Tag Archives: Nermin Hajdarbegovic

Telling Statistics: Bitcoin Not Worth Stealing?

Stan Higgens reports in CoinDesk that “Bitcoin Becoming Less Attractive Target for Trojan Malware”.  He is referring to studies from Symantek and others reporting statistics about digital crimes, which show that malware attacks on Bitcoin wallets are down, possibly for the second year in a row.

Financial crimes (theft, fraud, etc.) are up in general, but down for Bitcoins, at least for certain MOs. One reason may be that Bitcoin’s exchange rate has dropped from 2013, so

As the prices of Bitcoins have decreased by around 60 percent over the year 2014, it seems that attackers’ interest in this cryptocurrency has dropped as well.”  Symantec pp. 18-19

Much as I would like to tell that story, (Har har! BTC is not even worth stealing!) ,I have to doubt that this is the only or even the biggest cause.

First of all, we have to wonder how good the statistics are. Crime statistics are iffy in general, and digital crimes must be particularly difficult to track. Many are not noticed, or misunderstood. Even when uncovered, it may not be clear what jurisdiction, if any, you might report the crime to. And if your business is extralegal, you may not be able to report it at all.

The specific report concerns “Trojan malware”, which is only one method of stealing, and indeed, is a “retail” crime: one computer and user at a time. We know there have been quite a few significant Bitcoin heists recently, but they have been from servers. One break in, but lot’s of users at once.

There is growing incidence of fraud and extortion, which are very old games indeed. This doesn’t count as “malware” (usually), and isn’t directly related to cryptocurrency per se. I’m sure these attacks are under reported, as victims may have many reasons to keep quite.

Second, Bitcoin software is getting better. It is a lot harder to steal from wallets these days, and (legitimate) servers are getting much more secure. This is probably why attention is turned to alternative methods, as noted above.

Third, a very significant amount of Bitcoin activity is extralegal. Thefts in this sector are going to be unreported or under reported. To the degree that this dark sector is growing, its invisibility may distort all the statistics about Bitcoin.

The conclusion has to be, “who knows?”   We have, what, a few years of data on a relatively tiny economic sector. We can’t really lean too heavily on such statistics at this point.

However much I might want to.

 

Cryptocurrency Thursday

A “Blockchain Lottery Device”

I ran across an odd little product  this week (also reported in CoinDesk)– “DICE“, a “blockchain lottery device”.

Cleverly recycling obsolete Bitcoin mining equipment, and even more cleverly tuning into the psychology of Bitcoin mining, this gadget doesn’t pretend that you will make a profit from  it (most miners mostly don’t anyway), and instead makes a simple lottery out of it.  (I’m not sure if this beast is legal in many jurisdictions, it certainly would raise eyebrows in our local State’s Attorney offices.)

As far as I can tell, you buy the equipment (around $100) and run their software (you pay power and cooling and network, of course).  The software does the standard Bitcoin blockchain validation stuff, which helps keep the blockchain viable.  You are unlikely to win the arms race to get any coins, but the software keeps track and enters you in a lottery, to pay out 1:2000000 chance at 25BTC per 10 minutes.  (Assuming this is an honest game, and the machine lasts that long, you should break even after running continuously for about 6 months, neglecting other costs and exchange rates.)

One thing I like about this product (aside from the recycling) is the way it plays into the something for nothing psychology of solo Bitcoin mining. This is good, solid, selling strategy.  The whole “mining” enterprise is so much like a slot machine, why not just make it work like a slot machine?

This is so much better (businesswise) than the “mine coins as a screensaver” ideas, which completely fail to motivate the punters.  Sure, it would be nice to have a screensaver winning money, but its not really any fun, and doesn’t plug into the visceral reinforcement effects of low frequency random payouts.

If this is actually legal (which I have to wonder about), it could actually be a reasonable business.  And if enough people buy into it, it would probably help keep the Bitcoin blockchain cooking.

The “Local Pub” Metric For Cryptocurrency

For all the high falootin’ rhetoric surrounding cryptocurrencies, stories about “disruption” and “innovation”, and fiery declarations that cryptocurrencies can’t be regulated (or taxed), it is easy to lose sight of the most important metric:  can I do what I need to do with it?

