DARKER SIDE OF CRYPTOCURRENCY AND THE ROLE OF DARTH VADER
FADI ABU ZUHRI
Cryptocurrency is the latest innovation in currency that has been introduced in the world today. It involves the use of digital assets to work as a medium of exchange by the use of cryptography. In 2009, Bitcoin became the first company to decentralize cryptocurrency and ever since, many companies have mushroomed to provide the same services (Gao, Clark, & Lindqvist, 2016).
The introduction of this particular medium of exchange was aimed at reducing the production of currency and makes the whole idea of digital assets come to play. The various reasons that have made this particular medium of exchange grow in popularity is the fact that this particular exchange has the ability to reduce the amount of currency that is circulating in various financial institutions that are present today. Also, the assets that have been transformed to the form of Cryptocurrency are less culpable to be followed up as far as legal matters are concerned.
To take an example, Bitcoins have suddenly become a major topic of financial innovation all over the world. There are various benefits of Bitcoin. For instance, Bitcoin has no transaction costs. It is transparent and very open (VPRO, 2015). The development of this technology also comes up with some hitches despite the fact that more and more people are using it as the most preferred medium of exchange. It is estimated that more than 10 million people hold Bitcoin wallets (Burniske & White, 2017). For these reasons, we take a look at the darker side of Crytocurrency.
A blockchain consists of blocks, each holding some data, linked with other blocks. A block of data, in Bitcoin for example, is limited to one megabyte and there is no limit on the number of transactions that can fit in a block (BitcoinWiki, 2016). A blockchain is open, distributed and ensures that the transactions are immutable and can be verified. This is achieved by unique hashing algorithm, like SHA-256. A hashing algorithm provides a unique sequence of bits to authenticate the integrity of the data. Any change in the data leads to a different hash. The hash of one block gets embedded in the next block and so on (Sims, 2017). While this ensured integrity it did not prevent anyone from replicating the blockchain. This is solved by the use of cryptographic nonce (Rogaway, 2004). A nonce is an arbitrary number added within the block to generate a specific type of hash. This, for example in 2017, is a sequence of seventeen zeros at the beginning of the hash. Recreating this hash sequence is infeasible due to the massive computing power required.
A lack of public awareness is a cause of misunderstanding Cryptocurrency. People haven’t had enough time to educate themselves about how these systems works (Baur, Bühler, Bick, & Bonorden, 2015). Cryptocurrency is a very young technology when it comes to dealing with currency. People embraced this new idea but not everyone has evaluated the pros and cons of owning and transacting in Cryptocurrencies. This makes them vulnerable to being conned and even losing their fortune.
RISK AND VOLATILITY
Bitcoin and other Cryptocurrencies are still growing and undergoing various developments. Blockchains use private key (secret key) to access digital currency wallets, trade and transact. Thus, protecting your private key is of utmost importance, as it is irreplaceable if lost or stolen, just like cash. It is estimated that the value of lost Bitcoins is US$ 950 million (Berke, 2017). If Darth Vader lost his private key, his money is forever lost in Internet’s virtual space.
Popularity of Cryptocurrency is also increasing as evidenced by the fact that daily Bitcoin transactional volume is over $200 million (Burniske & White, 2017). There is a great risk that this high demand of this Bitcoins may fail to be satisfied raising skepticism from the client on whether the company can meet the demand of the customers. Also, there is a big risk when it comes to the idea of volatility involving the change in prices of the Bitcoin (Kostakis & Giotitsas, 2014). Currently, the Bitcoin prices change every day due to the events related to the production and trade of Cryptocurrencies. There is a risk because at this infancy stage of Bitcoins, there might be loopholes that have not been discovered and it would be important to discover them and cover them as soon as possible to avoid future catastrophe in the transactions.
Your computing power could be used without your knowledge by Cybercriminals for Cryptocurrency mining operations. Such an attack was reported recently when unpatched Windows 2003 Webservers were infected with modified mining software (Monero). The loss was estimated at more than US$ 63,000 in digital currency (Seals, 2017).
