Wednesday, March 28, 2018

Bitcoin: The Future World Currency?

I had a lot of fun applying arithmetic to DNA's prospects as a storage medium. Jamie Powell must have had just as much fun applying arithmetic to the prospect of Bitcoin becoming the world's currency in Sorry Jack, Bitcoin will not become the global currency., which is part of the FT Alphaville's excellent new Someone is wrong on the Internet series. Below the fold, some of the entertainment.

Jack is Jack Dorsey, of Twitter and Square fame, who told the Times:
The world ultimately will have a single currency, the internet will have a single currency. I personally believe that it will be bitcoin...[this will play out] probably over ten years, but it could go faster
Powell assumes that Dorsey is right, and starts by pointing out that, assuming they continue to HODL, in 2028 Satoshi Nakamoto and the Winkelvoss twins together would:
control 5 per cent of the world's liquid currency.
Dividing 2028's projected money supply by the number of Bitcoin:
each of the digital tokens would be worth just over $10m.
Based on estimates of Bitcoin's current energy consumption and energy cost:
each transaction will cost $10,374.
Even assuming two orders of magnitude decrease in energy cost per transaction, aggregated over 2028's projected 1.5 trillion transactions:
the energy cost would be 1,511,484 terawatt hours.
Or more than 60 times the Terawatt hours the entire world consumed in 2016!

Thus were Bitcoin to become a widely used medium for transactions, the process of brute-forcing partial hash pre-images (mining) must have become many orders of magnitude cheaper. But this would mean that brute-forcing full hash pre-images would also be much cheaper, which would have other effects that the Bitcoin enthusiasts might like much less. Such as the deleterious effects on cryptography and the security of Bitcoin and its wallets.


David. said...

The slides for Nicholas Weaver's class at Berkeley today on why cryptocurrencies are BS:

Slide 1

Slide 2

Slide 3

Slide 4

David. said...

Immutability is in the eye of the behodler.

"An unknown attacker has exploited a bug in the Verge cryptocurrency network code to mine Verge coins at a very rapid pace and generate funds almost out of thin air.

The Verge development team is preparing a hard-fork of the entire cryptocurrency code to fix the issue and revert the blockchain to a previous state before the attack to neutralize the hacker's gains.
This is the second security incident involving the Verge dev team, with a mysterious hack happening last fall." according to Catalin Cimpanu at Bleeping Computer.

David. said...

Kai Stinchcombe's Blockchain is not only crappy technology but a bad vision for the future makes a lot of good points, such as:

"Even the most die-hard crypto enthusiasts prefer in practice to rely on trust rather than their own crypto-medieval systems. 93% of bitcoins are mined by managed consortiums, yet none of the consortiums use smart contracts to manage payouts. Instead, they promise things like a “long history of stable and accurate payouts.” Sounds like a trustworthy middleman!"

The goal of blockchains is to eliminate trust. Low-trust societies don't work well (see the work of Robert Putnam) and end up like medieval Europe or current Somalia. The goal should be to increase trust in society, not try to program around it.

David. said...

"New York Attorney General Eric Schneiderman launched an investigation into bitcoin exchanges today, his office announced. He’s looking into thirteen major exchanges, including Coinbase, Gemini Trust, and Bitfinex, requesting information on their operations and what measures they have in place to protect consumers." reports Shannon Liao at The Verge.

David. said...

"Money is a social device. The things that make it work are not to be found inside the coins and notes, but in a network of connections between the people who use it. Bitcoin’s fundamental flaw is the myth that such workability can be “coded.” This is no more possible than it was to physically stamp society’s monetary relations at the mint. At best, Bitcoin will develop such a social infrastructure — in which case, it will work a lot like regular money, and so what’s the point? At worst, the properties coded into Bitcoin will make it unsuitable for a viable social infrastructure, and it will implode and remain niche — a disruptive technology that mainly disrupts its own users." from The Dumb Money by Mike Beggs at Jacobin. It is a good, detailed look at three areas where cryptocurrencies fail to deliver on their promises:

"What cannot be coded is:
* Acceptability: that other people will take it in payment at all;
* Value: what it is worth in terms of other currencies, goods and services, etc.; or
* Liquidity: the ease with which that value can be realized by exchanging it for those other things."

