To catch a blockchain hacker: Coinbase shocked the crypto world this week with an announcement that it had "detected" a so-called 51% attack on the Ethereum Classic (ETC) blockchain network. The exchange said it had "paused interactions" with the blockchain after the attack, in which over a million dollars worth of cryptocurrency was stolen. It's the latest reminder that, contrary to widespread perception, blockchains are hackable. This story is far from over, however: a security firm has located the breadcrumbs the attackers left on the blockchain, and it may be possible to track them down.
The mathematical rules governing blockchains make it very difficult to manipulate their transaction records. But in the case of "proof-of-work" systems like Bitcoin, Ethereum, and Ethereum Classic, if one miner can gain control of the majority of the network's computing power, they can defraud other users by paying them in cryptocurrency before creating a new version of the blockchain in which the payment never happens. Such a "double spend" attack is what Coinbase says happened in this case. (see "How secure is blockchain, really?")
It is much easier and less costly to attack smaller coin networks, and Ethereum Classic is significantly smaller than Bitcoin and Ethereum in terms of computing power. As we learn more about the attack, Coinbase and other exchanges will face some big questions about the risk of future attacks on the other, similarly-sized coins that they list on their platforms. For now, Chinese blockchain security firm SlowMist has presented evidence that it says not only corroborates Coinbase's diagnosis of a 51% attack but also makes it possible to track down the attacker—provided "relevant exchanges are willing to assist."
The Winklevoss Doctrine. Crypto Twitter has been in a tizzy of late over a new ad campaign that Cameron and Tyler Winklevoss have unveiled touting Gemini, their popular cryptocurrency exchange. The reason the ads—which have graced New York City taxis, phone booths, subway cars, and a full page in the New York Times—are controversial is that they celebrate regulation. They call Gemini "the regulated cryptocurrency exchange," and say things like "Crypto Needs Rules," "Money Has a Future," and "Crypto Without Chaos."
Critics haven't taken kindly towards this perceived cozying up to financial regulators, many of whom are perceived as being unfriendly to cryptocurrency innovation. The approach is also seen as running counter to the ethos of crypto, which celebrates mathematical rules instead of those created by bureaucrats. But why was anyone surprised? The Winklevoss twins have been trumpeting this message from the get-go. The ads just imply they still think it's working.
Upon announcing the launch of Gemini in 2014, Cameron Winklevoss called it a "next-generation" exchange. "What do we mean by 'next-generation'? We mean a fully-regulated, fully-compliant, New York-based Bitcoin exchange for both individuals and institutions alike." The following year, when Gemini got approved for a BitLicense, the New York requirement that many crypto enthusiasts see as governmental overreach, the twins told Fortune that their approach was to "ask permission rather than ask forgiveness." Last year, they set out to create a self-regulatory organization aimed at taming the Wild West-style crypto exchange scene, and launched a "regulated stablecoin" with the official blessing of the New York Department of Financial Services.
The Winklevosses long ago chose to work with the old guard instead of circumventing it, and to make Gemini's brand inherently (and sometimes loudly) pro-regulation. Political ideology aside, the strategy seems to make particularly good sense in 2019. Regulators are zeroing in, and have already exposed the exchange scene as plagued by poor customer protection practices and lacking in tools to police fraud. This has likely contributed to a negative perception that has hindered mainstream adoption. Cryptocurrency users and potential users are looking for platforms that appear trustworthy, and many still trust traditional institutions. That creates a niche that Gemini is apparently quite happy to fill. So, sure, we can all question whether the expensive ad campaign was worthwhile. But get used to the Winklevoss doctrine.
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Loose Change
Fill your pockets with these newsy tidbits.
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EU financial regulators: "blah blah...probably need more cryoto rules… blah blah."
(Reuters)
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Digital currency pioneer Nick Szabo suggests that central banks may soon start to invest in cryptocurrency to supplement their gold reserves. (Finance Magnates)
- Some counties in Nevada are using public blockchains to store digital birth and marriage certificates. (AP)
- Crypto exchange ShapeShift has laid off 37 employees, a third of its staff, blaming a rough 2018 and "this latest bear market cycle." (Medium)
- Coinbase might soon be focusing less on Wall Street and more on Silicon Valley. (The Block)
- The Ethereum Foundation has awarded a $5 million grant to Parity Technologies, one of the startups building "Ethereum 2.0." (CoinDesk)
