Adel ▲ Opinion ▲ 22 ▲ What is Driving Crypto and the Creation of the Virtual State™ ▲ Code Governance, But

Abstract

Crypto services undermine traditional forms of governance because its users are anonymous. This assumes impunity from government and central authorities. The collective consensus of crypto coders, miners, and anonymous micro actors in a growing subculture. To date, crypto has been relatively untouched by the authorities of the “real-world” and raises important questions on about how this space should be regulated. Techno-Libertarians envision utopian self-regulation, with codified rules that evolve with its technology. Crypto-anarchists envision a free-rule zone for autonomous businesses and unconstrained virtual currencies. Anyone who denies these programmatic rules essentially forfeits their right to participate.

In this second section, the crypto power hierarchy will be defined as a basis for understanding its governance in contrast to the real world.

Code Governance, But…

One intention of blockchain is code-based governance, but the results to date have not been entirely positive. The crypto sphere is plagued with corruption, fraud, theft, and misappropriation. So how has this been possible in light of tight rules and high security in the bitcoin blockchain, designed to prevent fraud?

Criminals are often the first to recognize the potential of new technology to exploit human and technical vulnerabilities. The press helps to taint the industry with a rubber neck society more interested in bad news than good news. Proponents of blockchain consider this a temporary label while the technology matures. The inception of home computing in the 1980s had its own challenges when the industry lacked useful applications, and in the 1990’s when the Internet lacked the “World Wide Web”[i] information space. Decades of development have evolved cyber into useful content and applications, and consumers automatically bypass the 99.9% percent of content that doesn’t interest them.

Understanding blockchain’s vulnerabilities require a breakdown of its weaknesses. With any new platform that has yet to be hardened[ii], nefarious parties look for a quick win. Criminals target a weakness in the technology, processes, or people – the latter representing a most vulnerable component of any system. In the business world, these security vulnerabilities are called, “low hanging fruits”[iii], and criminals run their empires similar to any legitimate business. Security issues do not necessarily reside in the blockchain itself, but within the service layers on top. It’s analogous to building a house with the ground floor secured with the most sophisticated locks in the industry, but the second floor has yet to install a roof. Popular fraud involves phishing[iv] emails with a, “click on my link” approach, which installs a zero-day exploit kit[v], or some variant of a zero-pixel iframe with exploit code, when the victim clicks on a web link[vi].

In any case, targeting weaknesses in technology, process or people is the tip of the iceberg. The bitcoin blockchain wanted to remove traditional middlemen from the finance supply chain, and directly connect buyers and sellers. But this proved impractical for the same reason it’s impractical for citizens to buy petrol directly from an oil drilling company. Middlemen connect big industries to the common person. Middlemen offer services that ease the complexity of the supplier and bring their product to the consumer’s front door. The same has evolved in the blockchain. Services such as crypto trading exchanges began launching in 2013[vii], allowing a new wave of trading opportunities for millennials. The catch was users needing to give up their bitcoin private keys to the trading service. This immediately negated the benefits of blockchain’s decentralized resilience and established a layer of vulnerability on top of the bitcoin blockchain. All private keys were now residing in a central repository. With improper security in place, a clever criminal realizes he can climb onto the second floor of a trading service with no roof – and steal everything.

Banks have decades of experience protecting their infrastructures. They utilize the ISO 27001 security best practices[viii]. They use the Payment Card Industry Data Security Standard (PCI DSS)[ix] to protect their credit and debit cards. But many blockchain coders do not have data security at the top of their agenda, utilizing these common frameworks. This has led to a series of massive crypto heists[x]. These breaches continue to plague the industry. The graph above showcases a selection of the largest hacks. What is astonishing is when breaches are brought to the context of their current value. These samples alone represent loses of over 13 billion US$:

Systematic crypto fraud cannot be entirely blamed on their respective development code. People are the weakest link. Blockchain services created additional layers of middlemen to enhance service offerings and expand market potential. But each layer introduces a new set of weaknesses.

While Satoshi Nakamoto set out to negate the centralized power of governments and central banks, Bitcoin has reestablished new monopolies with five miners currently control 80 percent of the mining pool[xi]. Crypto-Anarchists may argue that this is completely fine because the open market decides on how everything plays out. But the counter-argument is that monopolies are not good for innovation and healthy market expansion. Monopolies lead to market manipulation, predatory pricing, and highway robbery. In brick and mortar, the crypto community views banks and governments as the puppet masters, but crypto has its own problems. Recent studies attribute the Bitcoin spike to 16000 Euros in December 2017 to manipulation[xii].

