The Swindle of the Century

Richard Van Staten published in Entrepreneur Magazine. The frenzy around Bitcoin is at a fever pitch, and the reasons are obvious. Its value has skyrocketed over the past year, making millionaires out of early adopters. In its wake, thousands of would-be investors and coin creators are getting in on the action.

A quick primer for the uninitiated: Bitcoin is the most well-known and highly regarded of digital assets known as cryptocurrency. It’s presented as an alternative to traditional paper money, with speculative investors buying and selling fractional amounts of Bitcoins (which, as of this writing, are valued at over $6,000 per coin, way down from last December’s high of $19,783) with hopes that their value will rise. Its blockchain-backed anonymity and rocketing valuations have inspired a mass of imitators, each hoping to be the one that truly breaks through and replaces traditional money.

https://www.entrepreneur.com/article/319192

For such a recent phenomenon, it may surprise some to learn that Bitcoin has existed since January 2009, created by a (possibly fake) Japanese developer named Satoshi Nakamoto. The dubious reality of its creator is appropriate for reasons I’ll get into later. Whether Nakamoto is an actual person, it’s completely true that “his” creation has dictated the conversation about the future of money and investing in the post-2009 crash era.

Possibly the most impressive thing about crypto is how heavily major banksaccounting firms and even consumer corporations have bought into the craze in the near decade since. These big-name endorsements certainly make Bitcoin and other cryptocurrencies seem like a sure bet, but a cursory look beneath the surface reveals a lot of false promises and hype, with a need to dig a little deeper in order to see the real benefit of the crypto craze.

The BS of Bitcoin

It’s not only the idea that Bitcoin will replace the existing currency system that’s extremely questionable. The entire idea of investing in cryptocurrency is where the real swindle happens.

Investors, probably more so than any other group of people, are in love with the idea of getting in on the next big thing before it blows up. This isn’t breaking news: It’s how our money’s made. From VC to armchair investors, the idea is to buy in when prices are low and sell when they are high. So, it’s only natural that an unregulated and complex field like crypto attracts a lot of excitement for a certain type of investor, maybe someone who’s not as money-savvy but has caught on to the transformative power of the internet. The online aspect only democratizes it further: When anyone can buy in, anyone can profit.

Which is where things get troubling. At the heart of it, cryptocurrency is a fraud. We’ve all been sold on Bitcoin as the official future currency of the internet, its evangelists painting a picture of a world where our spending is safely anonymized and no longer subject to the whims of international bankers and governments. A number of retailers have bought in as well, meaning Bitcoin can buy you anything from a hotel room to pizza delivery. Sounds great, sure, but at its essence, crypto has proven to be something else entirely.

It’s not a true medium of exchange the way that government bank-backed paper money is. Bitcoin is an asset, and a particularly dangerous one to drop any amount of your investment money into. While it can be exchanged for goods, these transactions amount to barter deals with opportunistic retailers who are likely more eager for the publicity that comes with announcing they’ll accept Bitcoin. You don’t have to take my word for it: No less an authority than JPMorgan CEO Jamie Dimon has identified crypto as a bubble just waiting to bust. When that does happen, good luck paying for your pizza with whatever’s left.

Even outside of the volatility of the currencies themselves, that Wild West atmosphere has proven a fertile ground for scammers. Old fashioned Ponzi schemes have gotten a 21st-century facelift thanks to criminals taking advantage of the Bitcoin craze, collecting funds for Initial Coin Offerings (ICOs) that never materialize. Fittingly for a currency that got its start abetting anonymous drug and weapons deals on dark web trading posts, unscrupulous operators have flocked to Bitcoin as their latest medium for ripping off the uninitiated. Consider yourself warned.

The real benefit

While Bitcoin as an investment is radioactive and not to be touched, it’s not the case that the whole cryptocurrency movement hasn’t created something of real benefit. The dangerous part of Bitcoin is in the unpredictability of the human element in the form of deceptive labeling and scams. The technology underpinning it all, free of hype and deceptions, is surprisingly trustworthy.

The “crypto” in cryptocurrency comes from cryptography: the encryption technology that makes bitcoin transactions secure. Not only that, but all secure online activity is safe through the use of encrypted lines of code that can’t be broken by third parties. The encrypted ledger of Bitcoin transactions, known as blockchain, represents the safest data transfer medium ever created online. Burying your gold coins in the backyard was never this secure.

