Attack of the dishonest nodes? One of the key features of bitcoin, one of the things that makes it a stable system, is this idea that there are a majority of “honest nodes” in the system that could prevent any attack by malefactors. This was explained by Satoshi Nakamoto in his October 2008 white paper that first laid out bitcoin’s parameters, the so-called proof-of-work feature. So long as a majority of CPU power was controlled by the honest nodes, he said, “the honest chain will grow the fastest and outpace any competing chains.”
That may well still hold true, but it’s being put to the test this week. On the heels of the problems at Mt. Gox, which it blamed on a security “glitch,” another bitcoin exchange,Bitstamp, said on Tuesday that it, too, was halting withdrawals, and for the same reason: a software quirk that allows attackers to alter a transaction’s details. It’s being called the “Mt. Gox exploit,” but apparently, it’s now being used beyond Mt. Gox. Bitstamp said no funds have been lost, it’s fixing the problem, and expects to “shortly” restore its systems.
It may be an even wider attack, though. Andreas Antonopoulos, the chief security officer of Blockchain.info, told CoinDesk’s Emily Spaven that the whole system is under a “massive and concerted” DDoS attack. In response, an industry-wide counterattack has been instituted, CoinDesk said, including the exchanges, mining pods, and core developers.
None of this should really be surprising. Given the frequency of data-breaches in the “real” world — witness what happened to Target over the holidays — it was inevitable that somebody, somewhere would eventually probe bitcoin to test its vulnerabilities. Mr. Antonopoulos stressed calm, noted no funds have been lost, and expects this will pass. That isn’t really the issue, though. It’s not going to be enough for bitcoin, or any digital currency for that matter, to be faster and cheaper than cash. It has to be as reliable as cash. More reliable, actually, since it has a bigger burden of proof to present to a skeptical public.
Nobody’s going to stop using fiat currencies just because hackers stole their credit-card information. It doesn’t matter how many times the stock exchanges are hit by trading glitches. The habits are too deeply ingrained in people. However, no such store of collective memory and habit and goodwill yet exists for bitcoin. ”The whole fiasco is just another case study of why it is so important to strengthen ties between bitcoin services and banks and other institutional investors,” Ryan Selkis wrote in his Two-Bit Idiot newsletter.
Nakamoto’s honest nodes are being put to the test. They have no choice but to pass that test. (Paul Vigna)
- Despite all the bad news lately, bitcoin is not only here to stay, but the world is “on the cusp of a revolution in payments systems,” Edmund Moy, the former director of the U.S. Mint, told MoneyBeat. Mr. Moy stopped by the Journal’s offices this morning to talk about cyrpto-currencies, and he sees huge potential for them, both from a commercial and social standpoint. He also thinks, emphatically, that governments should support bitcoin’s development, and that bitcoiners need to take an active role in shaping the government response.
It’s one thing to listen to bitcoin’s apostles preaching. It’s another to listen to somebody like Mr. Moy, who worked in D.C., who ran the Mint and is now chief strategist at metals brokerage Morgan Gold. But Mr. Moy, who has a bitcoin wallet, is enthusiastic about crypto-currencies. He really thinks bitcoin and other digital currencies represent an entirely new way of doing commerce, and he expects very big things to start happening.
With his background in payment systems (you know, the U.S. dollar) and public service, he’s in a unique position to comment on bitcoin’s development, and he’s been vocal in supporting it. “I believe the government should be encouraging this,” he said. Advances in cryptography are leading to more secure, cheaper, and faster payments systems than anything that existed before, he said, and the “social ramifications are huge, and positive.”
Digital currencies offer a huge advantage to workers looking to send remittances back overseas, he pointed out. “If you want to help people on the lowest rungs,” he said, “I can’t think of a greater transfer of wealth,” than by removing the heavy fees workers are charged now to send money back home.
The next few years are going to be key for bitcoin and digital currencies, he said, on both a policy level and on an individual level. He employed the unusual metaphor of roads and flying cars. The oldest roads, like those in lower Manhattan, for example, were basically paved-over footpaths. As the years went on, the government built up and maintained systems based on those old footpaths. Now, he said, imagine somebody invented a flying car. “Do we make it use the existing roads, or do we build a new regulatory system?”
To that end, he said it’s critical that bitcoiners take an active role, right now when the currency’s at an inflection point, in helping to shape whatever regulations governments come up with. In fact, he thinks of one the biggest risks is that government regulations kneecaps digital currencies, although he doesn’t expect it.
Ultimately, he thinks the potential of this revolution will be realized, whether the system that emerges is bitcoin or some other currency. “I think people are going to have an ‘oh, crap’ moment,” when they realize the potential of the new systems, he said, and while he was laughing when it said, he wasn’t joking. (Paul Vigna)
“I think it was very good,” Jim Kirk, the Sun-Times publisher, told us. “We thought the test exceeded our expectations.”
They said they received 713 bitcoin donations (all of the money paid went to the nonprofit Taproot Foundation, so every hit on the paywall was in fact a donation). The size of those donations was very wide, from a penny all the way up to $1,000. What jumped out at them, though was that the vast majority of donations (63%) were for 25 cents. “It tells me there is a very special place in someone’s mind that a quarter is something of value,” said Julian Posada, an executive vice president at the paper’s parent company, Wrapports.
The executives said the only complaint they heard was that the paywall wasn’t available on their mobile site, and said they’ve heard from a few other media outlets curious about the test, to0. “We’re all trying to get to the same place,” Mr. Posada said.
So while there aren’t any definitive next steps, it seems like that there will be a next step, Mr. Kirk said. “This gives us confidence that we could try a couple of different things.” (Paul Vigna)
- Fiverr, an online marketplace, has partnered up with Coinbase and will start accepting bitcoin. Fiverr is an online site where people offer up their services, with prices starting at $5 (naturally). Some of the services are straightforward, like graphic design. Some are odder, like the person who says they’ll record a voice over “in the awesome voice of Sean Connery” (that’s worth $5, for sure).
“Our community is passionate about innovation and creativity and bitcoin represents this spirit of innovation,” said Constantine Anastasakis, Fiverr’s director of business development. (Paul Vigna)