“The threat of monopolies leads to speculation that
all players in the crypto trading market are puppets to unseen, and omnipresent puppet masters”[xiii].

▲ Adel ▲ Opinions

If you liked this article and would like to read more in the series, then check them out here:

▲ 1 ▲ The Right Path to Funding Decentralized Organizations

▲ 2 ▲ The Next Evolution in Funding Innovation

▲ 3 ▲ A Philosophy for Blockchain Integrity

▲ 4 ▲ A Collaborative Blockchain Incubator

▲ 5 ▲ Blockchain Diversity & Passion

▲ 6 ▲ Blockchain Startup Expertise

▲ 7 ▲ Blockchain Portfolio Diversification

▲ 8 ▲ Blockchain Incubation to Employment

▲ 9 ▲ From Blockchain Innovation to Execution

▲ 10 ▲ Blockchain Will Transform Retail Lending

▲ 11 ▲ The Next Evolution in Crypto Trading

▲ 12 ▲ Crypto Trading for Everyone

▲ 13 ▲ Architecting Crypto Financial Instruments

▲ 14 ▲ Crypto, For the People, By the People

▲ 15 ▲ The Crypto Uprising

▲ 16 ▲ Blockchain’s Disruption in 2020 & Beyond

About the Author

Gabriel is the co-Founder and General Manager at Adel Ecosystem Ltd. He is a seasoned sales and marketing expert with over 25 years in senior positions at Motorola, VeriSign (acquired by Symantec in 2010), and SecureWorks (acquired by Dell in 2011), and Cognitive Security (acquired by Cisco in 2013). He is a blockchain entrepreneur, with strengths in international business strategy. Gabriel has a bachelor’s degree in Engineering Physics from McMaster University in Canada and expert knowledge in blockchain incubation, cloud computing, IT security, and video streaming, and Over the Top Content (OTT). Gabriel also runs his own company, Euro Tech Startups s.r.o, creator of MyKoddi, and manages a professional blog.

References

[i] World Wide Web, WWW (Wikipedia, https://en.wikipedia.org/wiki/World_Wide_Web)

[ii] “Hardening” (Wikipedia, https://en.wikipedia.org/wiki/Hardening_(computing))

[iii] low hanging fruits (Wikipedia, https://en.wiktionary.org/wiki/low-hanging_fruit)

[iv] “Phishing” (Wikipedia, https://en.wikipedia.org/wiki/Phishing)

[v] ” Zero-day” {Wikipedia, https://en.wikipedia.org/wiki/Zero-day_(computing)}

[vi] “Invisible iFrame drive-by malware attacks explained: (Sophos, August 16, 2012, https://nakedsecurity.sophos.com/2012/08/16/invisible-iframe-drive-by-malware-attacks-explained-video/)

[vii] “History of bitcoin” (Wikipedia, https://en.wikipedia.org/wiki/History_of_bitcoin)

[viii] ”ISO/IEC 27001” (Wikipedia, https://en.wikipedia.org/wiki/ISO/IEC_27001)

[ix] ”Payment Card Industry Data Security Standard” (Wikipedia, https://en.wikipedia.org/wiki/Payment_Card_Industry_Data_Security_Standard)

[x] “Top Cryptocurrency Theft Hacks – List of Biggest Security Breaches?” (Bitcoin Exchange Guide, https://bitcoinexchangeguide.com/top-cryptocurrency-theft-hacks/)

[xi] Jon Martindale, “Bitcoin miners have extracted 80% of all the bitcoins there will ever be” (Digital Trends, January 15, 2018, https://www.digitaltrends.com/computing/80-percent-bitcoins-mined/)

[xii] “Market manipulation by Tether created the 2017 Bitcoin spike” (Jun 15, 2018, Moneycontrol, https://www.moneycontrol.com/news/business/cryptocurrency/market-manipulation-by-tether-created-the-2017-bitcoin-spike-reports-2591591.html)

[xiii] “Is it just me or is the Bitcoin price nothing more than a puppet “ (BitcoinTalk, https://bitcointalk.org/index.php?topic=3111282.0)

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