David. said...

Shaun Nichols reports that:

"thieves redirected DNS lookups for [] to a malicious website masquerading as the real thing. That meant some people logging in to were really connecting to a bogus site and handing over their details to criminals, who promptly drained ETH from their marks' wallets. ... The bandits have amassed $17m in Ethereum in their own wallet over time.

Crucially, this DNS hijacking was possible after miscreants pulled off a classic BGP hijacking attack on AWS. uses Amazon's Route 53 DNS service so that when people try to visit the dot-com, AWS looks up and returns to web browsers the IP addresses of the wallet website's web servers."

The details are interesting, and more are recounted by Dan Goodin in Suspicious event hijacks Amazon traffic for 2 hours, steals cryptocurrency. If a cryptocurrency is to become the Future World Currencies it needs to be a lot more difficult to steal it.

David. said...

In theory cryptocurrencies do away with the need for trust and provide anonymity. Not so much in reality, according to Tom Spring at Threatpost:

"A leaky Mongo database exposed personal information, including scanned passports and driver’s licenses, of 25,000 investors and potential investors tied to the Bezop cryptocurrency, according to researchers.

Kromtech Security said that it found the unprotected data on March 30, adding that it included a treasure-trove of information ranging from “full names, (street) addresses, email addresses, encrypted passwords, wallet information, along with links to scanned passports, driver’s licenses and other IDs,” according to the researchers."

David. said...

"Bitcoin and other cryptocurrencies have taken a wild ride over the past 18 months. Now, according to Bloomberg News, the US Department of Justice has opened a criminal investigation into whether price manipulations have contributed to the meteoric rises and crushing falls.

The coins prosecutors are examining include bitcoin and ether, which have both bounced up and down over the past 18 months. In 2017, after bitcoin began the year with a price of about $1,000, it soared to just below $20,000 in December and then finished out the year at about $13,900. Ether followed an even steeper trajectory, beginning 2017 at about $8 and finishing at about $747. Prices for both currencies have experienced major volatility over the past six months." reports Dan Goodin at Ars Technica.

I'm sure the DoJ is shocked, shocked to find gambling going on here.

David. said...

David Geradrd has lots more on the DoJ's criminal investigation, including many useful links.

David. said...

"Criminals have stolen about $1.2 billion in cryptocurrencies since the beginning of 2017, as bitcoin’s popularity and the emergence of more than 1,500 digital tokens have put the spotlight on the unregulated sector, according to estimates from the Anti-Phishing Working Group released on Thursday." reports Gertrude Chavez-Dreyfuss at Reuters.

David. said...

"If security experts can’t safely keep cryptocurrencies on an Internet-connected computer, nobody can. If Bitcoin is the “Internet of money,” what does it say that it cannot be safely stored on an Internet connected computer?" from Berkeley Prof. Nicholas Weaver's excellent Risks of Cryptocurrencies in the June Communications of the ACM.

David. said...

"A luxurious Beaux Arts townhouse at 10 East 76 th Street, Upper East Side, New York City has been listed for $29.95M USD, and 1.5 times that amount for digital currency."

So you can buy stuff with cryptocurrencies after all, you just have to take a 33% haircut to do it. From Jemima Kelly's read-worthy Crypto's most devout believers are suffering a crisis of faith.

David. said...

Bloomberg reports that Bitcoin Falls Most in Three Months After Korean Exchange Hacked:

"Bitcoin extended losses for a third day, tumbling as much as 12 percent Sunday as South Korean cryptocurrency exchange Coinrail said there was a "cyber intrusion" in its system.

The largest cryptocurrency declined to $6,840 as of 4 p.m. in New York, the biggest drop since March 14, according to data compiled by Bloomberg from Bitstamp pricing. That widens Bitcoin’s losses for the year to 52 percent. Peer cryptocurrencies Ethereum and Ripple fell 10 percent and 11 percent, respectively."

