Cryptocurrency-related attacks will surpass all other types of cyberattacks in 2018, a leading expert warned.
Issuing the bleak prediction, Lotem Finkelsteen, a threat intelligence analyst with the Israeli cybersecurity company Check Point Software Technologies, said “not a day goes by without our hearing about a new ICO [initial coin offering] scam or mining attack.”
By “cryptocurrency-related cyberattacks,” he appeared to be referring to any form of cybercrime involving or related to cryptocurrencies, including financial scams and hacking.
Blockchain, the technology that underpins cryptocurrencies, “is suffering from reputational damage,” said Finkelsteen. “And that is one of the main obstacles for blockchain technology to move forward.”
Finkelsteen was speaking on a panel at an event entitled “Blockchain, The New Digital Age” at Tel Aviv University’s annual Cyber Week cybersecurity conference. Other panelists at the event were more optimistic about the positive potential for blockchain and cryptocurrency technology.
“There are real projects rolling out,” said John Velissarios, Principal Director and Global Blockchain Technology Lead at Accenture, a global management consulting company. “We’re seeing blockchain applications for capital markets, exchanges, clearing and settlement systems and payment systems. The technology is evolving and the applications are becoming more significant.”
Blockchain technology is the underlying technology of Bitcoin and other cryptocurrencies. A blockchain is a database that is maintained by numerous collaborators, like a Google document. The computers of the collaborators decide through a consensus mechanism how to update the database. Once they decide, the update is rendered immutable through cryptography. The resulting record can be used as proof of ownership without the need for a central authority deciding who owns what.
Many entrepreneurs and computer scientists see enormous potential in blockchain, and believe that the fact that money and other assets can be transferred from person to person without going through a central authority has many real-world applications.
But Haim Pinto, the CTO of Bank Hapoalim, Israel’s largest bank, asserted that there are no blockchain applications that are dependably usable at present, least of all for a trusted institution like a major commercial bank.
“Blockchain is still in a hype cycle,” he said in the panel discussion, arguing that the technology is not yet ready for widespread adoption. “We can’t just take it and use it.”
Pinto said cryptocurrencies present problems for banks seeking to comply with anti-money laundering and privacy regulation.
“As long as we are under anti-money laundering and FATCA rules, we have to know the source of customers’ money,” he said. This requirement, he said, does not jibe with the nature of cryptocurrencies, which can be transferred anonymously.
In addition, said Pinto, cryptocurrencies present a challenge for banks seeking to comply with the EU’s “right to be forgotten” laws, which require that businesses erase clients’ sensitive personal data if they are asked to do so.
“Distributed general ledgers cannot erase anything,” he said, referring to the fact that most blockchains are immutable. “That’s just one of the challenges. In addition, there are mathematical challenges. Distributed general ledgers can’t scale up to the volume of transactions we need to serve.”
Pinto said that most banks around the world are running mainframe computers as their core platforms. Before they can adopt blockchains or distributed general ledgers, they will probably first adopt “open banking,” a new trend in the banking world that refers to the practice of allowing third-party developers to build applications around the bank.
In recent years in Israel, some experts have touted cryptocurrency and blockchain as the next major driver of the Israeli economy, but as The Times of Israel has reported, it is unclear how much of the activity in this new high-tech field is legitimate, how much is mere hype, and how much is outright fraud perpetrated by malevolent actors, including transnational criminal organizations.
A second panel at the event dealt with the non-financial applications of the blockchain.
At that session, Gideon Lichfield, the editor-in-chief of the MIT Technology Review, described enthusiasm about using blockchain technology for supply-chain management.
“Businesses see it as a way to track bananas or lettuce from the supplier to the supermarket shelf.”
If some lettuce turns out to be bad, he said, blockchain technology can be used to find out which farm the lettuce came from.
Lichfield questioned why blockchain is a good solution for this, as opposed to a centralized database or some other solution. Nevertheless, he said, if blockchain is an adequate solution, it could become the de facto standard, simply because there is so much hype around, and money being poured into, blockchain technology.
“Big companies don’t want to be left behind,” said Lichfield, ”They jump into this.”
Steve Bassi, the CEO of the cybersecurity company Polyswarm, agreed with the other panelists that blockchain is often proposed as a solution to a problem where a centralized database might work just as well.
Attempting to distill the circumstances under which blockchain could be useful, he asked, “Where do we always cheat each other unless someone else is watching? That is where blockchain might be applicable.”
Another speaker at the final session of the conference on Thursday, Tel Aviv University Economics professor Neil Gandal, presented a paper called “Price Manipulation in the Bitcoin Ecosystem” that he and his colleagues first published in January.
Gandal contended that Bitcoin’s first major price spike, when it rose from $150 to over $1,000 in late 2013, was likely caused by a single person using trading robots.
Gandal argued that if this could happen once it could happen again, and cited a recent paper by University of Texas economists arguing that Bitcoin’s more recent price spike, when it reached close to $20,000 last year, was also caused by price manipulation.
“It’s possible for a small number of actors to manipulate things,” he said. “We need some sort of regulation [of cryptocurrencies],” he said. “There is a loss of confidence in the system.”