Is a 51% attack a real issue?

Last week our theme was “Can a Cryptocurrency replace the US Dollar to Become the World’s Reserve Currency?.“

Our theme for this week is “Is a 51% attack a real issue?”

In 2018, cryptocurrency hackers earned $20M with 51% attacks, The report by Group-IB, showed that in 5 incidents last year, hackers walked away with $19.5 million worth of cryptocurrencies.

Hackers attacked Verge twice stealing more that $1 million, $550,000 worth of ZEN, Litecoin Cash was hit, and the biggest heist was Bitcoin Gold, when the attacker sent 388,000 BTG ($18 million) to their personal wallet.

This February,  Coinbase discovered that Ethereum Classic was attacked. Hackers accessing Coinbase’s network, rewrote portions of the platform’s transaction history enabling users to spend the same cryptocurrency more than once. The Ethereum Classic blockchain was rewritten by someone that controlled at least 51%. Over $1 million was lost as a result of this hack. On Coinmarketcap.com, Ethereum Classic is the 20th largest cryptocurrency, with a market cap of $526 million.

In “Once hailed as unhackable, blockchains are now getting hacked,” on MIT Technology Review, Mike Orcutt makes the argument that blockchains are no longer safe and that we’ll see more of these attacks in the future.

While these hacks took place on smaller blockchains, they are a very real. They show us that a 51-percent attacks are not just a theoretical concern anymore. And they are not the only way to hack a blockchain.

What is a 51-percent attack? It’s when an attacker controls at least 51% of the total mining power of Proof-of-Work blockchain. To make a simple analogy, you can think of it as owing 51% of a company’s shares, you are the majority owner. The same is true with blockchains.

Most blockchains like Bitcoin, Ethereum, use the Proof of Work protocol to verify and add a new blocks of transactions to the blockchain. To add a new block, a complex cryptographic math puzzle must be solved. The miner, that solves it first, adds the new block to the blockchain and receives a cryptocurrency reward for the work they performed. This process is called mining. If someone was able to get control over a majority of the computing power on a given blockchain, they would be able to impose their will on the rest of the network, including making changes to the ledger.

These attacks have become quite tempting, especially with services like NiceHash, that can give you instantly the mining capacity you need to take over a coin’s blockchain, like Ethereum Classic.

Crypto51 published research on how much you would need to spend, in order to take over the top cryptocurrencies. You can see the full list on Crypto51 on their website.

In the case of Ethereum Classic hack in February, the cost is $5,437 an hour, $130,488 per day. In a 3 day period the attacker made $1.1 million. I’d say that it was a very nifty profit, when you compare it to the $391,464 cost.

Proof of Work blockchains are susceptible to 51-percent attacks, but not all blockchains are created equal. For smaller networks, 51-percent attacks present a real threat. But for Bitcoin and Ethereum, the risk is pretty low. The computing power and coordination that is needed to take over 51% of the hash power for large blockchains, would be enormous, making the chances of a successful attack very unlikely.

While Proof of Work is the most widely used consensus method, there are plenty of solutions that are trying to tackle the problem: Merged Mining, Penalties for Delayed Blocks, Notary Nodes, Permissioned Blockchains, Proof of Stake.

Blockchain technology is very simple and extremely secure. Is it fully secure? No. But what technology is. Can blockchain security be improved? Yes, it can. As cryptocurrencies and blockchain become part of our lives, hacks will become more frequent , challenging the legitimacy of the industry and the technology. The only thing we can expect is that the top cryptocurrencies, implement solutions to minimize the risk from potential attacks.

Image Source

Ilias Louis Hatzis is the Founder & CEO at Mercato Blockchain Corporation AG. He writes the Blockchain Weekly Front Page each Monday.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

Subscribe by email to join the 25,000 other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).

Last week our theme was “Can a Cryptocurrency replace the US Dollar to Become the World’s Reserve Currency?”

Our theme for this week is “Lightning Network is the Bitcoin story that matters in 2019.“

In an article on Medium, Facebook isn’t just thinking about just creating his own crypto, it wants to replace the U.S. dollar according to Ted Livingston. The founder and CEO of the Kik messaging app, predicted Facebook’s crypto coin could eventually replace the US dollar.

After the end of WWII, the U.S. dollar has dominated the global financial system, just like the British pound before it, and the Spanish dollar before that. But, some of the major economies around the world may want a new digital currency to function as the reserve. The US dollar’s share of global central-bank reserves hit a 5-year low, according to the International Monetary Fund.

How much U.S. currency is out there? According to the Federal Reserve Board of Governors, approximately $1.70 trillion in circulation as of January 23, 2019, of which $1.66 trillion was in Federal Reserve notes.  That figure could drop to as low as $501 billion within 10 years, as Bitcoin, and cryptocurrencies in general, become more widely used for transactions.

Bitcoin, Facebook Coin or another crypto could be a clear alternative to traditional government-backed currencies, at a time when governments’ abilities to manage their finances are coming into question.

Could Bitcoin replace the U.S. dollar as the global reserve currency?

