hacker would have to hack all the servers in the pool to get multiple private keys and passwords before the Bitcoins could be sent. This would be vastly superior to having your wallet held by one organization, say MyBitcoin or MtGox, or even entrusting it to yourself, on your own hard drive.

4) Conversion to other assets, like gold or silver. If you have a trusted, audited individual or business that holds those assets, they can be easily exchanged for Bitcoins or anything, really, using OT.

Once this is up and running, the way we use Bitcoin today is going to seem archaic. This is very exciting.

For a more technical explanation of how this all works, take a look through fellowtraveler's posts on the bitcoin talk forums. He has links to videos, wiki articles, and graphics to help you understand the nitty-gritty.

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Bitcoin 0.4 - Now with Encryption

Like a lot of you, I'm sure, the only thing holding me back from introducing my friends to Bitcoin is the fact that securing a wallet is an extremely convoluted process that the vast majority of people cannot wrap their heads around.

Well, that problem is about to go away. Bitcoin 0.4rc1 (release candidate 1) is on the streets, and while not yet ready for public consumption, it won't be long before the bugs are worked out, and we will finally have a client that our less technical friends can install and use instantly and securely.

Well done to Gavin Andresen and his colleagues - remember, they're not getting paid to do this!

One hurdle down...

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The Ultimate Source for Bitcoin Questions & Answers

Back in March, an enlightened member of the Bitcoin community endeavoured to gather the support required for a Bitcoin Stack Exchange site. The site is now less than 48 hours from going public beta, and already it is has developed into a respectable collection of Bitcoin questions and answers. I suspect it will become the definitive resource for those curious about Bitcoin (yes, even more so than this blog). I will post a link to the public beta as soon as it goes live.

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Thank You!

Dear Loyal Readers,

In the one week that this blog has been running, it has received nearly 5000 hits (4808, to be exact). I'm certain that at least one of those people was new to Bitcoin and decided to create a wallet after reading through the articles.

Thank you to those of you who have made donations. Your generosity has inspired me to continue creating unique content which I hope you will find interesting and insightful.

At first I wasn't quite sure where this blog would be heading, but I think I now know. My vision is that when you, the Bitcoin enthusiast, are trying to convince your skeptical friends and family that they should start using Bitcoin, you will be able to point them to this blog. I hope that, once they finish reading through the articles, they will be convinced that Bitcoin is not another flash-in-the-pan dot-com-boom-style concept, but a tremendously innovative system that will turn the financial world on its head, with useful properties from which everyone can immediately gain.

No, I won't be going into the technical details of how Bitcoin works (there are other resources for that), but I will be describing where and why it works, and where and why it could work, which is arguably just as important.

If you live in a country that celebrates Labour Day in September (I do not apologize for my Canadian spelling), enjoy your long-weekend. Labour Day traditionally demarks a return to school and work, and I suspect it will also signify the beginning of another chapter in Bitcoin's exciting story.

Thank You,

GoWest

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Looks like I won my "$20 in September" bet. =P

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14 things you can do with Bitcoin that you otherwise couldn't.

1) Tip your favourite blogger ten cents with a near-zero transaction fee (less than a penny).

2) Write a book, create artwork, play a song, upload it, and sell it, now. No shopping carts, no publishers, no distributers, no PayPal, no credit cards, no addresses.

3) Send a dollar to someone half a world away for less than a penny.

4) Send ten thousand dollars to someone half a world away for less than a penny.

5) Maintain a savings account without paying someone else to hold your money or give it back to you.

6) Withdraw your winnings from an online casino - all of it - and get it instantly. Do it without anyone knowing your name or where you live.

7) Playing poker at your buddy's place? Don't worry about stopping at an ATM to get cash. Settle your winnings at the end of the night without trying to figure out how to make change.

8) Eating out at a restaurant and the waitress won't split the bill? Let someone else pay and give them the exact amount you owe, to the penny. No need to carry cash.

9) Running out from the office to buy lunch for your co-workers? No need to collect the money in advance. Send them the payment address and they can pay their share without leaving their desks.

10) Set up an online store in minutes. No shopping carts, no payment processors, no fees.

11) Receive a payment and not worry about a chargeback from the credit card company or from PayPal. All payments are final.

12) Send money to any organization. No middle-man can stop you from supporting a cause.

13) Protect your wealth from your country's unsustainable financial policies without destroying the environment or native land.

14) Travel to another country. Cover your expenses without exchanging currencies (coming soon).

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