Bitcoin Bits 7 August 2016

Things are never boring in cryptoland…

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Bitfinex hack

You must have heard of the Bitfinex hack. On Tuesday, 119,756  bitcoins were stolen from the Bitfinex exchange. This freaked everyone out because 1) it’s a lot of bitcoin, over $70m worth at time of writing (1BTC= $597), and 2) Bitfinex is one of the largest cryptocurrency exchanges, and was supposed to be one of the more secure ones.

Bitcoin dropped in price almost 20% (although to be fair, it was heading down anyway), which shows how freaked out everyone was. (It has since recovered quite a bit.)

How did this happen? We don’t know yet. In theory, it couldn’t, since Bitfinex was using multisig security, which means that more than one “signature” is necessary to move coins. We don’t yet know how the hacker(s) got around this.

Bitfinex has decided to “socialize” the losses, which means share them among all account holders. While this may seem harsh to those whose accounts weren’t affected, it does seem like a good way to keep the exchange going. All account holders are being allocated tokens for the “missing” amount, which will be paid back in bitcoin, cash or shares, depending on how things go.

And what really stuck out was that no-one in the bitcoin community has been clamouring for a hard fork to wind back time and pretend it didn’t happen (we’re looking at you, Ethereum!). Principles above profit.

Some of the more interesting articles on the subject:

Bitcoin Plunges, Rebounds After Hackers Steal $65 Million – by Yuji Nakamura and Lulu Yilun Chen for Bloomberg

What the Bitfinex Hack Means for Bitcoin Multi-Sig Security – by Alyssa Hertig for CoinDesk

Time to reevaluate blockchain hype – by Izabella Kaminska for the Financial Times

With Socialized Loss Proposal, Bitfinex Enters Uncharted Waters – by Pete Rizzo, for CoinDesk

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Paper peep shows: the original low-tech VR. I had one of these when I was little. I loved it. They still fascinate me, go figure.

via FastCo Design
via FastCo Design

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Why Banks Will Fail to Apply Blockchain Technology – by Joseph Young, for CoinTelegraph

It’s the regulation, of course.

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Blockchain Reaches a Tipping Point – by Irving Wladawsky-Berger for the Wall Street Journal

The key factors pushing it there are:

A set of serious problems: digital security, inefficient legacy systems


Emerging technology solutions: cryptography, game theory, distributed computing

“…what has brought blockchain to its tipping point is the realization that these critical problems can only be addressed by the close collaboration among companies government and research communities around the world. You could sense this consensus emerging over the past year by the growing number of newspaper and magazine articles, as well as government and business reports. As was the case with the internet, the consensus to collaborate is absolutely critical for blockchain technologies and applications to move forward, including common standards, open source implementations of key components, and marketplace experiments to see what works and what does not.”

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Crédit Suisse’s report on the impact of the blockchain on certain equity stocks

An impressive and very readable analysis of the blockchain’s likely impact on the payments, registry, settlement and media sectors, with specific quoted company recommendations. Apart from the applicability of the technology, the report looks at whether bitcoin and blockchain technology will have a greater or lesser impact than the market expects.

Payments: “Iittle risk from blockchain”

“Our key conclusions are that; 1) bitcoin is likely to remain a niche payment network and unlikely to gain mainstream adoption, and 2) we see little scope for blockchain technology to disrupt the back-end architecture given that card acceptance already takes place instantly and card schemes provide invaluable dispute management which is difficult for a new technology to disintermediate.”

Exchanges, registrars and custodians: “the trade could become the settlement”

“Broadly it appears that distributed ledgers are poorly suited to trading, leaving the core value proposition of exchanges unchallenged. But we and some market participants see scope for vertical integration across the functions that include clearing, custody and registry”

Financial services: greater transparency = more data = better understanding of clients = more products sold

“The market opportunity appears broadly two-fold: (1) A shared ledger system creates a significant opportunity for cutting costs in a number of areas… (2) In addition, there are opportunities on the revenue side.”

Media: reduction of piracy

“However, implementation (which requires total adoption) appears challenging: Content databases have failed before. Content owners have proved they can’t work together. Standard data format does not exist. “

A long and detailed report that applies the blockchain concept to actual businesses and pulls the hype into reality. The analysis concludes that there is little risk from bitcoin, but that the blockchain could end up having a significant effect. On the whole, the impact will be positive, assuming that the businesses studied can absorb new technologies and adapt their processes.

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Could bitcoin change the game in Africa? – by Zoe Flood, for The Guardian

Nothing new here, but what is interesting is that this idea – of bitcoin impacting the developing world – is getting more attention from the mainstream press. Pity that it’s not really practical at the moment. LINK

“Bitcoin still exists in a very niche space. There was early excitement about virtual currency – especially as an affordable way for Africans in the diaspora to send money home – but this has subsided as a result of price volatility, nervousness around anonymity and security, and difficulties understanding the product. As there are increases in bitcoin adoption, governments and central banks are considering regulating the sector, which some users think will legitimise bitcoin and others fear might make it more difficult to transact.

For now though, Africa’s bitcoin fans are set to keep on trading.”

And as for the title, what game are they talking about? Africa deserves better than easy and pointless generalisations.

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And unrelated, but inspiring…

Neil Gaiman on Why We Read and What Books Do for the Human Experience

“There are no bad authors for children, that children like and want to read and seek out, because every child is different. They can find the stories they need to, and they bring themselves to stories. A hackneyed, worn-out idea isn’t hackneyed and worn out to someone encountering it for the first time. You don’t discourage children from reading because you feel they are reading the wrong thing. Fiction you do not like is the gateway drug to other books you may prefer them to read. And not everyone has the same taste as you.”

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