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The bitcoin curse:Can the crypto currency weather the storm?

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Bitcoin has seen some interesting twists and turns of late, some almost worthy of a spy novel. On February 10 Mt. Gox, the world’s largest Bitcoin exchange, suspended trading, citing a possible hacking incident. Later we would learn that in the weeks leading up to its collapse, Mt. Gox was experiencing as many as 150,000 DDoS (denial of service) attacks per second. These were followed closely by hacking of the notorious Silk Road 2 illegal marketplace on February 14 and the collapse of Mt. Gox competitor Flexcoin shortly thereafter.

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The bitcoin curse:Can the crypto currency weather the storm?

  1. 1. Technology 74 | GlobeAsia April 2014 B itcoin has seen some interesting twists and turns of late, some almost worthy of a spy novel. On February 10 Mt. Gox, the world’s largest Bitcoin exchange, suspended trading, citing a possible hacking incident. Later we would learn that in the weeks leading up to its collapse, Mt. Gox was experiencing as many as 150,000 DDoS (denial of service) attacks per second. These were followed closely by hacking of the notorious Silk Road 2 illegal marketplace on February 14 and the collapse of Mt. Gox competitor Flexcoin shortly thereafter. While not quite the St. Valentine’s Day massacre, the Silk Road 2 hack resulted in a loss of over $2.4 million while Flexcoin, too, reported a loss of over half a million dollars, which it attributed to hacker activity. Another victim of the hacking epidemic, Slovenia’s Bitstamp, was also forced to temporarily halt trading after a DDoS attack on its servers. The fallout from these disasters unfortunately did not limit itself to the virtual world, as evidenced by the untimely death of Singapore- based Bitcoin exchange First Meta’s chief executive officer Autumn Radtke. A victim of what’s beginning to look like the Bitcoin curse, Radtke was found dead on February 26 in an apparent suicide. Radke had shared a news story on depression among entrepreneurs via a social media site shortly before her death. If Bitcoin enthusiasts were hoping for a quiet and uneventful March, fate did not oblige. By The Bitcoin curse: Can the crypto currency weather the storm? IllustrationNelarealino
  2. 2. April 2014 GlobeAsia | 75 far the strangest week yet in the saga of Bitcoin began with the release of Newsweek’s print issue relaunch on March 7. The article centered around the supposed unmasking of the mysterious Satoshi Nakamoto. The name Satoshi Nakamoto was the (presumed) pseudonym used by the creator of Bitcoin who had gone to great lengths to keep his identity secret, and had not been heard from in a long while. Newsweek claims to have discovered that the true identity of Satoshi Nakamoto is none other than 64-year-old bespectacled Dorian Nakamoto. Nakamoto has since vigorously denied having any connection with Bitcoin and other news organizations, too, have expressed heavy skepticism toward Newsweek’s reporting. Indeed, an expert hired by Forbes magazine is convinced that Nakamoto is not the same Satoshi Nakamoto presumably connected with Bitcoin. Newsweek, for its part, has not only stood by its story, but deepened the mystery by indicating it has secret evidence – that it will not reveal – which definitively convinced it of Nakamoto’s identity. Interestingly, Nakamoto has previously worked on classified projects for the United States government and there are huge swathes of his life that are largely unaccounted for. Nakamoto also seems to be an otherwise good candidate, given his engineering and mathematics background. In an even weirder (according to Nakamoto) coincidence, he was also once known as Satoshi Nakamoto, but westernized his name in a bid, he says, to simplify it. As the story played out over the next few hours and days, it took on a bizarre life of its own complete with a car chase through downtown Los Angeles, as reporters jostled to get a word in with the presumed, elusive creator of Bitcoin. If things were not strange enough, on exactly the same day the Newsweek While Bitcoin reached a high of approximately $1,000 recently, the Mt Gox fiasco caused it to drop to about $500. Bitcoin now trades in the neighborhood of $750. While this is certainly more volatile than we would like to see, it is a good deal less volatile than it could have been, given that this is such a new concept. Among the torrent of news relating to Bitcoin this month, reports say that a group of individuals has proposed a service they call Goxcoin. As the mutant cousin of Bitcoin, Goxcoin would allow individuals who lost money in Mt. Gox to sell their right to the recovery of said monies in exchange for immediate liquidity at a heavily discounted rate. The existence of Goxcoin (even as a theory, if not yet in practice) speaks volumes about how confident these individuals are that the stolen Bitcoin will eventually be recovered. Fortunately for those who have lost Bitcoins in the whole Mt. Gox fiasco, a volunteer army continues to crowdsource their search efforts. This sort of altruism is built into the concept of Bitcoin itself, since because of its revolutionary structure, every Bitcoiner has an interest in locating the stolen coins. Because an increased supply could impact the value of their own holdings, there are quite a few armchair detectives hot on the case. A good thing in the long run? Recently Benjamin Lawsky, superintendent of New York’s Department of Financial Services, told