Breaking Down the Mystery of Cryptocurrencies: Part III
This is the last article in a three-part series on cryptocurrencies. Part I discussed the production of digital coins and in the second article, the types of currencies that are in the market. In this third article, we’ll focus on security and the digital currency.
Every day, a global ledger, such as Blockchain or Ethereum processes and records hundreds of thousands of transactions. In turn, businesses then use these digital coins to buy or sell goods and services. With so many profits to be made, miners need to stay in the trading game for as long as possible and they need computing power to do so.
The blockchain uses a large global network of high-performance computers (interchangeably called miners), which run the bitcoin software. The computers that make up the miners are also referred to as nodes. These nodes transact currencies over an exchange.
When a transaction is sent to a network, like Blockchain or Ethereum, the miners verify the transactions and prioritize them into a block of transactions, which are created every 10 minutes. Once the block is verified and processed, the miners can be paid handsome amounts of fees in new bitcoins. The more coins that are created, the larger the profits become for the miners.
Since digital currency has made its debut, miners have been reaping the benefit of processing block transactions and sharing the payment for the new coins generated. Like a stock that splits, over the last four years, so has the transaction fees of the digital coins, and the miner is key in prioritizing and benefiting from the transactions. There is a concern that mining cartels will be formed, to ensure the maximum amount of profitability is made amongst the miners. Ripple or XRP is being investigated for this very reason, when it was identified that prices had increased over 1000%.
Miners need to find adequate amounts of computing power for the transactions that need to be processed. With a maximum of a 1MB block size for processing, there is a limit to the number of transactions in a block and this is why some of the higher block size cryptocurrencies are showing up. The digital network can only process so many coins and can become congested, and this is where cryptocurrency meets cybersecurity.
I found an interesting article on TheConversation.com that stated in 2017, power consumption to produce Bitcoins totaled the same amount of electricity that powers Ireland in one year. Miners continue to look for alternative methods to use power to produce coins and an increase has been seen in carbon and hydro-producing energy methods.
Mining cryptocurrencies takes tremendous amounts of computing power and electricity and when a network, such as blockchain, can no longer handle the amount of processing, cybercriminals have created a new type of attack, called Cryptojacking. Cryptojacking occurs when a hacker installs malware on a smartphone, personal computer or server to use the cpu and electricity of the device to mine cryptocurrencies. This malware can hide inside an application, advertisement or program, waiting for a user to innocently click a link and unintentionally download a malicious piece of software.
In October, Mozilla announced that the next release of the Firefox browser would begin blocking malware scripts, including cryptomining scripts. One of these scripts, is called Coinhive, which attaches to websites and awaits unsuspecting users. Chrome and Opera browsers have all introduced similar blocks to these types of mining scripts. Google has also followed suit with the other vendors, by declining any Chrome extensions that mines for cryptocurrencies. These vendors should be applauded for helping to defend against malicious malware, but as you’ll see next, this is only one piece of the crime spree seen with cryptocurrencies.
Other security issues include fraud, from investment products or dealers that claim their offering is exempt from securities registration, and Ponzi schemes are on the rise. Even registered dealers can offer fraudulent products.
These investor schemes seem to be rampant, in August of this year, in a Bitcoin fraud case in Dubai, was identified, for a $300M investment in 200 Bitcoins that were worthless-and shortly afterward, the fraud was reported at a potential between $3B-13B.
In 2018, these cryptocrimes occurred:
- Coincheck – where hackers infiltrated a mainframe computer and stole $530M.
- Giza – an unlawful ICO, stole $2.4M from unsuspecting investors in a new secure currency that held all assets in one place.
- Mining Max – initially paid investment returns to unsuspecting investors for several months, before closing the business, leaving investors to wonder what happened to $250M.
- Benebit – an ICO scam that offered a cryptocurrency that rewarded on loyalty.
- Bitconnect – a lending service that resembled a Ponzi scheme.
- Steele ICO impersonation – scammers posed as admins and stole $2M worth of Ethereum from investors.
- Confido – offered a new smart contract to incorporate Blockchain into other exchanges. The investors were out $350M before the scam was identified.
- com – stole encrypted keys from their customers wallets.
- Plexcoin – stole $15M in a fraudulent ICO.
- 51% Attack – 3 cryptocurrencies (Bitcoin Gold, Verge, Monacoin) were hit with a cyberattack, stealing $20M, when someone took over the majority of the blockchain’s computational power. Think about it – this issue is very interesting to me, as other crypto-markets stole processing time and power from other exchanges.
Even nation-states such as Somalia and Afghanistan, where people don’t have a banking system, are able to receive and sell bitcoin through the Internet. These countries are known for their problems with terrorism and adding cryptocurrency to the mix isn’t helping.
On a positive note, countries are taking notice of the digital coin industry and starting to do something about the risks and crime associated with cryptocurrency.
- Belgium’s Financial Services and Market Authority (FSMA) added 28 new sites to its fraud blacklist, as well as continues to caution consumers about the risks of the cryptocurrency market, with countless stories of scammers that disappear after taking an investor’s funds.
- The US Securities and Exchange Commission (SEC) has created a website to view and submit fraudulent ICO offerings.
- The European Union and European Parliament have agreed to regulation to combat money laundering, tax evasion and the financing of terrorism due to cryptocurrencies. Though through their own admission, the GDPR initiative, has created several issues in collecting information on trusts and national bank account registers. The EU is also limiting pre-paid credit cards, which have also been associated with militant attacks. This includes Malta, Luxembourg, Ireland, Cyprus and Britain.
- Which so much greed in the marketplace and the opportunity to commit fraudulent acts, the SEC has blocked 9 Bitcoin ETFs from coming into the market and stated that they need to review their decision going forward. It’s hard to argue that the cryptocurrency marketplace isn’t taking the investment world by storm – but with so much fraud going on, I’m sure that the SEC doesn’t know where to start looking for the root problem.
In closing, I’d like to state that:
- Cryptocurrencies are not regulated, laws are forthcoming, and caution should be considered before proceeding with an investment or purchase.
- Where there are large sums of money to be made, greed goes along with fraud and both are abundant in this market.
- Cybercrime and cryptocurrency go hand in hand with each other. Terrorism is another aspect to watch as the market grows.
- There is a potential to earn big, but the investor needs to consider how volatile the market is.
- Educate yourself before investing.
- When this series of articles was started, the following three cryptocurrencies were tracked, and the volatility is apparent:
September 2018 November 2018 End November 2018
|Cryptocurrency||Market Volume||Market Volume||Market Volume|
The market of cryptocurrencies is exciting and scarey at the same time. Be careful out there.
@2018 All Rights Reserved
Sue Bergamo is the CIO & CISO at Episerver, a global digital commerce company. She can be reached at firstname.lastname@example.org.
*The content within this article are the sole opinions of the author.