Exploring the Future of Bitcoin- Issue #1

Take Note

Welcome to the first edition of Take Note, our monthly newsletter. We look forward to sharing the technology and security topics we are taking note of and our thoughts on how these topics are shaping our economy, culture andvalues. If we can do better or you have topics you’d like us to explore, please let us know by replying. If you’d prefer not to hear from us, you’ll find an unsubscribe link at the bottom of this email.

Our first issue focuses on bitcoin, the first “cryptocurrency” to gain mainstream traction, which has already generated hundreds of billions of dollars in wealth out of thin air. It has value simply because people like us decided it does, and that alone is both fascinating and unprecedented. We give our perspective on what bitcoin is and where it is headed and then give a few examples of the unexpected impact it is having in our world. We hope you enjoy reading.

– Cris

Bitcoin and Tech

Bitcoin is a global payment network, a commodity, the first successful cryptocurrency and, depending on whom you ask, real currency suitable for daily use. Despite its volatility, uncertain future and status as a platform for criminals to exchange — and extort — money, millions of people depend on it daily and believe in its future.

Zealots will tell you bitcoin will level the economic playing field by preventing central banks from manipulating markets through monetary policy (among other scary things). Given that the total value of all bitcoins today is around $200 billion a little more valuable than PepsiCo — central banks are yawning at the moment. Governments are far more concerned with the law enforcement implications than the prospect of being unable to print money on demand someday. For now, we should focus on the impact bitcoin is having on us today.

As a payment network, bitcoin clears transactions more efficiently — and at a lower cost — than major credit card processors. As a commodity, it is a credible alternative to gold, desirable to many who fear governments experimenting with historic levels of debt and money printing. As a currency, bitcoin can be exchanged for other currencies far more efficiently than is possible with gold. If and when volatility settles, bitcoin may well replace the U.S. dollar as the currency of choice for global travelers.

Growing numbers of people already lead bitcoin-only lives, using mobile wallets and payment cards that work anywhere Visa is accepted. The idea of converting all your money to bitcoin is strange, though. Buying a gallon of milk today just to find out you could’ve bought two gallons (or worse, a half gallon) for the same price a week later would make most risk takers think twice. It’s not surprising that bitcoin is considered by most as an investment and store of value, not a currency suitable for daily use.

So, what makes bitcoin valuable? Bitcoin isn’t the first attempt at cryptocurrency, just the first successful one. The problem its predecessors had was trust: Someone, somewhere was responsible for telling the investor how much they, and everyone else, had and the investor had to trust that person. Gold doesn’t have that problem. You can hold it in your hand and hide it in a vault. At least U.S. dollars theoretically have the U.S. government standing behind them. Enter blockchain.

The Blockchain

The blockchain is straightforward, even if the math behind it is not. Once created, each bitcoin is tracked in the blockchain as it changes hands. Each block (fancy speak for transaction) is mathematically linked to the one before it and shared with every participant in the blockchain. The process of maintaining the ledger and validating the transactions is called mining, and the incentive for mining is — you guessed it — more bitcoins. Anyone can mine, though making money at it is not easy. As you’ll see later in this issue, the margins are slim, and profit generally comes down to the price of electricity. Profitable mining aside, the blockchain means you only have to trust the math, not any one person, company or government.

Making everything so public has interesting consequences, though.To get bitcoin, you need a wallet, which consists of a private key and a public key, unique to you and linked together mathematically. Your private key is your claim to your public key — you have the only one that matches it. And your public key is tied to your bitcoin out in the public thanks to the blockchain. Keep your private key secret and you keep your bitcoins secret, more or less.

The public anonymity of bitcoin presents its most interesting wrinkles. The FBI already has become proficient in tracking down the people behind public keys by using good, old-fashioned intelligence — intercepting emails, tapping phone lines and leaning on sources. Many of the bitcoin alternatives popping up offer to enhance privacy by masking the keys in their blockchains, but it is unclear that any digital currency can gain mainstream adoption without a strong blockchain, trusted by all. everyone can trust.

The Future

Cryptocurrency is here to stay, but don’t assume it always will be called bitcoin. The mining that is essential to maintaining the blockchain is starting to eclipse residential power demand in some countries, and the more expensive it is to profit from mining, the less decentralized the network of miners will be. bitcoin also is struggling with its own success, and the blockchain may only prove to be more efficient than Visa on a small scale. The community already is concerned the network may fall under its own weight soon, and the ideas to fix it have serious issues.

Our only prediction for the future of bitcoin is this: It will be here for a while, and it matters to all of us. Given the unexpected ways bitcoin can affect us all, we collected several news stories from the past few months that offer a glimpse into what lies ahead.