The blockchain works because it isn’t stored on one central server: To alter its code would mean compromising a number of machines across a wide network, a near-impossible task for even the craftiest hacker. This level of security in transactions makes blockchain useful not only for ethereal assets like cryptocurrencies but real-money movement by banks and individuals alike.

Once the Bitcoin craze blows away, we’ll be left with a truly transformative tool: a new, safe way to conduct business online. The evangelists weren’t completely wrong, only misguided. The bitcoins themselves won’t be changing our world, but the blockchain built to host them absolutely will.

Cybersecurity Black Hat…Breaking Bad

Cybersecurity black hats. Breaking Bad

I like Breaking Bad just as much as any other fan of the show. “Heisenberg” and his chemical romance. His black hat is all to indicative of something we are all to familiar with in the IT world. Black hats will seemingly always have noteworthy advantages over cybersecurity corporations and governments. Mindset and methodology will be the impetus for success, as software and ancillary prevention measures are only an outcome of critical security thought processes by consultants and cybersecurity experts in today’s environment; unsuitable defense mechanisms imprisoned to the interiors of bureaucratic corporate and government environments in their truest form – “overly concerned with procedure at the expense of efficiency or common sense.”

CYBERSECURITY BATTLEFIELD

The rules of the cyber battlefield are definitely imbalanced. Black hats have unwritten permissions and a series of anarchistic values, much as the terms origins suggest. Unstructured environments in which black hats operate have no imposed hierarchy, rules, ethics, and true meaningfulness. Add to that the pouring of cognizant technological challenges, anti-government, anti-capitalism, anti-establishment, and the motivations become endless. They have the luxury of simply “develop and deploy,” a definitive shortened system development life cycle that hides in the shadows.

ABSTRACT BLACK HAT

It’s not to suggest that corporations and governments should squander or surrender their ethics. On the contrary, strengthen them at the core. To fight with meaning and engage a successful battle, one must move from an exclusively defensive position. Strategically offensive, legal, and well thought out actions and cyber battlefield tactics can be taken in order to willfully distract and befuddle black hat hackers into believing what is not real, is actually real. They end up with nothing, but useless data. Paint a little abstract of black into your white hat, and you may start thinking and employing methods that are more effective.

What’s happening to bitcoin? 12 reasons.

Bitcoins laying on top of handcuffs

COLD COIN DECEMBER

In the last few weeks alone, you may have noticed a noteworthy descent in both Bitcoin and Altcoins. Analogously, we went from 35,000 feet on a Boeing 747 to about 15,000 feet in the equivalent of about 3 minutes. A bit of a disturbing ride, with plenty of turbulence. Bitcoin’s all time high as of this press is $19,205.11, and currently trading at $7,292.15. This accounts for a total drop of 62% from its high on December 17, 2017, just about seven weeks ago. I prefer to call it “Cold Coin December,” because the reality was disorganized awareness, holiday spirits, and the cold hard truth for late adopters and speculators that while things seemed very hot, it was actually as chilling as December winter air. Deceiving,really. December was not likely the best time to buy coin.

The majority of this loss came in January 2018 as Bitcoin had a high of $17,026.28 in the first week of January, a 50.5% of the loss in the last month alone. Rather than go over the hundreds of Altcoins available on various exchanges, it’s fair to say that if you have invested in Bitcoin, or just about any coin in the last month, you have not likely made any money, but rather lost quite a bit of value depending on your trade date and time. There are the minor exceptions whereby the damage hasn’t been quite as severe, such as Ripple and Ethereum. But those are just the first class seats on the plane, so maybe it was just more comfortable price falling with a few glasses of wine in you. Ethereum does use blockchain, in a different way than Bitcoin, and is faring better, but still at a loss of 49% from it’s high, and falling sharply as of this publication.

SO MUCH AS A SNEEZE

Remember that coins and coin wallets don’t actually concretely exist. You can’t touch them. Best you’re going to get is to smell your computer and hope it smells like money. Otherwise exchanging it back to regulated currency is your best bet. I’ve been asked numerous times lately, “Sell?” I can’t answer that as I don’t have my time machine up and running just yet, but here is a bit of humble guidance about the markets in general.

