This week, a major cryptocurrency suffered an attack that strikes at the very heart of what makes cryptocurrencies valuable. And yet, for some reason, holders (or HODLers in the parlance of those in the know) didn't seem to mind. This raises the question: if a hack happens in the forest and no one cares, did it really happen?
A 51% attack should be lethal to any cryptocurrency that suffers one. It takes away a particularly vital aspect of any store of value, namely that if you spend it, you should not still have it.
The 51% attack takes this quality away by facilitating something called double-spend. If you control 51% of the computer power maintaining a cryptocurrency, then you can spend your cryptocurrency, but update the distributed ledger to show it is still in your account.
This is a well-known vulnerability in the proof-of-work consensus mechanism that underpins bitcoin and many other cryptocurrencies.
Generally, it was thought to be unfeasible because the computer power involved in maintaining these networks is so vast. However, with the advent of server farms full of dedicated cryptocurrency miners for hire and the decreasing monetary reward for miners, such attacks are becoming possible.
Such an attack should completely destroy faith in any currency which suffers it — and weaken faith in any currency relying on the same security mechanism. And yet, when the news broke over the weekend nothing much happened to the ethereum classic price.
Nobody stampeded for the door or dumped their holdings despite somebody simply tearing a page out of their much vaunted and supposedly immutable ledger.
Oddly enough though, the price did fall 14% from $5.03 to $4.33 on Thursday. We don’t think cryptocurrency users — a famously online bunch — were that slow on the uptake. The move seems instead to be due to concerns that the cryptocurrency will be delisted from coinbase, a major exchange.
It strikes Byte Me as rather telling that a fundamental security flaw seems to have less impact on the price of a cryptocurrency than a simple delisting. Remember, it will be listed in plenty of other places. But loss of the ease of access and exposure that a major exchange offers appears to be deadlier than a total loss of credibility.
Bitcoin’s future in Europe
It’s a tough time to be a bitcoin investor. The currency’s value has crashed 80% from its high of almost $20,000 in December 2017 to roughly $3,670 today.
But cryptocurrency investors are not the only ones taking a beating. One of the largest UK cryptocurrency exchanges Coinfloor last year had to let go of some of its staff as cryptocurrency volumes dropped.
In an interview with Byte Me, Coinfloor CEO Obi Nwosu was upbeat on his exchange’s prospects, noting that his exchange, unlike several competitors, was “born in a bearish market”.
This week Coinfloor, set up in 2013, sold its futures arm CoinfloorEX, retaining an equity stake in the newly formed CoinFLEX. It will share ownership of the company with market makers, software provider Trading Technologies and some prominent crypto investors.
Nwosu intends for Coinfloor to pivot to its core speciality — the cryptocurrency spot market in the UK and Europe. It’s a strategy that has previously served the exchange well, but has the recent bearish turn changed the game?
Byte Me is unsure, but asked Nwosu how he saw bitcoin developing on the continent from here, and if it would eventually replace fiat currency.
“We need to get it as a valuable store of value and then over time that will spur people to put the effort into making it a good transfer of value, i.e. use case of money,” he said, adding that for now, bitcoin was primarily seen as an investment offering.
Byte Me remains sceptical of the ability of bitcoin to truly attract the masses in Europe and become a proper currency.
There are still some large barriers. Bitcoin and cryptocurrencies still have not figured out a way to replace central banks and the important function they fulfil. Being the established currency in a country is more than just being legal tender for transactions.
Monetary policy allows for control over the price of money, and thus (hopefully) responsible actions to fight inflation and make sure the economy is ticking along. Until the masses can be convinced that this isn’t a necessity, and that bitcoin offer tangible benefits, it cannot become a fully mainstream currency.
Seizing financial independence, a rallying cry in crypto circles, is easier to sell in countries with weak institutions and volatile currencies. But as Nwosu noted, bitcoin doesn’t have to be the “the best form of money… it just needs to be an acceptably good one, because it has other properties that it is best at.”
Presumably he was referring to decentralisation and the immutable nature of its ledger — admirable qualities that certainly add value. Innovations like the development of the lighting network, which helps speed up transactions, may certainly help drive adoption too.
Byte Me agrees that for Bitcon to be seriously used as a currency, it first has to make its case as a store of value. But can it do so in a bear market, where it remains volatile but without an accompanying financial reward for investing?
Byte Me has always maintained that the most successful crypto assets in advanced economies should be those that properly leverage distributed ledger technology and smart contracts to create a unique service. Rare gems indeed.
This idea appears to be taking hold. The initial coin offering market raised only $20m in December, as investors realise that the assets being peddled have no lasting value.
Hopefully, the cryptocurrency bear market will motivate crypto brainiacs to produce and perfect DLT-reliant services that tangibly solve real-world problems. Accompanied by proper regulation, perhaps this could help the crypto market recapture the imaginations of budding investors.