Vampire Securities from beyond the Wormhole
It is common for Omni and Counterparty style tokens to say how they back the underlying security using the one that they parasitically sit upon.
This is expressly clear in Bitmain’s abysmally failed attempt to create a token platform. We can see in its Wormhole coin offering a promise of“Wormhole Cash (WHC) tokens that are backed by burned bitcoins”.
Unfortunately, this could not be further from the truth. This horror from beyond the wormhole is parasitic and vampiric and acts as an undead sucking the life out of the system it sinks its teeth into.
It has been stated by the Wormhole team that the so-called backing of Wormhole Coin (WHC) using Bitcoin Cash (BCH) comes as there is no way to do this securely.
“Why not implement two-way anchoring with BCH? Unfortunately, there is no feasible two-way anchoring method that are safe, decentralized, and can effectively deal with the inevitable rollback risk of blockchain. When discussing about Star Trek, Elon Musk said that he is not coming back after immigrating to Mars.”
This is more than a blatant lie. In fact, it is not anchored even one-way. Wormhole is simply a means of destroying bitcoin and moving to a proof of stake system. There is no requirement within the Wormhole whitepaper or project that actually requires you burn at all. No system doing this (burning tokens) offers any proof of security of WHC. More importantly, there are many ways of securely locking bitcoin and better alternative methods to create tokens. To say that there are no ways of doing this is not ignorance; it is a blatant misrepresentation.
Wormhole only requires a timestamp system.
The sole use for which the Wormhole node uses Bitcoin is to periodically timestamp transactions in a proof of stake system. Proof of stake has no solution for double spends. All of the so-called proof of stake solutions end up becoming hybrids as they cannot solve this fundamental aspect of bitcoin and the main issue associated with any digital currency, the double spend issue. The entire concept of Wormhole is incredibly flawed for this reason. The same bad theory is the reason all these analogous systems shall fail.
The thing that Wormhole, Ethereum, EOS and every other system that has abandoned the economic incentives of Bitcoin fails to understand is that the system only survives through economic incentives. It is the aim for Wormhole to create a proof of stake system that relies on a set of controlled and enslaved miners to do exactly as they are told. The problem with this is the creation of a system that is static and without evolution.
Bitcoin is a system of competition and it is this competition that drives the growth and investment into mining and hence the security of the overall architecture and design. In the quest to avoid capitalist competition, all these so-called attempts at a solution throw away the one thing that made Bitcoin work, competition.
ABS — Asset Backed Securities
Wormhole is yet another securities fraud posing as innovation.
Wormhole falsely advertises that it is backed by bitcoin. This means it is an asset backed security. Unfortunately, it is a security derived on the misrepresentation to investors by Bitmain. Bitmain are a global company seeking to raise money through a capital issue by an initial public offering. There is no room for ignorance nor would the law consider that an excuse. This statement is blatant security fraud.
An illegal distribution is characterized as, “a sale of securities to investors that does not comply with securities law trading and disclosure requirements.” A common way the illegal distribution of securities occurs is through Ponzi schemes.
In a Ponzi scheme, an investor will initially receive large payments from the first investment and encouraged, will usually invest even more money. However, withdrawals from the investment fund are financed by subsequent investors, not from real profits obtained through investment activities. The scheme is eventually uncovered because there is no underlying asset or business and the fraudster is ultimately unable to make payments to investors.
This is simple fraud. It is a misrepresentation and a violation of various security laws within many countries.
As WHC takes value and offers nothing in return, it is a ponzi. I will cover this and the economics of Wormhole further tomorrow.
What is worse is Wormholes’s false claim of the use of a vanity address to secure the network as a burn address. Firstly, it is only the last 6 characters of the Bitcoin address that is used in the calculation as a checksum for a wallet verification and safety feature. In any so-called vanity based burning address, the system is purely trust based. To create a true burn address, the issuer makes a script containing the following opcodes:
OP_FALSE
The mere inclusion of this instruction at the end of the script makes the Bitcoin unrecoverable.
