Recently Hong Kong-based Bitcoin exchange Bitfinex lost 119,756 BTC in a hacker heist. This resulted in a temporary drop in BTC exchange rate.
But the BTC rate quickly bounced back – as this was a hack against a single company, not Bitcoin or the Blockchain as such.
Actually, Bitcoin has proven to be remarkably resilient.
Blockchain technology has gained interest far outside the Bitcoin society. Today e.g. banks, financial institutions and keepers of public records show an active interest – as the technology builds on an underlying ledger that cannot be manipulated.
Meanwhile in the Blockchain community people have developed several virtual currencies. One of them is Ethereum. Wikipedia explains…
“Ethereum is a public blockchain platform with programmable transaction functionality. It provides a decentralized virtual machine that can execute peer-to-peer contracts using a cryptocurrency called Ether.”
And out of the Etherum project came concepts like DAO, standing for Distributed / Decentralized autonomous organization. Back to Wikipedia…
The DAO is a digital decentralized autonomous organization and a form of investor-directed venture capital fund.
The DAO has an objective to provide a new decentralized business model for organizing both commercial and non-profit enterprises. It has been instantiated on the Ethereum blockchain, and has no conventional management structure or board of directors. The code of the DAO is open-source.
The DAO is stateless, and is not tied to any particular nation state. As a result, many questions of how government regulators will deal with a stateless fund have not yet been dealt with.
The DAO was crowdfunded via a token sale in May 2016. It set the record for the largest crowdfunding campaign in history.
Brilliant, really. And extremely interesting.
Then came the “Sorry Dave, I cannot do that” moment. Wikipedia…
In June 2016, it was revealed that hackers had exploited a vulnerability in the DAO code to enable them to siphon off perhaps as much as $50million in funds from the DAO. Stephen Tual, COO of Slock.it, the company that had worked on the development of the DAO, announced that they were working with the Ethereum Foundation to modify the underlying protocol to freeze the accounts of the hackers, and also said that the DAO would be wound up as a result.
Some say the DAO was hacked. Others claim the money was stolen. But apparently someone just seems to have taken advantage of the rules inscribed in the code, initiating a fork.
Now, it becomes very technical. If you are interested in the details, I suggest you read this piece by Bloomberg View columnist Matt Levine: Blockchain Company’s Smart Contracts Were Dumb »
It will be interesting to see what happens now – if The Dao irreversible code is to be confronted with some relevant jurisdiction’s law, in court. Or if there will be a rollback, a back-dated hard fork in the ledger.
Blockchain technology is still very young and there is a lot of learning by doing. And learning the hard way.
If you inscribe functions to code that cannot be changed there are both great opportunities and risks. You need to be proactive, to foresee future problems and developments – and to refrain from functions that can be misused.
Smart contracts cannot save stupid people.
Let’s hope that people have learned from this experience for the future. Blockchain is still a great, smart concept. Ethereum is still very interesting. And, in a wider perspective, DAO is a brilliant idea. I hope it will not be derailed by this temporary bump in the road.
It’s all in the code, stupid.
/ HAX
For many years, the EU has taken many small steps towards introducing an EU ID card: eIDAS. (Or at least a strict common EU standard for nationally issued ID cards.)
An ID card proving the holders identity is one thing. (However, a mandatory ID card as such is a very controversial concept in some member states.) One interesting point is if there is going to be a common personal EU identification number. Another is what information the cards chip will contain and how it is going to be used. No doubt, an EU ID card can be used as a very effective tool for various forms of Big Brotherism.
It is in the light of the EU slowly trying to introduce a common, mandatory ID card that various EU schemes should be scrutinised.
Last week some sites, e.g. Breitbart London ran this story: The European Commission Wants You To Log Into Social Media Accounts With Govt-Issued ID Cards »
Well, that might be a bit oversimplified. What the EU suggests is that it should be possible to use national (EU harmonised) ID cards to log into various online platforms instead of logging in using e.g. Facebook or Google. Thus giving you the possibility of being controlled by Big Government or Big Data.