Cofounder/CEO Brian Armstrong, the answer is yes. He predicted that the digital currency may very well supplant the greenback by 2030. For that to happen, Bitcoin needs to overcome several obstacles: 1) it must be an effective medium of exchange, so we can buy goods using it 2) it must function as a store of value 3) it needs to function as a unit of account.

Private companies, banks and countries around the world are racing to lead the next revolution in financial technology. Currently, there are more than 1,400 digital currencies and tokens out there, serving a variety of uses.

What would happen if a dominant market force like Amazon entered the cryptocurrency market and began accepting crypto as a payment method? Image a cryptocurrency from a company like Amazon. An Amazon cryptocurrency wouldn’t just change the face of the world’s largest online retailer. It would change the world.

Central banks from China to England and Uruguay are considering issuing their own crypto. I think state-backed cryptocurrencies are pointless, but they can serve as a stepping stone to complete decentralization. State-backed cryptocurrencies represent a break away from US dominated fiat financial hegemony.

Russia has begun a major research and development in blockchain, so that financial transactions can be processed and verified without reliance on Western-controlled banks.

One catalyst for the erosion of the US dollar hegemony is the development of SWIFT alternatives. This year has also seen a rash of crypto-based solutions proposed or utilized by Argentina, Russia, and Germany.

The International Monetary Fund, IMF, has already announced efforts to put its world money, the special drawing right, SDR, on a distributed ledger. This would make the SDR a global cryptocurrency for settling balance of payments transactions among China, Russia and other IMF members, also without reliance on the dollar payments system.

I don’t know if it will be Bitcoin, Facebook coin or some other peer-to-peer digital currency that will replace the US dollar. But it will be a cryptocurrency. The dollar’s death will be on blockchain and I believe that it will be Bitcoin.

While most people today are not ready to give up their bank accounts for Bitcoin wallets, blockchain, the technology behind Bitcoin, is nothing less than the operating system of an entirely new economy. For the first time in the history of mankind, this technology could render politicians, central banks, governments and large corporations as we know them obsolete when it comes to our money.

Image Source

Ilias Louis Hatzis is the Founder & CEO at Mercato Blockchain Corporation AG. He writes the Blockchain Weekly Front Page each Monday.

Last week our theme was “Are Apple, Amazon, Google and Facebook the future of banking?“

Our theme for this week is “When Crypto Exchanges hold more than your Money“

Before desktop computers and smartphones put the Internet in everyone’s hands, I sat in computer room, staring at a terminal screen with bright green text, using networks like Bitnet, MUDs, and tools like Gopher and Archie and without a graphical user interface, mouse, track pad or touch screens. You had to type in everything. Since those days, technology has vastly improved. But one thing is far worse. No matter how safe you think your data is, the Internet has changed everything about the security of your personal data and to be more specific, who uses it and how.

In the wake of the Facebook & Cambridge Analytica scandal, in Europe firms have scrambled to comply with the EU’s GDPR. But the damage is already done. Our personal data is out there, and we have lost control of it. Securing data is now on everyone’s minds thanks to Facebook. Back in September the whole world heard about the hack on Facebook, when almost 87 million of its users accounts were left exposed due to a security flaw. The security breach caused Facebook’s shares to drop by 3% in the last days of September.

In a news story on CCN, someone by the name of “ExploitDOT” was allegedly selling 100,000 personal documents that were used to comply with KYC regulations on various cryptocurrency exchanges, like Poloniex, Binance, Bittrex and Bitfinex.

The low-cost Robinhood investing app makes up for the lost profits of commission-free trades, by selling users’ data to other financial companies.

The cryptocurrency derivatives platform BitMEX denied allegations that its new user agreement will allow it to sell trading data to third-party firms. BitMEX announced that it had updated its Terms of Service Agreement, including changes to the intellectual property clause. As of March 6th, when the updates went into effect, BitMEX users will cede any rights of ownership for content posted on the platform.

Last April, Amazon won a patent in the US for a subscription feed that the company claims could “identify Bitcoin transaction participants” for governments and law enforcement. The patent, which was filed in 2014, comes at a time when regulators’ desire to track and police cryptocurrency is running up against the technology’s core promises of pseudonymity for users.

Coinbase, one of the leading cryptocurrency exchanges, is under fire the past fews days. Controversy about the acquisition of Neutrino and revelations about ChainAnalysis selling Coinbase client data to “outside sources,” has added steam to the #DeleteCoinbase movement.

Emphasizing on the primary reason why Coinbase acquired Neutrino, Christine Sandler, Director of Institutional Sales at Coinbase, revealed that Coinbase had to drop its current tracking providers as they were selling customer data without authorization: “It was important for us to migrate away from our current providers… They were selling client data to outside sources, and it was compelling for us to get control over that and have proprietary technology that we could leverage to keep the data safe and protect our clients.” 

The hashtag #DeleteCoinbase, which started on social media after the acquisition, has continued to trend, promting crypto users to delete their Coinbase accounts, following the acquisition.

The line between data and money is dissolving. In an article on Wired this past December, the author talks about how he sold his Facebook data to a stranger for crypto.

