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Thursday, August 9, 2018

#77: Why security experts hate the idea of “blockchain voting”

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Letter

Blockchains, cryptocurrencies, and why they matter

08.09: Cart before horse

Welcome to Chain Letter! Great to have you. On Thursdays we take a closer look at one key concept in the world of blockchains and cryptocurrencies. Feel free to suggest topics you think we should discuss in the future.

Voting in West Virginia just got a lot more high tech—and experts focused on election security aren’t happy about it.

This fall, the state will become the first in the US to allow some voters to submit their federal general election ballots using a smartphone app, part of a pilot project primarily involving members of the military serving overseas. The decision seems to fly in the face of years of dire warnings about the risks of online voting issued by cybersecurity researchers and advocacy groups focused on election integrity. But even more surprising is how West Virginia officials say they plan to address those risks: by using a blockchain.

The project has drawn harsh criticism from election security experts, who argue that as designed, the system does little to fix the problems inherent in online voting.

We first heard of the West Virginia pilot in May, when the state tested a mobile app, developed by a startup called Voatz, during primary elections. The test was limited to overseas voters registered in two counties. Now, citing third-party audits of those results, officials plan to offer the option to overseas voters from whole state. Their argument is that a more convenient and secure way to vote online will increase turnout—and that a blockchain, which can be used to create records that are extremely difficult to tamper with, can protect the process against meddling.

But that premise has been controversial from the start. After two fellows from the Brookings Institution penned an essay praising West Virginia for pioneering the use of blockchain technology in an election, Matt Blaze, a cryptography and security researcher at the University of Pennsylvania, pushed back hard. It’s not that blockchains are bad, said Blaze, who testified (PDF) before Congress last year on election cybersecurity. It’s that they introduce new security vulnerabilities, and securing the vote tally against fraud “is more easily, simply, and securely done with other approaches,” he said.

Blaze and many other election cybersecurity experts oppose online voting of any kind because, they feel, it’s fundamentally insecure. Although a number of countries have embraced the practice, in 2015 a team of cryptographers, computer scientists, and political scientists looked closely (PDF) at the prospect of internet voting in the US and concluded that it was not yet technically feasible. Protecting connected devices against hacking is hard enough, and, even if that could be achieved, developing an online system that preserves all the attributes we expect from democratic elections would be incredibly difficult to pull off.

The Voatz system uses biometric authentication to identify individual users before allowing them to mark an electronic ballot, and the votes are then recorded in a private blockchain. The company says that in a general election pilot, its system will use eight “verified validating nodes,” or computers (all controlled by the company) that algorithmically check that the data is valid before adding it to the chain.

The system isn’t so much a blockchain-based app as it is a mobile app with a blockchain attached, says Marian K. Schneider, president of Verified Voting. The blockchain can’t protect the information as it travels over the internet, and doesn’t guarantee that a user’s choices will be reflected accurately. “I think they’ve made a lot of claims that really don’t justify any increased confidence in what they are doing versus any other internet voting system,” Schneider says.

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Loose Change

Fill your pockets with these newsy tidbits.

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IBM and Maersk say they’ve convinced 94 organizations to participate in a blockchain platform meant to improve the efficiency and transparency of the shipping industry. (Reuters)

•

Startup Audius has raised $5.5 million in venture capital to develop a blockchain-based competitor to SoundCloud. (TechCrunch)

•

The SEC will decide whether to approve several Bitcoin ETFs during the next two months. (CoinDesk)

•

Mentions of “blockchain” during corporate earnings calls are on the decline. (Quartz)

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Japan’s financial regulators have announced plans to impose more strict rules on speculative cryptocurrency investments. (Finance Magnates)

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The Money Quote

“The narrative of democratization has hit quite a few snags—no question about it.”

— Lex Sokolin, global director of fintech strategy at London-based Autonomous Research. Enthusiasts argued that public initial coin offerings would democratize the traditional venture funding system, which is dominated by wealthy investors. But instances of fraud and increased regulatory scrutiny have led many coin issuers to instead focus on private sales to accredited investors. (Bloomberg)

We hope you enjoyed today's tour of what's new in the world of blockchains and cryptocurrencies. Send us some feedback, or follow me @mike_orcutt.

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Nine nail-biters

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IT'S A BLOCK PARTY: On Thursday, shipping giant Maersk and IBM announced that their blockchain trade platform – now dubbed TradeLens – has a total of 94 companies as clients.

The goal for the platform – which is in a kind of early-access stage – is to enter full commercial scale by the end of 2018. IBM and Maersk have struck a new approach that allows each company to pocket the revenue from the customers it onboards, rather than the originally planned 51/49 split.

And according to Maersk, which went public with its work around blockchain last year, the market is demanding new solutions to address issues around global trade, especially for companies on the financial side of things. Full story.

BAKERS' BILLION: The number of Tezos stakeholders who run the hardware underpinning its $1 billion blockchain – known as “bakers” – is on the rise, as it were.