Reuters that the collapse of Mt. Gox article went to print, there appears to have been a historic transaction involving 180,000 Bitcoins, worth an estimated $115 million. Nobody has yet been able to ascertain the source or destination of those funds but many theories revolve around the mysterious Satoshi Nakamoto and his rumored stash of over $400 million in Bitcoin. The drama didn’t end there. Just when everybody thought they had heard the last of Mt. Gox and its founder Mark Karpeles, the saga again took a turn for the absurd. Soon after Mt. Gox filed for bankruptcy protection, a group of hackers released a collection of documents purportedly from Karpeles’s hard drive that they say indicates Karpeles may have spirited away the money himself! While it is too soon to definitively prove just who could have made off with millions in Bitcoins, an ad-hoc group of cyber sleuths is hot on the trail. Experts say that by examining the Bitcoin Chain, the public registry of all Bitcoin transactions, it should be possible to trace the stolen Bitcoins, although this is a lengthy process. What is really interesting, however, is how resilient the currency has proved. Bitcoin has emerged largely unfazed by the entire hullabaloo, all things considered. Certainly the thieves who have been stealing these massive troves of Bitcoin were not afraid of the potential reduction in value that a Bitcoin crash triggered by their actions could bring. Indeed the numbers appear to support such a view. Bitcoin is not the only girl at the dance, only the prettiest. Crypto currencies are all the rage these days and there are plenty of alternatives waiting in the wings to take Bitcoin’s place. April 2014 GlobeAsia | 75 Jason Fernandes Tech commentator and the founder of SmartKlock.
  3. 3. Technology 76 | GlobeAsia April 2014 weed out the smaller players, there is clearly a growing enthusiasm for these currencies. While part of this is speculation, a great deal of the interest comes from people who are increasingly distrustful of financial institutions and government regulation. What next? One can’t help but wonder if perhaps Dorian Nakamoto’s choice for a new first name was not influenced by the classic Oscar Wilde novel A Picture of Dorian Gray. The tormented portrait of Gray is a perfect metaphor for the original Satoshi Nakamoto (whoever he is) and his Dr. Frankenstein-like relationship with his creation. The future of Bitcoin, of course, depends on what’s next for the fledgling cyber currency. Will it ever grow out of its fascination with its creator and actually become a viable transactional currency? Many (myself included) once believed Bitcoin had the potential to change everything but now that view appears to be faltering. The good news is that Bitcoin is not inherently insecure. While Bitcoin is distributed and untraceable by design, that does not mean Bitcoins are unsecurable or that Mt. Gox took every available precaution but was simply overrun by a fundamental flaw in Bitcoin. Indeed, the transactions that are at the center of the Mt. Gox collapse could have been easily avoided or quickly discovered, had Mt. Gox used industry-accepted accounting practices. The fact is that there is a way to do this legitimately and still profit because there is such a huge opportunity for exchanges. Perhaps a bigger player will see the value of Bitcoin and jump in with a fully-secure system that insures all deposits the way the Federal Deposit Insurance Corporation (FDIC) does for banks. While nobody wants increased regulation, some regulation might be welcome and indeed necessary, if that’s what it takes to keep the idea alive. Peer-to-peer finance is the next area of great innovation and Bitcoin is at the forefront of this democratization of finance. One must learn to expect a few ruffled feathers when a fledgling currency like Bitcoin begins to play in the big leagues, but once these early troubles are overcome, the possibilities are too great to be ignored. could actually strengthen Bitcoin in the long run. He described the collapse as a “shaking out” of the market. I disagree with this characterization because Mt. Gox was the world’s largest Bitcoin trading exchange and “shaking out” usually refers to the culling of the smaller players in the market. On the positive side, the collapse will likely lead to increased safeguards and better accounting practices across the industry. The most controversial possibility is the ever-looming specter of government regulation, something Lawsky appears to favor. Part of Bitcoin’s whole appeal is its Wild West-style fierce independence. Most Bitcoiners would likely look at any regulation warily and with great suspicion, prodding it only from time to time with a long stick to ensure that it was truly not a threat. I’d be a fool to say that Bitcoin will survive in its current form for much longer. Just a few short months ago in these very pages I heralded Bitcoin as the future of money. Today the future seems uncertain. India has strongly cautioned Bitcoin users and both Japan and the United Kingdom have flirted with regulating it, only to shy away at the last moment. Bitcoin is not the only girl at the dance though, only the prettiest. Crypto currencies are all the rage these days and there are plenty of alternatives waiting in the wings to take its place. Ripple, Litecoin and Dogecoin are all growing quite fast and while market forces will eventually Many (myself included) once believed Bitcoin had the potential to change everything but now that view appears to be faltering.

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