The coin market is just as an easily influenced by speculation as any other market. A few analogies. If an undesirable article comes out about something regarding a publicly traded company, the stock tends to dip. If one single person of reasonable authority in the Middle East suggests any conflict with a neighboring country, a barrel of oil and gas prices tend to rise. And a good jobs report, as was noted just the other day made the Dow Jones industrial average go down 666 points in one day on fears of interest rate hikes. Note I said “fears,” not that it actually will or is guaranteed to happen. Take comfort that it was actually a 665.75 drop and the media crept up its rounding to freak everyone out; as they seem to enjoy. And finally, if someone sneezes in your direction, you don’t walk into it, do you? Bad news moves markets better than good news. Period.

And then sometimes there is simply no reason at all other than the human factor. Fear, ill perceptions, learning curves, or simply becoming immune to topics that once would have crashed markets and these (i.e. Dow Jones, NASDAQ, Korea Composite Stock Price Index or KOSPI) are established markets distant from their infancy. If markets always made sense – and cryptocurrency exchanges are a market – then we would all move our money to the obvious winner. It’s just not the way it works. None of it is predictable. Conjecture is as good as it gets and any company or market is one “coingate” away from being finished. Las Vegas is gambling, lottery is gambling, stocks are gambling, and coin is gambling.

12 HOLIDAY REASONS FOR COIN PRICE DROPS

 In the last few months alone, here is some of what has happened to moderately explain a 62% drop. The rest I would attest to simple human factoring and hypersensitivity surrounding anything related to Bitcoin. It is winter after all, and if anything sneezes, charts move. It’s only the beginning.

1. Most reasonable investors would agree the price was inflated in December 2017 and natural contractions occur. I am not personally sure how one would determine if coin is inflated, given there is not much basis other than valuation at this juncture.

2. China employs similar techniques to that of blocking the Internet (Facebook, Google) in applying it to cryptocurrency, mining, and starting new initial coin offerings ICO’s. They are generally most concerned about how it will affect the yuan.

3. Investors are moving to safer fiat currencies (which are government regulated) due to fear of the cryptocurrency market drops.

4. South Korea’s Ministry of Justice announced it would be banning cryptocurrency trading, which was subsequently partially retracted. But too much damage had been inflicted and skulking back is difficult and painstaking.

5. India’s government made comments that were misconstrued as the banning of cryptocurrency, which were also later cleared up. But again, the damages were already incorporated into prices.

6. Facebook announced it would not allow Initial Coin Offering (ICO) or cryptocurrency advertisements on its platform. Yes, that sneeze had an effect.

7. The U.S. Commodities Futures Trading Commission (CFTC) filed a lawsuit against the creators of My Big Coin, alleging a cryptocurrency scam (akin to a Ponzi scheme) that cost investors $6 million. Note that this isn’t the first exchange to “go-under” and lose investor coin assets.

8. Bitfinex, thought to be the largest exchange, was subpoenaed by the U.S. Commodities Futures Trading Commission in part due to lack of overall transparency and suspicion of some other nonsense happening on in the inside.

9. Bitfinex has also had several hacks to its system, losing significant values in the process. These factors led to a large sell-off of virtual currencies.

10. Tether currency has a backend tie to Bitfinex, and investors have speculated that currency manipulation was taking place from the inside in order to purchase Bitcoin.

11. The years of the coin trading Wild West (and Wild East) are quickly coming to a close and regulators are now turning words into actions. That too is in its infancy.

12. Maybe the obvious. Nobody has really figured any of this out yet, the cryptography or the allowance of the currency. This will keep the markets fluctuating for quite some time.

GO “CRYPTONIC” 

The majority of those involved in the development of cryptocurrency, cryptography, and cipher technologies are some of our brightest technologists and are well-meaning in the advancement of technology, finance, security, and the application of sophisticated algorithmic methods in order to protect consumers in the digital world. If your own coin, my suggestion, pay more attention to the technology, be more than just a casual investor, buckle up, and hang on tight! If there is one thing you can be sure about in life, it’s that nothing stays the same. The days of trading coin as the primary source of income on speculation that it will continue to rise will dissolve as quickly as cotton candy hits your tongue on a summer day at the ballgame. My modest advice is to go “cryptonic.” Follow the crypto, not the currency. In regulated markets, which is what this will end up being, cryptography and its overall application in businesses well beyond currency is where all this is likely going to land. But that will happen in increments of time.

Author: Richard Van Staten

 

Richard Van Staten is the CEO of Quantam, Chairman of Van Staten & Associates, and Founder of Sugarskull Software and Cypheriot. He is a public speaker and author of “Coined”, a book about Bitcoin, Cryptocurrency, and the Exchanges.