If Bitcoin becomes the future world currency the biggest beneficiaries will be the crooks.

David. said...

"Virginia Commonwealth University Professor David Golumbia, who recently published a book "The Politics of Bitcoin: Software as Right-Wing Extremism," is blowing the whistle on the kinds of far-right ideas and conspiracy theories that not only inspired cryptocurrency's creation, but which are now trafficked, sometimes unknowingly, by many cryptocurrency boosters on both the right and left." from Keith A. Spencer's How Bitcoin made right-wing conspiracy theories mainstream.

David. said...

Catalin Cimpanu reports on today's cryptocurrency theft:

"A group of hackers has stolen over $20 million worth of Ethereum from Ethereum-based apps and mining rigs, Chinese cyber-security firm Qihoo 360 Netlab reported today.

The cause of these thefts is Ethereum software applications that have been configured to expose an RPC [Remote Procedure Call] interface on port 8545.

The purpose of this interface is to provide access to a programmatic API that an approved third-party service or app can query and interact or retrieve data from the original Ethereum-based service —such as a miner or wallet application that users or companies have set up for mining or managing funds."

David. said...

Yesterday's cryptocurrency theft beats today's! In Bitcoin prices continue to fall as yet another exchange reports a breach, Dan Goodin writes:

"In a post published Monday morning, Coinrail said hackers obtained about 30 percent of its coin and token reserves. The stolen coins included those designated as NPXS, ATX, NPER, and DENT. A wallet address reportedly belonging to the attackers showed the value of the pilfered coins was as much as $37 million. ... The statement made no mention of if or how the exchange might reimburse customers for the losses."

David. said...

"At least 5% of all the Monero cryptocurrency currently in circulation has been mined using malware, and about 2% of the total daily hashrate comes from devices infected with cryptocurrency-mining malware." reports Catalin Cimpanu at Bleeping Computer.

David. said...

Bitcoin’s Price Was Artificially Inflated Last Year, Researchers Say by Nathaniel Popper reports on Is Bitcoin Really Un-Tethered? by John M. Griffin and Amin Shams:

"This paper investigates whether Tether, a digital currency pegged to U.S. dollars, influences Bitcoin and other cryptocurrency prices during the recent boom. Using algorithms to analyze the blockchain data, we find that purchases with Tether are timed following market downturns and result in sizable increases in Bitcoin prices. Less than 1% of hours with such heavy Tether transactions are associated with 50% of the meteoric rise in Bitcoin and 64% of other top cryptocurrencies. The flow clusters below round prices, induces asymmetric autocorrelations in Bitcoin, and suggests incomplete Tether backing before month-ends. These patterns cannot be explained by investor demand proxies but are most consistent with the supply-based hypothesis where Tether is used to provide price support and manipulate cryptocurrency prices."

Its good to have academic confirmation of what Bitfinex'd and others were reporting at the time.

David. said...

Jemima Kelly's Has bitcoin come to the end of its Tether? is another good report on the Griffin and Shams paper:

"The report appears to back up heavy speculation, most notably from a guy calling himself “Bitfinex'ed”, that crypto prices had been deliberately manipulated by the printing of Tethers -- which are purportedly backed by real US dollars.

David. said...

The latest covert to the cryptocurrency cult is apparently Stephen Bannon:

"Mr. Bannon won’t reveal very much about his cryptocurrency plans — he worries that the controversy that comes with his name could have a bad impact on projects just getting off the ground.

But he has had private meetings with cryptocurrency investors and hedge funds where he has discussed working on so-called initial coin offerings through his investment business, Bannon & Company. And in his first interview on the topic, he said he had a “good stake” in Bitcoin."

Good luck with that, Stephen!

David. said...