The world’s most valuable resource is no longer oil, but data. The five most valuable listed firms in the world, deal in data. Everyone wants your data. Companies want it, users have it. Your data is everything a company know about you. It runs e-commerce, contributes to new product development. It’s more valuable than your money, because without it, it become very difficult to sell you anything.

Cryptocurrencies and blockchain make it possible to think of data as a scarce digital asset that can be owned, rented, or sold. As money becomes data, data is becoming money.

Image Source

Ilias Louis Hatzis is the Founder & CEO at Mercato Blockchain Corporation AG. He writes the Blockchain Weekly Front Page each Monday.

TL:DR. When the government is guaranteed to rob you each and every day, it is worth taking bit of risk to exchange Fiat to Bitcoin in a dark alley using LocalBitcoins

This is an update to the chapter in The Blockchain Economy digital book entitled: Some Governments Want To Shut Down Bitcoin But They Don’t Know How.

This post covers

• Hyperinflation robbery is not just yesterday’s news.

• Watch what real people do, ignore governments flailing around.

• Exchanging Fiat to Bitcoin in a dark alley using LocalBitcoins sounds scary unless the alternative is worse.

• Bitcoin vs Altcoins in the market laboratory of Venezuela.

Hyperinflation robbery is not just yesterday’s news

Yes inflation is robbery. If it is still $1 it may sound good, but not if $1 buys what used to cost 10c.

There are 3 types of inflation:

• Low enough to be considered “good inflation” by many economists – around 2-3% pa.

• High enough to be a big concern – nudging 10% pa. It’s not hyperinflation, but could become so and nobody will trust it as a store of value (run the numbers over a few decades if you doubt this). Many countries including USA and UK have had this level of inflation and dealt with it by having high interest rates.

• Crazy aka hyperinflation. Venezuela, sadly for its citizens, certainly qualifies.

Many countries have had hyperinflation – think Zimbabwe recently and Weimar Germany in the 1930s. Venezuela is the first country to suffer hyperinflation when Bitcoin is a real option (and is also a much bigger economy than Zimbabwe).

Watch what real people do, ignore governments flailing around.

Before Bitcoin, the classic policy response of a country with hyperinflation was to peg the local currency to USD. This is less of an option today for two reasons:

• Governments that fear the US Government may feel more nervous about adopting the USD.

• If Inflation is the problem, the currency that is the least inflationary looks best. So Bitcoin looks better than USD.

After Bitcoin, the policy response includes creating a Fiat Coin. The more formal name is Central Bank Digital Currency (CBDC), meaning Central Bank determines monetary policy but that currency is traded like Bitcoin.  This is lipstick on a pig. Fiat Coins are still not sound money, even if they sound cool and modern and give some incremental efficiency gains by using Blockchain.

Ignore these governments flailing around; that is not where the action is. Instead watch real people use Bitcoin to solve real problems in their lives. Those of us living in countries with a stable Fiat currency can only imagine the desperation caused by hyperinflation. If you think buying some Bitcoin will help feed you and your family, then buying some Bitcoin will get onto your Must Do Today A List.

The reality for the people is that if feeding you and your family is your concern, black market USD looks as good as black market Bitcoin. So people will use both. What is new is that Bitcoin is now an option alongside the USD.

BTW, “black market” is a pejorative term that only carries moral weight if the government is doing the right things for its citizens. Governments that allow hyperinflation forego such respect.

Exchanging Fiat to Bitcoin in a dark alley using LocalBitcoins sounds scary unless the alternative is worse

These traction numbers (from CoinDance) are enough to to make investors salivate. Data about Venezuelans trading in bolívar for Bitcoin on the LocalBitcoins exchange looks like a classic hockey stick – but this is not a business plan projection, this is actuals. 

I have never used LocalBitcoins, because it sounds a bit scary to my spoiled way of thinking. You can get robbed (before or after the transaction) and I am fortunate to have other safer options. If you live in a stable country you have two much safer alternatives:

• For small sums you can use a Bitcoin ATM. For example, in Switzerland I can buy Bitcoin at 1,000 kiosks in rail stations run by the Swiss Government.

• For big sums you can use Brokers & Exchanges after going through some routine KYC.

Bitcoin vs Altcoins in the market laboratory of Venezuela

Venezuela is where some Altcoins will either emerge triumphant or be trampled by the growing might of Bitcoin.

Altcoins such as BitcoinCash (BCH) and Dash claim to be better than Bitcoin (BTC) for regular spending.  Venezuela is the market laboratory where we will soon know if this true. The market verdict is not yet out but early indications are:

• BitcoinCash (BCH) does not seem to be getting much traction.

• Dash is getting some traction but not as much as Bitcoin (BTC).

Image Source.

Bernard Lunn is a Fintech deal-maker, investor, entrepreneur and advisor. He is the author of The Blockchain Economy and CEO of Daily Fintech.

Check out our advisory services (how we pay for this free original research).

To schedule an hour of Bernard’s time for CHF380 please click here to send an email.