This week we saw a brutal setback for the Bitcoin rush:  Nermin Hajdarbegovic reports at Coindesk that the only pub in Dublin that accepted Bitcoin has stopped taking Bitcoin.  It seems that money laundering isn’t legal, even at your local (who’s a thunk it?), and whether cryptocurrencies can be regulated or not, pubs certainly can.

If I can’t use it to buy beer in Dublin, then, frankly, what good is it?

The article notes that so-called Bitcoin ATMs face considerable legal resistance from many jurisdictions.  There are understandable reasons for this, as well as turf-protection by existing ATM rackets.

This is a really clear example of the end-to-end principle:  cryptocurrency can be the bee’s knees inside the digital world, but the whole enterprise can fall apart if you can’t get all the pieces right (and legal and secure), including the actual user interface.

I will write more in the future about Ripple and others who are tackling this who picture.  Notably, cryptocurrency qua cryptocurrency tends to fade into the background, and (human) networks stand out as critical.

 

Yet Another Bitcoin “Solution”

More notes on cryptocurency and “the unbanked”.

For many years, Bitcoin and other cryptoenthusiasts have touted great benefits for the “unbanked”.  Unfortunately, most crypto technology uses the Internet and smartphones–not really useful for the key demographic groups of the “unbanked”.

This has led to hybrid systems that use SMS and even paper.  Note that these solutions not only work with any cryptocurrency (i.e., Bitcoin isn’t particularly needed) and in fact work fine with any currency.  As long as you provide a viable ‘last mile’, cryptocurrency is neither necessary nor sufficient.

Entrepenuers continue to roll out these “solutions”.  We read this week about Xoin in South Africa, which announced its voucher system called  Azteco.  This service makes it easy (for internet and smart phones) to buy Bitcoin.  The mechanism is basically vouchers (scratch cards) denominated in Bitcoins.

Of course, this less than amazing innovation is said to be Earth shattering.

The big role for Bitcoin is apparently the ability to quickly transfer across borders.  Supposedly, this is useful for remittances, though, as I have commented before, that really isn’t particularly useful.

From the information I’ve seen there is much I don’t understand about this service.  Apparently, merchants deposit money in an account, and receive scratch cards which can be activated via the Internet.  They sell them to customers using real time BTC exchange rates.  The customer does whatever with BTC, likely eventually converting to other currency somewhere.

It is not clear who profits and how much.  (Remember–the reason for using Bitcoin is to avoid those terrible fees from conventional services.)  In fact, it is far from clear where the money actually goes, or where the BTC comes from.  How does this stay in balance?  Who is responsible if there is abuse, fraud, or criminal activity?

I note that the system is asymmetric: it is simple to get into BTC, but there is no way to get back out.  How is this useful?

I’m glad to see attention to this problem, but I’m not sure that this is enough of a solution.  It certainly isn’t enough to be as revolutionary as the company would hope.

UK Think Tank’s Blistering Satire of Bitcoin Answers Boring Swedish Report

Nermin Hajdarbegovic reports on a hilarious satire published by the Institute for Economic Affairs, which, tongue in cheek proposes to privatize the Pound and replace it with cryptocurrency.  LOL!

New Private Monies: A Bit-Part Player? summarize the compelling “strengths” of cryptocurrencies exemplified by bitcoin.

  • Low transaction costs associated with bitcoin
  • Self-regulating nature of the bitcoin market, no sweeping regulation imposed by central banks
  • High level of anonymity (or pseudo-anonymity) in an age when financial freedom is being eroded by governments
  • Novelty factor – bitcoin can be used to facilitate trade in activities prohibited by the state

Basically,cryptocurrencies are better than “state-backed” currencies because they are “self regulating” (not regulated at all), anonymous, and amenable to “novel” (extra-legal) uses.  “A bag of twenties in the alley.”

I love it.  These Brits have the best sense of humor humour.