"Griffin and Shams analyzed whether it is possible that Tether only maintained a full reserve at the end of the month. If true, a coinciding decline of the price of bitcoin could also be expected at the end of each month to create the necessary reserve in U.S. dollars. Their analysis shows that the price of bitcoin did indeed show large declines at the end of every month in which a large amount of new Tether tokens were issued. This correlation seems to suggest that these declines in bitcoin’s price may have been related to Bitfinex’s need to raise reserves at the end of those months." from Robert-Jan den Haan's interesting Clearing Up Misconceptions: This Is How Tether Should (and Does) Work. If he's right:

"Since Tether is only available as a withdrawal option and cannot be used in trading pairs on Bitfinex, it is, therefore, not possible to prop up the price of bitcoin using Tether tokens on Bitfinex. This conclusion, however, does not disprove the theory that Tether has been used to prop up the price of bitcoin elsewhere. In their previously mentioned paper, Griffin and Shams analyze how Tether tokens are moved to other exchanges and have been used to stabilize the price of bitcoin on these exchanges."

David. said...

"The Russians masked their activities using cryptocurrencies such as Bitcoin to buy servers, register Internet domains and make other payments, according to the indictment. While Bitcoin transactions are recorded on a public Blockchain, the Russians sought to hide their actions by using fictitious names and hundreds of email accounts. They oversaw Bitcoin mining and bought cryptocurrency using transactions using pre-paid cards and peer-to-peer exchanges as well."

From Mueller Indicts 12 Russian Officials for 2016 Election Hacking by Tom Schoenberg and Greg Farrell. Another use for cryptocurrencies apart from buying drugs on the dark Web.

David. said...

"Chinese authorities have arrested six suspects behind a World Cup gambling ring that was hosting more than 10 billion yuan — or $1.5 billion USD — worth of cryptocurrency bets, according to a statement released yesterday by the police department in Guangdong province.

The gambling syndicate ran on the dark web, accepting bets in the form of bitcoin, ethereum, and litecoin for an eight-month stretch before being apprehended. It attracted more than 300,000 players from different countries, and 8,000 “agents” who earned commissions for recruiting new members through a pyramid scheme-like system, according to the South China Morning Post."

From Soshana Wodinsky's Chinese police bust a World Cup gambling ring with more than $1 billion in cryptocurrency.

Billion-dollar World Cup betting pyramid schemes are just what the world needs more of!

David. said...

Jemima Kelly's The ICO whose team members are literally cartoon characters is a worthy addition to the ICOmedy series.

David. said...

"According to Stripe COO Claire Hughes Johnson ... Bitcoin and other blockchain-based payment services are slow, impractical, and overhyped.

She noted that clearance times for a Bitcoin transaction right now are about 60 minutes, and that last December it reached three to five days. Hughes Johnson said the backlog was so bad that merchants sometimes had to file a second transaction to account for bitcoin price fluctuations that occurred between when a purchase occurred and when it cleared." reports Jeff John Roberts in Why Stripe Gave Up on Bitcoin and Blockchain Payments. Also:

"Even more sobering was her assertion that blockchain—the distributed ledger technology on which Bitcoin is based—is also overhyped.

“I do think we’ve reached that jump the shark moment where you just say ‘da-da-da blockchain’,” said Hughes Johnson, adding that the SEC is rightfully stepping in to check a flood of scammy blockchain projects.

According to Hughes Johnson, the problem with blockchain is that it appears to be duplicative of existing database tools, many of which are rapidly improving. She predicts blockchain won’t catch on in a mainstream way for a decade—if ever."

David. said...

"Tiny coin EXP got a quote for getting listed on Binance — a mere 400 BTC. That’s 40% of their market cap. Binance disclaims the email. Amy Castor has heard quotes around $4 million for exchanges to list a coin." writes David Gerard. Scam much?

David. said...

Buttcoin's solution to the regulatory problems of cryptocurrencies is simple and ingenious.

David. said...