Giving people a possibility to choose is a good idea, as such. But I’m not sure that I would like Big Government or Big Data to have the control over my online life.
And you should be very suspicious! The moment there is an established platform for online registration (or signing transactions) with an EU approved ID card – this system can be rolled out all over the place. For example, the EU would love to have a system where you have to use your ID card to be able to log on to the Internet. I have met several people in the EU apparatus promoting that idea.
But how should you go about if you don’t want nor Big Government or Big Data to be in control of your online activities?
Actually, it can be done quite easily – by using Blockchain technology, decentralised solutions, and open source software. Ideal, there should be a couple of different such ID providers, competing with each other over providing competent privacy protection.
(All of this might even be possible to achieve using the already existing Bitnation World Citizen ID.)
This can be one of those forks in the road of history: Do we want our online activities to be controlled by Big Government and Big Brother, by Big Data – or a decentralised system with a high level of security, respecting users right to privacy and controlled by no one?
/ HAX
Links:
• The European Commission Wants You To Log Into Social Media Accounts With Govt-Issued ID Cards »
• EU: Communication on Online Platforms and the Digital Single Market Opportunities and Challenges for Europe »
Right now, we see the Bitcoin (BTC) exchange rate skyrocketing. At the moment, the day to day volatility is some 25 percent – with the price of 1 BTC closing in on USD 550.
This might very well be a temporary fluctuation. But there are telltale signs that we might see the BTC price continue to rise.
One reason is that BTC is becoming increasingly popular with the Chinese. CCN.LA writes…
Started by Arthur Hayes, a former Citigroup trader living in Hong Kong, the goal was to create an exchange where people use cryptocurrency to bet on securities not easily accessible to them in their home markets.
Because China restricts exchanging its yuan for other currencies, citizens find it expensive and difficult to invest in overseas securities. Foreign investors are also restricted in trading China stocks.
Link: Bitcoin Derivatives Exchange Expands, Skirting China’s Currency Curbs »
Then, we have the fact that BTC mining is to be slowed down. The Dollar Vigilante explains…
On July 18th of this year bitcoin undergoes a major event that only happens every four years called a “halving”.
Bitcoins are developed through the process of mining. Only 21 million bitcoins can be in existence at any one time. The value of mining is regulated in order to maintain this number. To prevent miners from surpassing this limit, the currency is designed to cut the value of mining in half every four years. It is as if the Federal Reserve slashed the amount of money-printing it does by half.
This could have a major impact on the overall value of the currency. If demand for bitcoin continues to grow while the number of coins that can be mined is drastically decreased, the value should naturally surge. That’s just the law of supply and demand.
Link: Bitcoin Skyrockets And Is Now Up More Than 100% This Jubilee Year »
The Dollar Vigilante also lists these reasons for BTC increasing in value over time:
A bit optimistic, perhaps. But we really should consider what can happen if there is a USD or Euro crisis. (E.g. a debt crisis, a new bank crisis and/or a haircut on bank savings.)
And the fact that BTC is a decentralised currency out of reach of governments control will always give it a role in a free market.
We live in interesting times.
/ HAX
This week, the European Parliament will debate (Wednesday) and vote (Thursday) on a report on virtual currencies.
First of all, this is a report – not legislation. But it will be handed over to the European Commission for consideration.
It is interesting to see how the EP seems to think that virtual currencies can be regulated and incorporated in existing regulations and legal frameworks. Of course, a new virtual currency can do that. But when it comes to Bitcoin and other existing currencies – I cannot understand how this is supposed to be done. (And it shouldn’t.)
The EP also seems to believe that virtual currencies have some sort of governing bodies, that could be held accountable in front of the EU and national authorities.
On the positive side, the report states that no special legislation for virtual currencies is needed – for the time being. (“More tailor-made legislation might be needed.”)
Here are some parts of the report that might be of interest. (VC = virtual currencies. DLT = distributed ledger technology = Blockchain.)