In the case of the “burn address” issued for Wormhole, the following vanity addresses is used:
This address may be split up as follows:
Address: <1111111111111111115KMY>
Checksum: <P7R278>
The reality is that this is an address out of many. It is not as if Bitmain have created addresses in the manner of the following examples:
Address: <1111111111111111111111><CSum>
Address: <8888888888888888888888><CSum>
Rather, the appearance is one of an address that if it was specifically selected would be difficult to find but with no rhyme or reason on how it exists. It is not selecting a needle out of a haystack but rather any of millions of needles distributed outside a haystack. The computational problem is not the one being used to fool people.
The sleight-of-hand here derives from using a simple misdirection in place of something that would do the same job, the OP_FALSE opcode, and that is only providing an appearance of security when the creation of such an address linked to a private key is only a matter of computational power and is well within the reach of any Amazon cluster.
Layer 2 is in script
We hear about layer 2 solutions all the time. In Bitcoin Core, it is primarily advertised that the Lightning will save the system acting as a layer 2 implementation.
The truth here is very simple. The Lightning Network, like Plasma and like Wormhole Coin are parasitic layers.
In an attempt to bamboozle people, proponents of Wormhole, Plasma and Lightning (who it should be noted are the same individuals) tell you that a layer outside of the Bitcoin protocol is a scaling layer. In the image above, we see the TCP/IP model. As you step up layers, the underlying data is encapsulated within the lower level.
· HTTP is completely contained within the TCP data packet
· TCP is completely contained within the IP data
· IP is completely contained within the network layer datagram
We see this stepping down layers.
The way this works is that a higher number layer is contained within and bounded by the lower number layer. Consequently, to be layered within Bitcoin means that you must be within script inside a Bitcoin transaction. Not that you use a marker attached to a transaction but that your data is completely encapsulated.
In the 1990s, there was a battle between various network protocols. One example was Novell IPX versus the Internet’s TCP/IP. In order to try and consume traffic in a manner that is equivalent to parasitic layer solutions such as Wormhole and Lightning, Novell created Gateway interfaces so that it could sit upon the Internet layer and gain the benefits of scale while having a separate network system to TCP/IP.
This is what Lightning nodes and Wormhole nodes do. They are not separate layer two systems built on top of Bitcoin, they are completely separate protocols.
Nothing Physical can be Permission-less.
The simple fact is that all items in the real world are subject to law. It does not matter that your tokens infers that you own an item. If a court assigns ownership of an underlying asset, the ownership of the asset is moved. There are no ifs, no buts and no maybes. The word of the court is law by definition (Courts interpret statutes enacted by legislatures or common law). If you have a property, and you lose a court case over the ownership of that property, it does not matter one bit whether you have a token assigning control to you.
If you have digital locks and these are tied to your token, you will need to hand over the token. If you fail to do so you are in breach and hence contempt of court. A contempt of court charge brings unlimited incarceration. A judge can incarcerate you until you comply. The result of this is that you either hand over the token or become subject to law.
It does not matter whether you are in the jurisdiction of the court. The property will be transferred without you. Any other property you also have can be seized and transferred by the court to make up the value if there is any damage in changing the lock from the token. If it is a share or an equity, this will simply be assigned away from you to the winning party.
If you don’t like this, welcome to the real world, too bad. This is not a matter of arguing with me, it is pure existence and the world you live in. If you don’t like it, vote against it, at least if you live in a democracy.
In simple terms, it does not matter whether you want to issue a token that you call permission-less. Any token that breaches law and the jurisdiction of a court will become instantly worthless. As soon as your token defies the national law where the property it seeks to cover is located, that entire system will be in breach. The result is that any property associated with that token will become instantly able to be attacked and the value of the token itself will become worthless. The owners will have to expend money to prove ownership outside of the token system mitigating any benefit that you advertise.
At best, this results in a fraudulent misrepresentation and anyone with the token has a right to sue the issuers. We can expect many class-action suits in coming years.
