Security is hard
A blockchain is incredible secure, prohibitively expensive and complicated to manipulate. Unlike any centralised entity, a blockchain cannot be centrally targeted and/or manipulated by one party.
Technically speaking, it's not the blockchains that need securing but the applications that operate on them. Over the last two weeks, there have been two major breaches:
Parity Wallet Hack
Parity technologies are a group of developers that code for the ethereum blockchain. Their main business consists of building smart wallets to hold user accounts on the ethereum blockchain that have additional functionality, including security, limits and multi-signature withdrawals. Recently, devops199 was able to exploit the multi-signature feature as a vulnerability in the code. Actually, he accidentally made himself the owner of the smart contract, which in turn made him the owner of wallets connected to the contract. 587 wallets containing 513,774 ETH amounting to $240M as of 27th November. Instead of syphoning the now available ETH to multiple anonymous accounts, devops199 ran the kill function which kills the contract and all funds in those wallets. Funds are frozen until further notice.
Only 5 months ago, Parity suffered a malicious attack where $30M worth of ETH was stolen, again the attack was targeted at the smart contract code.
Ethereum is a powerful concept, but should not be taken lightly, it’s extremely complex when you have millions of smart contracts continuously executing. This was yet another example that stability in these areas will take time. The safest way to store your cryptos is through paper or hardware wallets, use 3rd parties as minimally as possible because they’re the single point of weakness.
USD Tether (USDT)
Tether is the organisation behind the token USDT. Tether tracks the price of USD and tries to stay as close to a 1:1 ratio as possible. USDT is pegged to the reserves they have in the bank account, the more USD they have the more Tether they can issue, meaning you can easily trade your USDT for USD (in theory). A recent attacked managed to penetrate the USDT Treasury and withdraw $30M USDT to a wallet before being shut down. USDT responded by releasing an Omni Core update on their software preventing movement of those coins. Currently, the investigation is still underway as to how this was done. It comes in a timely manner when Tether was being questioned about actually having the USD FIAT currency in reserves for the amount of tether they issued, some suspect that Tether planned the ‘attack’ to place a short position expecting the market to go down on the hacking news, to which they would profit considerably.
Cryptos are now a formidable billion dollar industry, the competition to be profitable and successful is now fierce. In a largely unregulated industry, you need to spot the signs that something doesn’t seem right, then adjust accordingly. For USDT, being backed by the world’s largest exchange, Bitfinex is a security blanket in itself. We don’t think this recent hack will cause long term damage, but USDT and Bitfinex have other issues we will discuss in the future. However, should the largest, most profitable, highest global volume exchange go down, it will take the entire market with it. Watch Bitfinex carefully.
CME are still in the process of developing bitcoin futures to be traded from December 11. Futures will significantly increase the exposure of crypto assets to investors who will now have access to a secure, traditional method of trading bitcoin.
The South Korean public sector has inked a deal with Samsung SDS to develop a public sector blockchain to improve the administration process across welfare, public safety and transportation.
Power Ledger, an Australian blockchain startup has received a $2.5m Government grant as part of a recent $8m raise. Power Ledger is utilising blockchain to develop an distributed energy and water platform to allow users to trade under-utilised utilities.
The State Bank of India is preparing to launch a blockchain solution for a number of processes including its Know Your Customer system.
The Nasdaq are developing an electronic shareholder voting system utilising blockchain technology. The tool will provide investors with a secure, immutable and user friendly method of electronic voting for remote participation.
Monthly Crypto Spotlight
Coming soon Magnet Capital will review a different coin every month to highlight key information.
No more bitcoin forks (for now)
Bitcoin and Ether both reached new all time highs this week as bitcoin running up to test US$10,000 and Ether testing US$500. These increases seem to predominantly be driven by market sentiment and speculation as new investors flood towards the crypto asset market
All other coins benefited from this momentum throughout the week as demonstrated below
The crypto asset market cap hit a huge milestone during the week, surpassing a quarter of a trillion USD and today hitting US$300B