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Daily News #7

You may have heard about Twitter CEO Jack Dorsey and digital payment system Square announcing earlier this month that they will be building a Bitcoin hardware wallet.

What is a Bitcoin hardware wallet you ask? Also known as cold storage, a hardware crypto wallet looks a bit like a flash drive and allows users to store their cryptos offline, granting them complete control over their funds via their private keys. Square’s Cash App already enables users to buy and sell crypto, and as such could provide a seamless transition into hardware wallets. However, Square will have to compete with giants like Ledger and Trezor, established companies that have already gained a large market share in the crypto hardware wallet sector.

How do you access your cryptocurrency? Do you think that hardware wallets will help crypto newbies become more confident in investing for the long term? We are eager to know what you think!

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Though Bitcoin has many advantages – which we have discussed at length – some government warnings against it are not entirely unfounded.  

That is because there are criminal elements that seek to take advantage of all the excitement and media hype surrounding Bitcoin. For instance, there are cyber criminals who launch Ponzi schemes promising astronomical returns on investments. Only after their money has disappeared do people realize they were duped. Many governments are therefore running awareness campaigns advising people to stay skeptical and invest cautiously.

There are also many other ways cryptocurrency is misused:

Because of the anonymity and ease of transfer of Bitcoin, terrorist groups have tried fundraising on social media sites using their Bitcoin addresses. While this has not been very successful in the past, there is no guarantee that the terrorists won’t at some point succeed.However, it’s worth noting that one’s anonymity is restricted to the blockchain network. Once Bitcoin is converted to some other currency, one’s identity and transactions can be tracked via your IP address. And because every transaction on the blockchain is public, it’s very easy to track the movement of funds.

On May 12, 2017, a huge ransomware outbreak, known as the Wannacry attack, occurred around the world. This malware took control of the victims’ computers and demanded money in exchange for relinquishing it.While the ransomware used was not new, one of the distinguishing features of this attack was that the money was demanded in the form of Bitcoin. This incident obviously brought Bitcoin a lot of bad publicity. To understand more about ransomware and malware, check out this article.

There are many online scams that have led to people having their Bitcoin stolen. Typical online banking has several layers of protection, such as a password, two factor authentication, OTP, etc. But in the case of Bitcoin, one only needs to get a hold of a private key in order to completely empty someone’s wallet. Fraudsters steal these keys from people’s computers with keyloggers, Trojan horse hacks, and phishing attacks.Therefore, it’s important to protect your Bitcoin wallet as vigilantly as you would hard cash. Another type of scam is known to be carried out by certain online sellers: They advertise a product with a huge discount, and only accept Bitcoin as payment. Once the buyer pays, the seller ships a very poor quality product – or worse, nothing at all. And since Bitcoin payments are irreversible, there’s no option for recourse.

Another category of scam involves an ICO. Since the cryptocurrency market is highly unregulated, some people deliberately launch fraudulent blockchain projects. They promise some breakthrough innovation and convince investors to contribute capital. But instead of actually developing the project, they simply declare it unsuccessful and take all the invested money for themselves.Since it’s easy to declare bankruptcy, and investing always involves the potential for loss, there is very little that can be done to protect those who back these projects. There are many legitimate ICOs as well, but it can be difficult to differentiate between those and fraudulent ones. So if you do consider investing in a new blockchain project, it’s important to perform due diligence before opening up your wallet.

The Biggest Online Scam In History

Launched in Bulgaria in September 2014, Onecoin eventually became one of the biggest online scams in history, taking in more than $4 billion in just a few years. Onecoin turned out to be a Ponzi scheme designed by its founders, Ruja Ignatova, and Sebastian Greenwood.

Onecoin appeared to be completely legitimate with all the protocols and safeguards, one would expect. Coins were obtained through mining with Onecoin acting as a central network. The coins could later be exchanged for Euros through OneCoin Exchange xcoinx.

According to their YouTube explainer video, Onecoin had Know-Your-Customer (KYC) protocols in place to guard against money laundering. It also laid claim to being the first cryptocurrency with a monthly audit of its blockchain.

In reality, OneCoins weren’t mined using computer resources. Instead, their worth was predetermined by the scammers who programmed the coin to gradually increase from €0.50 ($0.56) to €29.95 ($33.68) in value. They even went so far as to award coins that didn’t exist to their members. Following a lengthy investigation, police determined that there was no true blockchain that was public and verifiable.

Other Implementations of Blockchain

Bitcoin was the first, and remains the most major implementation of blockchain. However, since then, people have come up with various other ways of using the system.