As CoinDesk’s Brady Dale reports, Tezos has been gradually building up its base of bakers, the validators on the network (akin to bitcoin's miners). While there's been some attrition among these organizations, the net change has been an increase.

Like in any blockchain, the more nodes participate in securing the network, the harder it is to undermine. So this is a key early metric for the new protocol. Full story

SUCH A TEASE: It’s getting close to decision time – for officials at the U.S. Securities and Exchange Commission (SEC), that is.

As CoinDesk’s Muyao Shen reports, proposals for a total of nine bitcoin exchange-traded funds (ETFs) are set to be decided upon over the next two months.

Much of the crypto world has been focused on this topic – some observers say that an ETF tied to bitcoin opens up a new crowd of investors to the nascent asset class, albeit indirectly – and the market has gyrated in response to some of the decisions announced or delayed in the last month.

To be sure, the agency could release decisions ahead of its deadlines (as the SEC did this week with the delay on the SolidX-VanEck proposal). But past examples suggest that the SEC will wait until closer to the deadlines, all but ensuring additional nail-biting by the crypto community. Full story

CoinDesk’s venture capital tracker shows that blockchain technology startups raised $228 million in July. Notably:

Compared to June, funding fell 64 percent, and the total number of deals fell 21 percent
July’s largest raise was BlockFi Lending, which brought in $52.5 million from Galaxy Digital and other investors
The latest haul brings the 2018 yearly total to $2.2 billion, which accounts for a whopping 47 percent of all reported blockchain VC funding

Learn more crypto research insights here.

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OVERSOLD? Bitcoin fell to a three-week low of $6,121, as disappointment lingers over the SEC delaying a decision on the VanEck SolidX ETF. But technical charts indicate the cryptocurrency may be in for a period of sideways trading if not a minor corrective rally. Full story

BEST OF THE BEST

QUARTZ: Despite the recent disappointment and backlash against once-hyped enterprise uses of blockchain, IBM is committed to the technology.

Big Blue has 1,600 employees working on DLT-related projects, leading other tech companies in headcount and investment, executive Marie Wieck tells Quartz. The tech giant is betting blockchain will follow "Amara's Law," the idea that the adoption and effects of a new technology tend to be overestimated in the short term and underestimated in the long term.

A nice little flourish in the article: blockchain is likened to "doing a crossword puzzle in ink." We'd add that this is a helpful way to think about the common description of the tech as a "shared source of truth."

Obviously, filling in the boxes with a pen rather than a pencil doesn't mean you have the right answer. But proof that an incorrect answer (or a correct one, for that matter) was originally put down on paper can conceivably be valuable in itself.

THE REST

ENTREPRENEUR: The number of hacked accounts on cryptocurrency exchange websites rose an astounding 369 percent, to 720 accounts in 2017 compared to the previous year, a recent report by security firm Group-IB shows.

The U.S., Russia, and China are the top three countries affected by the attacks, with a third of all victims in the U.S. Both users and exchanges have been overlooking information security and underestimating cybercriminals, the report suggested.

WALL STREET JOURNAL: Iranian hackers are generating cryptocurrency-focused software attacks across the globe, according to researchers at Accenture. San Francisco’s Municipal Transportation Agency, the aforementioned container-shipping giant Maersk, and some hospitals in the U.K. were among the targets.

In some cases, these hackers used ransomware to extort crypto from victims, while in other cases they hijacked computers to mine cryptocurrencies like bitcoin.

We've launched our new podcast, Late Confirmation, which are the top stories in the blockchain world, delivered daily from the team at CoinDesk, sponsored by the Oxford Blockchain Programme.

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SEC Will Make Decisions on 9 Bitcoin ETF's in the Next 2 Months

QUOTE OF THE DAY

"Don't wait. The time will never be just right."

- Napoleon Hill

Happy Thursday! We just hit 10,000 followers on Twitter! Thank you to everyone who supports Blockchain Brew and has made this possible. This is only the start!

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MARKET

COIN	PRICE	24H

BTC	$6,277.008428	-3.67%

ETH	$354.621936	-3.39%

XRP	$0.33375	-4.55%

BCH	$583.539274	-5.12%

EOS	$5.503422	-7.09%

*Information as of 9:30 AM EST

REGULATION

SEC Will Make Decisions on 9 Bitcoin ETF's in the Next 2 Months

ETF CRAZE

The crypto space is going through an ETF mania, every day the news is headlined by either some ETF application or denial
Investors see Bitcoin ETF's as the saving grace for the prolonged bear trend we are encountering

NO APPROVALS YET

Most recently, the U.S. Securities and Exchange Commission (SEC) postponed the deadline for the VanEck-SolidX Bitcoin ETF listing decision to September 30th
Prior to the VanEck-SolidX, the Winklevoss Twins' ETF was denied by the SEC a couple of weeks ago

BUSY AUG & SEP

Here is a comprehensive list of proposed Bitcoin ETF's and their respective decision date:

August 23 - Two funds from ProShares
September 15 - Two funds from GraniteShares (initially proposed January 5)
September 21 - Four funds from Direxion (initially proposed January 4)
September 30 - VanEck-SolidX fund

PRICE IMPACT

The crypto community will be on their toes over the next two months cautiously watching what the SEC decides
The SEC's rulings can't be predicted, but it is certain that the rulings will have an impact on Bitcoin's price, whether positive or negative is not certain

RESEARCH

Lightning Network Grows to Over 3,000 Nodes and Expands Capacity by 85%

85% BOOM IN JULY

Prior to July, the lightning network was growing at a steady pace since its beta release in early 2018
Then, in July, a single node caused the network's capacity to increase by 35.4 BTC which doubled the size of the total network's capacity at the time
According to the data monitoring resource 1ml.com, this supernode has since disappeared but the lightning network has continued to grow to a 97 BTC capacity

CRITICS TALK CENTRALIZATION

Though the lightning network now boasts over 3,000 nodes, some critics are stating the lightning network is prone to centralization

David Shares tweeted this picture to show that the lightning network is turning into a "hub-n-spoke" technology with few nodes owning the payment channels:

THE PUSH BACK

In defense, lightning network supporters pushed back with one supporter saying that the network graph actually does "analytical justice"
StopAndDecrypt posted on Medium to explain why the network graph is just a trick on the eyes
In the write-up, StopAndDecrypt suggested that the lightning network is still in an infancy and the network will continue to grow but did reiterate that if a single node crashes, the entire network will not go down

EXCHANGE

Vitalik and Binance’s CEO Emphasize Importance of Decentralized Exchanges

“BURN IN HELL”

In an interview at Tech Crunch Sessions: Blockchain 2018, Vitalik called for centralized exchanges to “burn in hell as much as possible”
Vitalik’s gripe with centralized exchanges is that they hold “stupid king-like power” and can determine which coins will be successful

CZ’S RESPONSE

Binance CEO, Changpeng ‘CZ’ Zhao, fired back at Vitalik’s comments targeting his core business, but ultimately agreed with him to an extent

CZ replied to Vitalik saying:

“There is no absolute decentralization. Projects with core teams still have centralization. Today, Vitalik probably has more king-like powers than anyone else in this industry, and has used it, by serving as advisors to projects, therefore helped to decide their fate, at least fate of their ICOs to a large extent.”

CZ agrees with Vitalik that decentralized exchanges are necessary, but thinks that centralized exchanges can coexist with decentralized exchanges

BINANCE DEX

Binance has plans to launch a decentralized exchange this year that will be accessible to everybody
Unlike with centralized exchanges, Binance will have very little to no control over what cryptocurrencies are exchanged on its platform

In a recent interview, CZ explained this concept:

“On the decentralized exchange we’ll have less control. More likely anybody can list any coin. That’s the philosophy of the decentralized exchange, it’s freedom of choice, freedom of investments. But with freedom there will be people who are scammers. That’s not something we can control.”

ICO

Your Q2 ICO Market Quick Stats

FUNDING FIGURES

827 projects raised over $8.3 billion in Q2 2018 compared to the Q1 funding of $3.3 billion, showing a 151% increase
So far, Q1-Q2 2018 has had 6.4 times more ICO funding than the Q1-Q2 2017
50% of the ICO projects in Q2 failed to raise more than $100,000

TOP 5 LARGEST PROJECTS

Below are the top 5 largest projects in terms of funding for Q2:

PumaPay
Flashmoni
HYCON
Nexo
MOOVER

BEST PERFORMING INDUSTRIES

Exchanges and Wallets - Average ROI of +914%
Real Assets - Average ROI of +325%
Computing and Data Storage - Average ROI of +150%

WORST PERFORMING INDUSTRIES

Investment - Average ROI of -48%
Banking and Payments - Average ROI of -48%
Privacy and Security - Average ROI of -45%

For more facts, trends, and insights visit icorating.com to view the entire Q2 report.

MORE BREWING

Report: Ready-to-Use Malware for Bitcoin ATMs Found for Sale Online
Intuit Awarded Patent for Processing a Bitcoin Transaction via a Text Message
Microsoft Introduces Ethereum Proof-of-Authority Algorithm on Azure

TODAY IN CRYPTO

Lisk (LSK)

Candidate 1.0 To Testnet

Release of Lisk Core 1.0.0 candidate to testnet at block height 5,932,033.

PROOF | SOURCE

Today in Crypto is powered by coinmarketcal.com

COIN OF THE DAY

Cube (AUTO)

At present, the automobile market of 1.7 trillion USD, has reached an important turning point. The rapid expansion of car connectivity has brought attention to the significance of network security. Given that new cars from 2020 will be manufactured with built-in CDMA, connected cars are expected to be under constant threat of cyber-attacks, similar to attacks our network connected PCs coping with today. CUBE is preparing to embrace a pivotal role in the rapidly changing vehicle market.

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