19. Welcomes the Commission’s suggestions for including VC exchange platforms in the Anti-Money-Laundering Directive (AMLD) in order to end the anonymity associated with such platforms; expects that any proposal in this regard will be targeted, justified by means of a full analysis of the risks associated with VCs, and based on a thorough impact assessment;
20. Recommends that the Commission draw up a comprehensive analysis of VCs and, on the basis of this assessment, consider, if appropriate, revising the relevant EU legislation on payments, including the Payment Accounts Directive (PAD), the Payment Services Directive (PSD) and the Electronic Money Directive (EMD), in light of the new possibilities afforded by new technological developments including VCs and DLT, with a view to further enhancing competition and lowering transaction costs, including by means of enhanced interoperability and possibly also via the promotion of a universal and non-proprietary electronic wallet;
21. Observes that several virtual local currencies have been created in Europe, not least as a response to the financial crises and the related credit crunch problems; urges particular caution when defining virtual currencies, in the context of any future legislative proposals, with a view to taking proper account of the existence of ‘local currencies’ of a not-for-profit nature, often having limited fungibility and providing significant social and environmental benefits, and to preventing disproportionate regulation in this area, as long as taxation is neither avoided nor circumvented;
22.Calls for the creation of a horizontal Task Force DLT (TF DLT) led by the Commission, consisting of technical and regulatory experts, in order to:
i) provide the necessary technical and regulatory expertise across the various sectors of pertinent DLT applications, bring together stakeholders and support the relevant public actors at EU and Member State level in their efforts to monitor DLT use at the European level and globally;
ii) foster awareness and analyse the benefits and risks – including to end-users – of DLT applications in order to make best use of their potential, including by aiming to identify a core set of attributes of DLT schemes conducive to the general interest, such as non-proprietary open standards, and by identifying standards for best practice where such standards are emerging;
iii) support a timely, well-informed and proportionate response to the new opportunities and challenges arising with the introduction of significant DLT applications, including by means of a roadmap for future steps at EU and Member State level which would include an assessment of existing European regulation, with a view to updating it in response to significant and systemic DLT use where appropriate, also addressing consumer protection and systemic challenges;
iv) develop stress tests for all relevant aspects of VCs and other DLT schemes that reach a level of use that would make them systemically important for stability;
23. Stresses the importance of consumer awareness, transparency and trust when using VCs; calls on the Commission to develop, in cooperation with the Member States and the VC industry, guidelines with the aim of guaranteeing that correct, clear and complete information is provided for existing and future VC users, to allow them to make a fully informed choice and thus enhance the transparency of VC schemes in terms of how they are organised and operated and how they distinguish themselves from regulated and supervised payment systems in terms of consumer protection;
The devil is in the details. (My emphasis above.)
Apparently the EP has found something new to regulate. The fact that its’ members don’t seem to grasp the concept of virtual currencies and Blockchain will not stop them. And that is not an unusual approach when it comes to EP reports…
At best this report is a waste of time. But it can be used by the Commission to justify future legislation.
/ HAX
Via Reason.tv | Youtube »
If in fact you can’t crack that all, if the government can’t get in, then everybody is walking around with a Swiss Bank account in their pocket.
US President Barack Obama on encryption at the SXSW.
That is the perspective from a politician who thinks that people cannot be entrusted with their own money.
This week the dire predictions came to pass, as the network reached its capacity, causing transactions around the world to be massively delayed, and in some cases to fail completely. The average time to confirm a transaction has ballooned from 10 minutes to 43 minutes. Users are left confused and shops that once accepted Bitcoin are dropping out.
What is actually going to happen is, each virtual currency is going to continue doing its thing. If bitcoin’s current situation becomes a problem, people are going to start using something else. That something else will gain traction. It may even become more popular than bitcoin. Or, when that begins to happen, the bitcoin community is actually going to decide to evolve. This process is necessary for evolution. To think that we need only one virtual currency is short sighted. There are going to be many virtual currencies that have various properties that are suited to their environment better than another. Virtual currencies are going to become some of the human beings’ tools to transmit value between each other, in addition to ancient technologies such as bank transfers or Paypal.
Bitsapphire: The necessities of Evolution »
