Five Common Crypto Myths Torn Asunder

Published in

PermissionIO

6 min readMay 8, 2018

Myth 1: Crypto is not secure

Blockchain technology has its tenth birthday this year in October if you measure its birth from the publication of Satoshi Nakamoto’s original paper. If you measure it from the release of the software, it occurs in January next year. Either way, the technology is nearly ten years old, is considered unbreakable (at least until quantum computers grow tall) and has never been successfully hacked.

The crypto-is-insecure lie is fake news formed from a chain of successful crypto-heists. Here are the most notable:

Mt Gox Version 1.0: ($500,000) In 2011, a hacker using an unidentifiable user account made off with 25,000 Bitcoin, worth half a million in those days and much more now. (Wallet security is much improved since those days.)
Silk Road, The Sequel: ($2.7 million) The feds closed the Silk Road in October 2013, and a doppelganger site appeared as if from nowhere. Sadly the security was not as good as the original. A hacker blew through it and cleaned it out to the tune of $2.7 million.
The Sheep Marketplace: ($56 m) The Sheep Marketplace opened at the same time as Silk-Road-the-Sequel, surviving a little longer before a marauding hacker got his hands on some ill-gotten gains. This was an epic heist, 96,000 Bitcoins worth about $56.4 million and the hacker had the cheek to manipulate user account balances so that it looked like nothing had happened.
Mt. Gox Version 2.0 ($436 million) After February 2014 when Mt Gox finally shut its doors, 744,408 Bitcoin were missing. This hack had the added impact of crashing the price of Bitcoin.
The Pony Botnet: ($220,000) A botnet using trojan malware called Pony stole vast numbers of login credentials from 700,000 accounts, 85 of which had Bitcoin wallets. The hacker emptied them to the tune of $220,000.
The Demise of the DAO: ($55 million) The first smart contract on Ethereum was not so smart. It served the DAO (a Decentralized Autonomous Organization) and had a bug, The hacker who hacked it spirited away about $55 million. As a side effect, the Ether community forked the blockchain, but the crypto stayed stolen.

In every case, the crypto stayed stolen, but none of this can be blamed on a blockchain technology problem.

Myth 2. Cryptos are a scam, a shakedown — a Ponzi scheme, no less

Ok, there have been many crypto-based fraudulent schemes. The most frequent and successful scam is the “Exit Scam.” It works like this:

Dream up a crypto idea that sounds feasible and claim it will print mountains of money for investors.
Create a website, complete with cool artwork, a well-written white paper, impressive sounding advisers and a product roadmap.
Launch ICO.
When ICO completes, take the money and run.

Here are some examples.

Pincoin Token: A team of 7 Vietnamese entrepreneurs promised constant returns to investors. They launched an ICO and reaped $660 million from about 32,000 suckers. They even paid out a little to the investors before they did a moonlight flit. They have not been heard of since.
Benebit: What do you think of this idea: let’s unify all customer loyalty programs? Brilliant, eh? Sorry, but it’s too late to invest. The ICO is over, and the company behind it has evaporated, along with an estimated $4 million — demonstrating a distinct lack of customer loyalty.
PonziCoin: This earns itself a mention; barefaced branding at its best. It billed itself as “the world’s first legitimate Ponzi scheme.” It was a prank website. It even included a public admission that it was a scam. Amazingly this didn’t stop morons from pouring money into it. It raised over $250,000. What was the founder supposed to do? Naturally, cash in hand, he made a sharp exit.

A March 2018 study by the Satis Group, estimated that of all the large recent ICOs, a solid 81% were “frauds,” 6% failed, 5% are clinically dead, and only 8% made it to market.

Wait a minute. If that’s the case, how is this a Myth?

Terminological inexactitude, dear reader. It should have read:

ICOs are frequently a scam, a shakedown — a Ponzi scheme, no less

That’s why the SEC has pretty much called a halt to US ICOs. The point is that ICOs, not fully functional cryptocurrencies, are dangerous investment vehicles.

Myth 3. Cryptos have no real value

“Give me a break, Krugman,” he said, (imagining he was berating NYT columnist Paul Krugman) “dollars, euros, and quetzals have as little real value as Bitcoin or Ether. Their value is linked to diddly-squat.”

In contrast, there are more than a few cryptos that link to genuine gold. Here is a list of those currently being traded: AurumCoin, DigixGlobal, GoldMint, HelloGold, KaratBank, PureGold, Xaurum, AurusGold and OneGram Coin

There are also ten not-yet-fully-ICOed gold based cryptos: GoldCrypto, Golden Currency, XGold Coin, GoldMineCoin, BaselBit, AgAu, Darico, Gold Bits Coin, Flashmoni and Sudan Gold Coin

The real difference between fiat currency and crypto is that the crypto supply is governed by contract, whereas the fiat supply is in the corruptible hands of human beings.

And, if you want gold-backed money, where else are you going to get it?

Myth 4. Cryptos are for criminals and denizens of the dark web

There are some advantages to using cryptocurrency for some criminal activities. It’s normal for hackers that spread ransomware to demand payment in Bitcoin. The now-defunct Silk Road did business in Bitcoin, selling drugs, medical supplies, and contraband. It meant that the money didn’t have to travel through a bank account — and for the bad guys that’s the most useful feature of Bitcoin.

In truth, Bitcoin is dominated by legitimate use. It is held as a pure investment, and as a safe store of money. Decentralization and “pseudo-anonymity” are features criminals like, but so do people living in economically unstable environments. If you cannot trust local banks because of corruption, or if the country you live in is unstable (think Venezuela) it’s a good place to store your stash of cash.

In the US, if you put your money in the bank and it fails, then you are insured (by FDIC) only up to a loss of $250,000. If you want to hold a larger amount then Bitcoin works fine. Bitcoin also sees heavy use on crypto exchanges as a unit of value to measure other crypto.

There is far more criminal use of the dollar: for money laundering, for drug trafficking, for bank robbering and so on, than occurs with Bitcoin or any other cryptocurrency.

Myth 5. The Use of Crypto is Anonymous

Not so much. A computer security professional I know recently told me that the NSA had copied and analyzed the Bitcoin blockchain and was able to tie back almost all the Bitcoin wallets that exist to their owners. I have no idea whether this is true, but it would not surprise me — because it’s possible.

The point is that Bitcoin is an open ledger so you can tie the wallet addresses to amounts of Bitcoin. If you can tie the wallet address to an individual, you’ve got full knowledge of their holding, and their trades. And most ways to get Bitcoin, through an exchange of any kind, involves you providing identifying details.

You can get into bitcoin in anonymous ways, by buying it on the street through Local Bitcoin traders. There are also three coins; Dash, Monero and Zcash that allow anonymous trading, so you could achieve anonymity through them. But they are the exception. The majority of crypto transactions are on the record.

Contrast this with paper money, such as dollar notes. These are truly untraceable, and hence they are far better than crypto for bad guys with money to hide.

Robin Bloor Ph D. is the Technology Evangelist for Permission.io, author of The “Common Sense” of Crypto Currency, cofounder of The Bloor Group and webmaster of TheDataRightsofMan.com.