Parliament gets it, crypto-currency bunkum edition by Dan McCrum at Alphaville reports extracts from the 22nd report of the House of Commons Treasury Committee inquiry on digital currencies such as:

"Functioning currencies are generally understood to serve as a store of value, a medium of exchange and a unit of account. As yet, there are no so-called “cryptocurrencies” that serve all these functions. Well-functioning cryptocurrencies currently exist only as a theoretical concept, and the term “crypto-assets” is more helpful and meaningful in describing Bitcoin, and the many hundreds of other ‘altcoins’ that have emerged over the past decade."


"The development of ICOs has exposed a regulatory loophole that is being exploited to the detriment of ordinary investors. The Regulated Activities Order should be updated to bring ICOs within the FCA’s perimeter as a matter of urgency, and bring investor protections into line with those in the United States."

Izabella Kaminska's evidence seems to have weighed heavily in the scales.

David. said...

How Dirty Money Disappears Into the Black Hole of Cryptocurrency by Justin Scheck and Shane Shifflet investigates ShapeShift AG:

"Since bitcoin was introduced nearly 10 years ago, law-enforcement authorities have worried the technology could ease money laundering. Now a new breed of cryptocurrency intermediary is giving fresh urgency to those fears, operating in plain view with scant policing and often allowing users to engage in anonymous transactions.

A Wall Street Journal investigation identified nearly $90 million in suspected criminal proceeds that flowed through such intermediaries over two years.
A parade of suspected criminals has taken advantage of ShapeShift’s services since the exchange began in 2014, according to law-enforcement officials, independent researchers and the Journal’s investigation.

After hackers believed to be from North Korea extorted millions of dollars in the so-called WannaCry ransomware attack on businesses and governments, the criminals used ShapeShift to convert bitcoin into an untraceable cryptocurrency called Monero, security researchers found. For the next year, ShapeShift made no changes to its policy of not identifying its customers, and continued to process millions of dollars in criminal proceeds, according to the Journal investigation. "

David. said...

Contrasting views of the prospects for cryptocurrencies from Hong Kong and London. It may have something to do with the importance of flight capital in the respective economies.

David. said...

Jemima Kelly's Coinbase wants to be “too big to fail”, lol is an awesome takedown:

"A key selling point of bitcoin (and other cryptocurrencies) is supposedly that they operate outside of banks and government. And yet in order for anyone to actually be able to use them, they require businesses that resemble banks to spring up, but with none of the checks and balances in place that protect customers. And, in order to be able to operate within the legal system, they require government to be on side."

David. said...

Nouriel Roubini's testimony to the US Senate Committee on Banking, Housing and Community Affairs' hearing on “Exploring the Cryptocurrency and Blockchain Ecosystem" is entitled Crypto is the Mother of All Scams and (Now Busted) Bubbles While Blockchain Is The Most Over-Hyped Technology Ever, No Better than a Spreadsheet/Database. Tell us how you really feel, Prof. Roubini!

David. said...

Not content with testifying to the Senate, Nouriel Roubini has Blockchain isn't about democracy and decentralisation – it's about greed in The Guardian:

"As should be clear, the claim of “decentralisation” is a myth propagated by the pseudo-billionaires who control this pseudo-industry. Now that the retail investors who were suckered into the crypto market have all lost their shirts, the snake-oil salesmen who remain are sitting on piles of fake wealth that will immediately disappear if they try to liquidate their “assets”."

David. said...

David Gerard reports:

"The Bitcoin price in dollars went up, uP, UP! on multiple exchanges today!

Unfortunately, on many of those exchanges, the price is actually in substitute-dollars called tethers (USDT) — and the tether crashed this morning. This looks very like a bank run, on Tether."

The bank run drove Tether down to $0.85 when it is supposed to be stable at $1. At that point the "central bank of Tether" conjured up a huge buy order to restore the illusion of price stability:

"Someone — presumably Tether — finally found some cash to shore the price up, at least on the trading pair everyone watches. It was $0.93 for much of today, and, at 21:45 UTC 15 October 2018, one tether on Kraken was $0.9977, after a massive buy to pump the price back up to near-par"

Go read the whole post.