PRONE TO MALWARE ATTACK
Cryptocurrency works on a technology of storing assets on a publicly accessible digital platform that could attract cyber-criminals. They could be a constant attempt to try to come up with malware with an attempt of stealing this money (Kostakis & Giotitsas, 2014). Hackers from all corners of the world always try to come up with ways to break the cipher on which these particular Cryptocurrencies have been encrypted. Bitfinex is the largest US dollar-based Bitcoin exchange in the world. It suffers from the effects of a DDoS attack on its systems. Apart from the attacks against the Cryptocurrency exchanges, DDoS has also attacked the Russian exchange BTC-e. Bitcoin inherits decentralization, which is of advantage but also one of its biggest risks and challenges (Muncaster, 2017).
Also, there is a risk of malware in the form or viruses and even Trojans. The fact that all the transactions involving Cryptocurrencies are conducted via the Internet puts this particular type of exchange at the risk of being attacked by malware on the Internet that might decipher or corrupt information that is present about the Bitcoin. The most probable attack by malware is through ransomware where criminals will intercept the information and demand money in exchange.
It is well known within the law enforcement circles that civilian-type vehicles are a preferred choice to blend in with the crowd and go unnoticed. Vehicles such as Toyota Corolla sedans, Ford F-150 pickups, or Chevrolet Malibu sedans are popular choices by both drug dealers and narcotics officers in the United States (Clinton, 2014). Does that mean an unmarked Toyota Corolla should be suspected an accomplice to a crime?
Anyone who has seen the movie “Jaws” will remember how deadly sharks can be. But in reality, you are more likely to be killed by a deer than by sharks, bears and alligators combined. Statistics show that for every one shark related death on average in the United States, 120 deaths are due to deers, 58 due to flying insects and 28 due to dogs. This is in stark contrast to 0.18 deaths per year by a wolf, or on average one person every 5 years (Lopez, 2016). These examples are just a reminder to how people are quick to dismiss Cryptocurrency because the ransomware perpetrators demanded money in Bitcoins. It almost seems as if the media is bent upon projecting Cryptocurrency as the iconic evil currency, similar to Darth Vader of Star Wars fame.
It is argued that for currency to be a suitable medium of exchange, it should be easily dispersed and easily spent. This is not the case for Cryptocurrencies since it is not easily liquidated and thus it cannot be spent as easily as cash. This limitation makes it hard for the Cryptocurrencies to be popular among those engaged in “dark business” (Rogojanu & Badea, 2014). As much as it is touted that Crytocurrencies work outside the traditional modes of banking, evading detection, law enforcement agencies might have access to tools to keep track of the transactions that take place with Cryptocurrency. These arguments suggest that it is a common misconception that Cryptocurrency is a trading ground for illegal business such as Money Laundering and Drug Trafficking.
Cryptocurrency is a revolutionary concept that is sure to disrupt the market. It has come with many advantages over the current medium of exchange. These advantages have led to a lot of people to adopt this technology sometimes without having the full knowledge of how this particular business is conducted (Al Kawasmi, Arnautovic, & Svetinovic, 2015).
This particular technology could be the next big thing as a medium of exchange, but there must be a lot of policy formulation that must follow up to ensure that there is minimal fraud. Also, this technology being at an infancy stage there should be a lot of development that should take place to ensure that this whole system functions well and without any doubt from the clients.
While fiat currencies are backed by the government, Cryptocurrencies are generated on a computer system with no governmental guarantees. While some find comfort in government backing, it also means that the government can print an unlimited amount of fiat currency. Fiat currency, in some cases, is not backed up any physical asset like gold. On one had the value of fiat currencies are subject to regulations, market and political forces; on the other hand, Crytocurrencies are influenced by supply and demand.
Owning a Toyota Corolla is not illegal even though it s popular vehicle for criminals who wish to go unnoticed. Popular culture criminalizes the wolf and the shark for killing one and five people every 5 years. The lovely deer is not criminalized even after it is responsible for 120 deaths a year.
Cryptocurrencies are not without its challenges. While there are voices asking for stronger government regulation, does it not defeat the whole premise of decentralization that Cryptocurrency stands for? Despite the name Cryptocurrency, is it not just another asset class that presents a convenient form of value exchange? Why regulate it anymore than you would any taxable good of value?
Is there a solution to recovering your encrypted assets locked by a private key? Can you be given ownership of your Cryptocurreny wallet if it was lost or stolen? Losing ownership of one’s private key is seen as the ultimate risk with no signs of a viable solution.
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