Omni and WHC do not require Bitcoin
They do in one sense, WHC uses Bitcoin in the same manner a Vampire uses the host. It consumes it.
Nodes in Wormhole sit as a separate layer using a separate token from Bitcoin. They do not require Bitcoin at all, they require time stamping and an ordering system. To work, any system that allows for the time stamping of blocks is sufficient. It sits above Bitcoin and is not Bitcoin.
The problem with Omni comes from reordering. Any Omni based system is subject to attacks either as zero conf attacks or if blocks are reordered through orphaning. This is not a problem for Bitcoin; orphans and reordering are the natural state within Bitcoin. These are how miners signal.
Wormhole and Plasma are simply the next stage in a vain attempt to create a system that is not based on Proof of Work. To do this, Bitmain and those working on the Plasma Protocol (including Vitalik Buterin and Joseph Poon) seek, as they did with Lightning to create an alternate system that sits parasitically on top of Bitcoin.
What is more fun, is that it is incredibly simple to cause problems to the Omni protocol and the parasite layer nodes. Eventually, I shall be writing up a list of security vulnerabilities and attack strategies for Wormhole. Mine is simple, we will build up hash power and stop all changes that people seek to the Bitcoin protocol to allow these parasites. There will be no Lightning Network, no Plasma and no way to make Wormhole work effectively using Bitcoin Cash.
Omni and hence Wormhole suffers from a few major vulnerabilities that come because of the following points:
· block re-orgs destroy the security of Omni and hence Wormhole
· Omni and Wormhole have no zero-conf protections
· being able to quickly order transactions allows Wormhole-based systems to check for the reordering of transactions
All of these points are important for Wormhole whereas they are not important for Bitcoin. Bitcoin signals using orphans. When a transaction is sent to the network and the miners incorporate this into two separate blocks that are solved at around the same time leading to an orphaning of one of those blocks, the original transaction remains unaffected.
In Bitcoin, miners care about orphans as it is a loss of profit for every time they are orphaned. The users of the system however should not care.
“Permission-less”
In their plasma documentation and the Wormhole white paper it is noted that they seek to create a permission-less token system.
Fast and active innovation requires an environment that does not require a license. We have also been exploring the unlicensed innovation side.
This, if it was not about a fraud, would be the most asinine and stupidly childish idea.
I shall detail the conditions of token offerings in a later post. What must be noted here is that permission-less tokens cannot exist. All token offerings exist within the real world and are covered under law. All real property can be seized by government and the issuance of shares are covered by local jurisdictional law. Despite many so-called anarchists wanting to believe in their most deluded of dreams, any token issue is covered by law.
Utility tokens are simply prepaid sales. Case law on this topic goes back hundreds of years and the concept of saying “but it’s peer to peer” is completely irrelevant to law.
Other tokens are equities, bonds or securitised assets.
There are no tokens that are not a security. In fact, there cannot be a token that is not a security. Not all securities are covered under the SEC provisions in the USA. Even in the USA, there are around 20 federal bodies each with different jurisdiction covering different security offerings. The simple truth is you cannot create a permission-less system for any item that exists in any way within the real world.
Next, any digital item exists on physical machines, meaning even digital items and code exist on physical devices in the real world and are covered by laws that govern the physical world. The childish notion of “code is law” does not apply to Bitcoin and cannot apply in any blockchain system.
The nature of a permission-less system is not what is being sold.
To be permission-less, development needs to occur in a manner that does not require being bound and answering to other parties. Developments within Wormhole are completely permissioned. Any proof of stake system is by nature permissioned.
The way to create a system of money that operates in a permission less fashion is simple, lock the BCH protocol and build upon it. Bitcoin Cash will remove the various caps allowing people to build within script. They will build wallets and applications and oracles and all sorts of new systems and they will do this without having to ask the permission of Core developers, companies such as Bitmain or any implementation developer at all.
That and only that is what a permission-less system is.
