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The social layer is ironically key to Bitcoin’s security

A funny thing happened in the second half of 2018. At some moment, all the people active in crypto looked around and realized there weren’t very many of us. The friends we’d convinced during the last holiday season were no longer speaking to us. They had stopped checking their Coinbase accounts. The tide had gone out from the beach. Tokens and blockchains were supposed to change the world; how come nobody was using them?

In most cases, still, nobody is using them. In this respect, many crypto projects have succeeded admirably. Cryptocurrency’s appeal is understood by many as freedom from human fallibility. There is no central banker, playing politics with the money supply. There is no lawyer, overseeing the contract. Sometimes it feels like crypto developers adopted the defense mechanism of the skunk. It’s working: they are succeeding at keeping people away.

Some now acknowledge the need for human users, the so-called “social layer,” of Bitcoin and other crypto networks. That human component is still regarded as its weakest link. I’m writing to propose that crypto’s human component is its strongest link. For the builders of crypto networks, how to attract the right users is a question that should come before how to defend against attackers (aka, the wrong users). Contrary to what you might hear on Twitter, when evaluating a crypto network, the demographics and ideologies of its users do matter. They are the ultimate line of defense, and the ultimate decision-maker on direction and narrative.

What Ethereum got right

Since the collapse of The DAO, no one in crypto should be allowed to say “code is law” with a straight face. The DAO was a decentralized venture fund that boldly claimed pure governance through code, then imploded when someone found a loophole. Ethereum, a crypto protocol on which The DAO was built, erased this fiasco with a hard fork, walking back the ledger of transactions to the moment before disaster struck. Dissenters from this social-layer intervention kept going on Ethereum’s original, unforked protocol, calling it Ethereum Classic. To so-called “Bitcoin maximalists,” the DAO fork is emblematic of Ethereum’s trust-dependency, and therefore its weakness.

There’s irony, then, in maximalists’ current enthusiasm for narratives describing Bitcoin’s social-layer resiliency. The story goes: in the event of a security failure, Bitcoin’s community of developers, investors, miners and users are an ultimate layer of defense. We, Bitcoin’s community, have the option to fork the protocol—to port our investment of time, capital and computing power onto a new version of Bitcoin. It’s our collective commitment to a trust-minimized monetary system that makes Bitcoin strong. (Disclosure: I hold bitcoin and ether.)

Even this narrative implies trust—in the people who make up that crowd. Historically, Bitcoin Core developers, who maintain the Bitcoin network’s dominant client software, have also exerted influence, shaping Bitcoin’s road map and the story of its use cases. Ethereum’s flavor of minimal trust is different, having a public-facing leadership group whose word is widely imbibed. In either model, the social layer abides. When they forked away The DAO, Ethereum’s leaders had to convince a community to come along.

You can’t believe in the wisdom of the crowd and discount its ability to see through an illegitimate power grab, orchestrated from the outside. When people criticize Ethereum or Bitcoin, they are really criticizing this crowd, accusing it of a propensity to fall for false narratives.

How do you protect Bitcoin’s codebase?

In September, Bitcoin Core developers patched and disclosed a vulnerability that would have enabled an attacker to crash the Bitcoin network. That vulnerability originated in March, 2017, with Bitcoin Core 0.14. It sat there for 18 months until it was discovered.

There’s no doubt Bitcoin Core attracts some of the best and brightest developers in the world, but they are fallible and, importantly, some of them are pseudonymous. Could a state actor, working pseudonymously, produce code good enough to be accepted into Bitcoin’s protocol? Could he or she slip in another vulnerability, undetected, for later exploitation? The answer is undoubtedly yes, it is possible, and it would be naïve to believe otherwise. (I doubt Bitcoin Core developers themselves are so naïve.)

Why is it that no government has yet attempted to take down Bitcoin by exploiting such a weakness? Could it be that governments and other powerful potential attackers are, if not friendly, at least tolerant towards Bitcoin’s continued growth? There’s a strong narrative in Bitcoin culture of crypto persisting against hostility. Is that narrative even real?

The social layer is key to crypto success

Some argue that sexism and racism don’t matter to Bitcoin. They do. Bitcoin’s hodlers should think carefully about the books we recommend and the words we write and speak. If your social layer is full of assholes, your network is vulnerable. Not all hacks are technical. Societies can be hacked, too, with bad or unsecure ideas. (There are more and more numerous examples of this, outside of crypto.)

Not all white papers are as elegant as Satoshi Nakamoto’s Bitcoin white paper. Many run over 50 pages, dedicating lengthy sections to imagining various potential attacks and how the network’s internal “crypto-economic” system of incentives and penalties would render them bootless. They remind me of the vast digital fortresses my eight-year-old son constructs in Minecraft, bristling with trap doors and turrets.