Salon Wants You to Mine Cryptocurrency – For Them

Ad blockers are a popular way for people to protect themselves from malware and obtrusive advertising. But, they also keep publishers from making money. Salon wants to solve that problem by using your machine to mine cryptocurrency while you read their site.

Ad blockers are a great tool for security hygiene as supposedly trustworthy websites have proven time and again that they don’t monitor the ads they allow on their sites for malicious activity. Salon seems to be taking the inevitable next step by asking ad blocking users if they would permit cryptocurrency mining on their machine instead. This brings up an interesting question: how can we keep ourselves safe without also denying publishers the revenue stream they need to supply us with “free” content? Could this be an answer that helps keep all content from going behind the “paywall”?

We talked to Kevin Mackowick, our Senior Operations Engineer, to get his take on it:

“I’m fine with Salon offering this service, as they need to make money and users can decide if they want to opt in,” he said. “I have some reservations because some users will not realize their own costs in enabling that feature. Maxing out the CPU for long periods of times can lead to increased power bills, with the amount depending on how long it is running. The CoinHive service will take all available compute power, which could leave your machine feeling sluggish.

“The main takeaways from this are just how unsecure browsers are and why users/companies need to safeguard internet activity. The CoinHive service can be used invisibly in the background without the user knowing why they are suddenly seeing more CPU usage. While this is not happening here, it can easily happen with any JavaScript assuming browser security is lax. There have already been reports of this happening without user consent on European government websites.”

5 Ways to Lose Your Cryptocurrency

  1. Mine with NiceHash or use a wallet from Parity
  2. Throw the hard drive containing your wallet key in the trash
  3. Buy hardware wallets on Ebay
  4. Use free Wi-Fi at a restaurant
  5. Forget your PIN

Iceland’s Coming Energy Crisis

In what some analysts are describing as a 21st-century gold rush, Iceland has become one of the world’s prime locations for cryptocurrency mining. Energy-hungry mining machines (shown below) have led to skyrocketing demands for electricity and may now be exceeding Icelanders’ residential energy consumption. Some energy producers worry they won’t be able to keep up with rising demand if Iceland continues to attract new data center companies looking to mine cryptocurrency.

In recent months, Iceland has been flooded with requests for new mining data centers, in spite of the growing concerns over increasingly stretched electricity generation capacity.

“There was a lot of talk about data centers in Iceland about five years ago, but it was a slow start,” Johann Snorri Sigurbergsson, a spokesman for Icelandic energy producer HS Orka, told The Washington Post. “But six months ago, interest suddenly began to spike. And over the last three months, we have received about one call per day from foreign companies interested in setting up projects here.”   So why Iceland? Cryptocurrency mining, particularly with bitcoin, uses enormous amounts of energy to validate complex blockchain transactions quickly, and energy costs are the primary driver in whether your crypto mining operation is making or costing you money. Iceland has some of the world’s cheapest, most reliable electricity, generating roughly 70 percent of its needs from hydroelectric power and 30 percent from geothermal. Couple its inexpensive energy costs and a cold climate that keeps servers from overheating, and you have the perfect location for your crypto mining operation.

Criminals: It’s not you, Bitcoin, it’s us.

As law enforcement develops sophisticated methods to track and identify bitcoin users, criminals are turning to a new form of cryptocurrency known as “privacy coin.” Even as bitcoin remains notorious for its use by organized crime and illicit merchants on the dark web, cryptocurrencies such as Monero and Ethereum are quickly becoming their currency of choice.

The blockchain that forms the basis of bitcoin’s integrity also makes it possible for law enforcement agencies to track where and how bitcoin moves. By linking transactions that law enforcement have unmasked with other data (like intercepted emails), law enforcement agencies are becoming successful at profiling and often identifying the owners of wallets throughout the world. Monero, on the other hand, obscures (or even fakes) transaction amounts and addresses in its blockchain, so it becomes nearly impossible to identify cybercriminals and their gains.

Monero believes it has simply created a more private currency, insisting the majority of users are acting legitimately. Yet, it is still faced with the facts that ransomware attackers are now demanding Monero as the form of payment, brute force attacks are hacking WordPress sites to install Monero miners, and malware has been found that mines Monero and sends it to North Korea.

Cryptocurrency is just the latest front in a long-standing electronic war between law enforcement and criminals. So, criminals breaking up with bitcoin is good news for all of us. After all, whichever currency aligns itself most closely with the needs of those operating outside the law will surely receive the swiftest punishment. Bitcoin thanks you, Monero.

In the News

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