1. Cryptocurrencies

One way people have used blockchain is to create variations on Bitcoin. These often advertise themselves as better or enhanced versions of Bitcoin, and are collectively known as altcoins. Some of the major altcoins are:

Litecoin: Litecoin launched in 2011 and varies only slightly from the Bitcoin system. One difference is that it takes less time to generate blocks. Compared to the 10 minutes it takes Bitcoin, Litecoin generates a block every 2.5 minutes. This means that transactions are verified more quickly. Another difference is the hashing algorithm used. Bitcoin uses SHA256 for the proof-of-work algorithm, whereas Litecoin uses scrypt. One feature of scrypt is that it’s harder to create optimized CPU or GPU hardware to solve the puzzle faster, making the system more fair for miners. That said, today there do exist ASICS that can be used to mine Litecoin.  

Zcash: Zcash was recently launched in 2016. Like Bitcoin it provides secure transactions over a distributed ledger. However, Zcash is different from Bitcoin in that it uses a different proof-of-work algorithm (called zk-SNARK) and employs a different privacy strategy. In the Bitcoin system, the sender, receiver, and the amount of money being transferred are all public, whereas with Zcash they can remain private and shielded. By the end of 2017, Zcash had already crossed a one billion dollar market cap.

Dogecoin:  Dogecoin was actually launched as a joke in response to what some perceive as cryptocurrency mania. Its logo is a coin bearing the face of the dog known from the popular Doge internet meme. It is a complete replica of Bitcoin and offers no differentiation or enhancement, primarily because it was not meant to be taken seriously. Initially the value of the coin was extremely low. However, its value shot up significantly and it began taking on serious investors – recently reaching a two billion dollar market cap. The creators, unhappy with the fact that the coin had become the very thing it was meant to mock, eventually removed themselves from the project. Finally, the value decreased significantly when Ryan Kennedy, the owner of a Dogecoin exchange called Moolah, was arrested for fraud. However, starting in January 2018, the valuation started increasing again.

In late January 2021, Dogecoin’s value suddenly skyrocketed 613% in one week. This resulted in its market cap climbing 380% in just 24 hours – to $6.9 billion.

What was behind this sudden incredible surge? Dogecoin got caught up in the wake of the most famous stock pump and dump scheme in recent memory. In January 2021, an amateur stock trading community on Reddit called WallStreetBets (WSB) decided to take aim at major hedge funds by pumping up stock which the hedge funds had bet would fail. Through it’s subReddit group, WSB rallied enough supporters to target Gamestop and send that stock through the roof, costing the hedge funds a collective $5 billion. The shockwaves reverberated through the financial and political circles. Wall Street establishment called for immediate action, resulting in a lock on Gamestop trading.

Looking for another target for a similar move, WSB turned to Dogecoin. Unfortunately for Dogecoin, the new heights were short-lived. Within days the stock fell approximately 72% to $0.022. The stock would rebound once again in early February thanks to a single tweet by Elon Musk. When Musk tweeted a Vogue parody cover with a picture of a dog under the banner ‘Dogue’, the stock price shot up 50% within 90 minutes of the posting.

B. Non-currency implementations

As mentioned above, the blockchain system is applicable to more than cryptocurrencies. There are many other novel ideas based on the construct that are worth billions of dollars.

Ethereum: Ethereum is to applications what Bitcoin is to currency. It provides an infrastructure for apps to run without a central server. Like Bitcoin, it depends on nodes across the internet. In this case, the nodes provide the CPU necessary for an app to run.  In order to prevent abuse and to eliminate low quality apps, Ethereum requires that applications spend a currency called ether. The code developed in the Ethereum network is run by a software called the Ethereum virtual machine. Developers use smart contracts to develop the application, which are executed automatically whenever specified conditions are met. For example, one smart contract could be to automatically ship a product once payment is received. Ethereum apps are called DAPs (decentralized applications), and hundreds of them have already been successfully launched. Examples are apps that deal with digital signatures, prediction software, electric car charging management, and online gambling sites.

Ripple: While Bitcoin is intended for the public, Ripple is meant for banks and payment networks. Currently, banks employ the protocol SWIFT (Society for Worldwide Interbank Financial Telecommunication), which requires the involvement of intermediaries. This, plus fluctuations in currency exchange rates often leads to transactions being delayed. Ripple enables financial institutions to transfer, settle, remit, and exchange payments in real time without incurring large costs. Although it has yet to be officially adopted, many banks have already begun using Ripple in trial phases. One important difference between Ripple and Bitcoin is that not everyone is allowed to join the network. The computers need to identify themselves and need permission to take part. In that sense, it is not truly decentralized or public.