I love my son (and his Minecraft creations), but the question both he and crypto developers may be forgetting to ask is, why would anyone want to enter this forbidding fortress—let alone attack it? Who will enter, bearing talents, ETH or gold? Focusing on the user isn’t yak shaving, when the user is the ultimate security defense. I’m not suggesting security should be an afterthought, but perhaps a network should be built to bring people in, rather than shut them out.

The author thanks Tadge Dryja and Emin Gün Sirer, who provided feedback that helped hone some of the ideas in this article.

It looks like Coinbase is preparing to add a lot more cryptocurrencies

Coinbase aspires to be the New York Stock Exchange of crypto, and it is taking a small — but not insignificant – step to offering a lot more cryptocurrencies after it revamped the process of listing new digital assets.

The exchange currently only supports just five cryptocurrencies — Ethereum, Bitcoin, Bitcoin Cash, Ethereum Classic and Litecoin — and the process of adding each one has been gradual. The company would announce plans, and then later announce when listing the asset. The idea being to reduce the potential to send the value of a token skyrocketing. (Since support from Coinbase potentially adds a lot more trading volume.)

That clearly isn’t a sustainable process if Coinbase is to add “hundreds” of tokens, as CEO Brian Amstrong told an audience at TechCrunch Disrupt it eventually plans to.

Regulatory concern is high on the scale when evaluating support for new cryptocurrencies, so now Coinbase is speeding up the process by limiting trading of some tokens to specific locations where necessary.

“Today we’re announcing a new process that will allow us to rapidly list most digital assets that are compliant with local law, by satisfying listing requests in a jurisdiction-by-jurisdiction manner. In practice, this means some new assets listed on our platform may only be available to customers in select jurisdictions for a period of time,” the company said in a blog post.

That’ll mean an end to the double announcement — ‘token X is coming soon’ and ‘token X is now supported’ — and instead a single reveal. That indicates that a large number of new assets may be incoming — for an idea of which ones, Coinbase recently said it is looking over a number of cryptocurrencies.

Interestingly, the company also noted that it may introduce a listing fee — this is common with many other exchanges — in the future in order to cover costs around adding some projects.

“Initially there will be no application fee. Depending on the volume of submissions, we reserve the right to impose an application fee in the future to defray the legal and operational costs associated with evaluating and listing new assets,” it explained.

The company has opened a listing proposal link, here. If similar features from other exchanges are anything to go by, Coinbase’s will be flooded by naive token holders who think they have a shot at getting listed on Coinbase, which will take them to the moon. Good luck maintaining that list, guys.

Note: The author owns a small amount of cryptocurrency. Enough to gain an understanding, not enough to change a life.

Europe’s ‘biggest ever’ LSD bust nets more than $5 million in seized cryptocurrency

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Not cool. 

A combined task force of the Spanish Guardia Civil, the Austrian Federal Police, and Europol yesterday announced what they’re calling “Europe’s biggest ever LSD bust” and oh man in unrelated news I totally need to rethink my July 4 plans to just sit back and stare at fireworks for hours while contemplating life.

According to the press release, the bust went down in the Spanish cities of Granada and Valencia, and resulted in the seizure of approximately €4.5 million (around $5.25 million) worth of bitcoin, lumens, and IOTA. Read more…

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Korean crypto exchange Bithumb says it lost over $30M following a hack

Just weeks after Korean crypto exchange Coinrail lost $40 million through an alleged hack, another in the crypto-mad country — Bithumb — has claimed hackers made off with over $30 million in cryptocurrency.

Coinrail may be one of Korea’s smaller exchanges, but Bithumb is far larger. The exchange is one of the world’s top ten ranked based on trading of Ethereum and Bitcoin Cash, and top for newly-launched EOS, according to data from Coinmarketcap.com.

In a now-deleted tweet, Bithumb said today that 35 billion won of tokens — around $31 million — were snatched. It didn’t provide details of the attack, but it did say it will cover any losses for its users. The company has temporarily frozen deposits and trading while it is in the process of “changing our wallet system” following the incident.

Days prior to the hack, Bithumb said on Twitter that it was “transferring all of asset to the cold wallet to build up the security system and upgrade” its database. It isn’t clear whether that move was triggered by the attack — in which case it happened days ago — or whether it might have been a factor that enabled it.

[Notice for the restart of service]
We are transferring all of asset to the cold wallet to build up the security system and upgrade DB. Starting from 15:00 pm(KST), we will restart our services and notice again as soon as possible. Appreciate for your support.

— Bithumb (@BithumbOfficial) June 16, 2018

A tweet sent days before Bithumb said it had been hacked

There’s often uncertainty around alleged hacks, with some in the crypto community claiming an inside job for most incidents. In this case, reports from earlier this month that Bithumb was hit by a 30 billion won tax bill from the Korean government will certainly raise suspicions. Without an independent audit or third-party report into the incident, however, it is hard to know exactly what happened.