This is so much more refreshing than the report by the Sveriges Riksbank which makes the case in dry, central bankerly terms:

“There are clear disadvantages with virtual currencies. Issuing these currencies is not subject to regulation and the issuers are not under financial supervision. This means that consumer protection is weak in certain aspects and that the users may be exposed to risks. For example, the allocation of responsibility between the payer and the payee may be unclear if anything were to go wrong with the payment. There is also the possibility of exchange rate risk arising in connection with the virtual currencies that can be converted if the exchange rate is volatile, that is, the holder of the virtual currency runs the risk that it will fall in value. There is also the risk of fraud and theft as virtual accounts can be “hacked” into. Some virtual currencies can also be used for money laundering and criminal activities.” (p. 4)

Bo-ring.

Cryptocurrency Narratives: Flame, Fraud, and “Airdrops”

Cryptocurrencies are in the news in all sorts of ways, publicly acting out a diverse set of stories, all enabled by the same technology.  Bitcoin is suffering serious reputation damage, and the Dogecoin versus Bitcoin narrative burns on, achieving high school levels of intellectual rigor.

Plenty of other action, including blatant pump and dump schemes that seem to always work long enough to make some money.

I didn’t anticipate, but it is obvious in retrospect, the great interest in “national” cryptocurrencies, and apparently, even more localized community cryptocurrencies (e.g., HullCoin).

We see the trend continuing with a new Isracoin.  Like other national cryptocurrencies (e.g, MazaCoin or Auroracoin), the nationalist claim is made by “airdropping” an initial ration of currency into the nation in question.

(The cryptocurrency community is coining nearly as many new words as ducats.  “Mining”. “Airdrop”.  Dogecoin’s “such pseudo-grammar”.)

So, the currency is mined as in other cryptocurrencies, but the first crop is (supposed to be) given to the people of the nation.  Others may then mine additional coins independently.

In the case of MazaCoin, one crop goes to the tribal government, and another crop to an investment pool to disburse to Lakota people and businesses.  It is not difficult to understand why Lakota people would want to control their own economic development.

In the case of Auroracoin, the “national” cryptocurrency of Iceland, the airdrop was apparently 31.8 AC per citizen, whatever that might be worth. Auroracoin is undoubtably motivated by the austerity measures following the deep crash created by, well, by unregulated financial dealings.

Isracoin promises an airdrop to Israeli business and citizens in June.  The manifesto has a populist theme, complaining about concentration of wealth and centralization of banking (attributed in part to botched privatization). The manifesto isn’t terribly clear how a cryptocurrency will change these facts.

More cases will surely follow.  Spaincoin.  Maybe an independent Scotland will have a cryptocurrency. And so on. Anyone and everyone can do it.

These narratives are quite interesting.  They remind me of the “Free Silver” movement in the nineteenth century US, but also the competing Gold Bugs.  It combines the Gold Bug concern for “debasement” and manipulation, with the Free Silverists desire for more equitable distribution and looser access to capital.

The contemporary ones employ rhetoric from the remnants of older left- and right-wing populist movements, with both anti-government and anti-elite arguments.

In contrast to the original Bitcoin narrative, which is directly out of libertarian ideology, these populist/nationalist narratives attempt to distribute wealth throughout their identified community, hoping to boot up economic growth. Where Bitcoin has been transnational, indeed post-national, from day one, these cryptocurrencies dream of growing their nation/tribe/city.

Obviously, the absurdist Dogecoin narrative contrasts to both of these, especially eschewing serious purpose other than charity.

The Icelandic experiment is farther along than the other national coins, so we can look at it to see how such plays might unfold.  First, we have to note that, unfortunately, the actual national government of Iceland has strict controls on currency movement (imposed as a result of the disaster created by earlier unfettered wheeling-dealing). This means that AC can’t legally be traded internationally, as some had initially hoped. (Cryptocurrencies are ideal for capital flight and money laundering, so they will surely be met with hostility in many jurisdictions.)

Worse, the airdrop itself has been plagued with reports of theft and fraud. The difference between and airdrop and a Ponzi scheme is…well the only difference is the statistical distribution of who gets the money.  Each of these “nationalist” airdrops are a bit opaque, so we really don’t know in advance how legit they are, and who may benefit.

Then there is the issue of identity fraud (and possible theft), and other forms of hacking.  Cryptocurrencies are extremely vulnerable to theft, and difficult to defend.  (Not unlike metal bullion.)

In the case of Auroracoin, some guy on the web is supposedly giving out free money, all I have to do is give them my ID number. What could possibly be wrong with that?

Much to think about here.  More later.