One of the great mysteries of the 21st century is the identity of Satoshi Nakamoto, the creator of Bitcoin. While his creation of the blockchain and a new cryptocurrency was an immense achievement, Bitcoin itself is only one of a diverse array of emerging currencies. Still, when I taught my Digital Globalization course last winter, I learned from my students that in my city (Portland, Oregon) there was an ATM at the local mall (Pioneer Place) where you could convert Bitcoins to cash, bars where you could buy your drinks in Bitcoin, and even apartments were you could use it to pay your rent. The reason for this rapid adoption has been the many promises that Bitcoin makes. Need to send money? There is no need for Western Union. Are you concerned about the security of banks? Bitcoin and other cryptocurrencies are not a fiat currency (created by a sovereign government) and hence beyond the reach of the Federal Reserve or the banks.
At the core of all these new currencies is the concept of the blockchain, a distributed online ledger that is supposed to be provide outstanding security and encryption. All fiat money has value because people have confidence in it. Why should money need to exist in the form of paper, as opposed to a series of 0s and 1s? As you can see in Don Tapscotts TED talk “The Blockchain will Change EVERYTHING!” proponents have argued that the outstanding security and flexibility of these currencies will be the greatest technological revolution to date in the 21st century.
Except that maybe the blockchain isn’t a perfect security guarantee after all. We’re now far enough into the cryptocurrency revolution that we have a real-world basis to test the claims. From Mt. Gox to Bitfinex, one currency exchange center after another has been hacked. This has also been true across a range of cryptocurrencies. Reuters has a great article on this titled “The Risk of Bitcoin Hacks and Losses Is Very Real,” which has a chilling sentence: “New data disclosed to Reuters shows a third of bitcoin trading platforms have been hacked, and nearly half have closed in the half dozen years since they burst on the scene.” While the currency may be digital, the financial losses are very real. If you want to learn more about the headaches that a successful hack of a digital currency can create, the uncertainty surrounding Ethereum provides a good case study. The bottom line appears to be that -despite all the hype and promises- cryptocurrencies seem to suffer from fundamental security challenges.
Curious to test your cyber expertise? Please take the online quiz that I created for my Digital Globalization class.
Shawn Smallman, 2017