That said, one strong takeaway, once again, is that people who buy crypto should store their tokens in their own private wallet (ideally with a hardware key for access) not on an exchange where they could be pinched by an attacker. In this case, Bithumb is big enough to cover the losses, but it isn’t always that way and securely holding tokens avoids potential for trouble.

India just cracked down on cryptocurrency. Hard.

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Indian officials are not here for your cryptocurrency games. 

Government officials with the Reserve Bank of India announced on Thursday that, effective immediately, banks would be prohibited from “dealing with or providing services to any individuals or business entities dealing with or settling virtual currencies.”

Essentially, that means people in India are now unable to move money from bank accounts to exchanges in order to buy cryptocurrency. What’s more, if you’ve sold your fat gains for cash, you are no longer able to move that money back to your bank account. Read more…

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Crunch Report | CNN shuts down Casey Neistat’s Beme

Robinhood is going to let you buy and sell crypto soon, CNN shuts down Casey Neistat’s Beme and Sotheby’s acquires Thread Genius. All this on Crunch Report. Read More

Crunch Report | South Korea Announces New Cryptocurrency Regulations

South Korea announces new cryptocurrency regulations coinciding with the drop in bitcoin prices, YouTube gets pulled from Fire TV and SoftBank will now own about 15 percent of Uber. All this on Crunch Report. Read More

Bitcoin is over $9,000

 Well, it’s over $9,000. Even as you recoup from attempting to explain Bitcoin to your family over the Thanksgiving dinner table, the value of the cryptocurrency is growing at an increasingly hefty pace. As of the time of this writing, the value of a single Bitcoin was above $9,143, climbing nearly 6 points in the past 24 hours. At a certain point, news of clearing these incremental… Read More

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Bitcoin just passed $4,000

 What a day for Bitcoin. 24 hours ago the cryptocurrency was trading below $3,700. About an hour ago it surged passed $4,000 and has no signs of stopping. It’s now trading around $4,135.00. For reference, a week ago Bitcoin hit an all-time high as it passed $3,000 for the first time. Check out the chart below to see what the price has done in the last 24 hours. So the million… Read More

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Bitcoin breaks $3,000 to reach new all-time high

 Bitcoin has reached a record high valuation of $3,000 per coin to complete a rollercoaster week that begin with the long-awaited split of the cryptocurrency. A number of exchanges, including popular destinations Coinbase and Kraken, valued a single bitcoin at over $3,000, an all-time high that is up $485 on the valuation one month ago. Earlier this year, Bitcoin surged to surpass $2,000 for… Read More

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Messaging platform Kik is launching its own digital currency

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Kik is venturing into new territory.

The messaging service announced on Thursday that it was launching its own digital currency, called “Kin” that can be used to buy services on its platform. 

Users will be able to use Kin to buy games, live video streams and other digital products.

Kin will be created on the Ethereum blockchain — a rival to Bitcoin — and is expected to make its debut some time this year.

“Kik will be the largest install base of cryptocurrency users in the world,” said Kik’s CEO Ted Livingston, according to a Bloomberg report.

“Kin, on day one will be the most-used cryptocurrency in the world.” Read more…

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Bitcoin just surged past $2,000 for the first time

 The world’s most popular cryptocurrency is now worth over $2,000 per coin.  That’s according to a range of bitcoin exchanges, including Coinbase and Kraken. That valuation puts the total market cap of bitcoin — the total number of coins in circulation — at $32.92 billion. Bitcoin has been on a tear this year, as this chart from Coindesk shows. Bitcoin first broke… Read More

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Hackers cause hotel to ditch keycards for old-school keys and locks

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Earlier this month, staff at Austria’s four-star Romantik Seehotel Jägerwirt tried to sign into the resort’s computer systems, but couldn’t. 

They had been infected by a kind of software called ransomware

When hackers deploy the tech, it encrypts a device, rendering it useless. Once a ransom is paid, the hackers then deliver an electronic “decryption key” which can be used to restore the device to normal. 

Unless the hotel paid a ransom in Bitcoin totaling close to $1,800 dollars, it wouldn’t be able to access its reservation system, cash desk system or issue electronic keycards.  Read more…

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China's capital controls are working, and that's bursting the global real-estate bubble

More news on the Chinese crackdown on money-laundering and its impact on the global property bubble: the controls the Chinese government has put on “capital outflows” (taking money out of China) are actually working, and there’s been a mass exodus of Chinese property buyers from the market, with many abandoning six-figure down payments because they can’t smuggle enough money out of the country to make the installment payments.
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