You hear about the blockchain it seems every other day, that and crypto currency and well I am no expert in this so someone who is tell me how this guy was able to do this.
Indeed it feels much like the story about the crypto queen? who disappeared with millions? blockchain anyone?
Netflix did a documentary in which there was a lot blah blah about the exchange where you buy and sell your crypto going down and never coming back ? a single point of failure it seems? Where is blockchain in this?
I expect in a few years we'll look back at the whole blockchain/cryptocurrency thing in the same way we look at the Dutch Tulip Market Crash.
The blockchain is not anywhere near as secure as people want to believe, it is just a distributed database which, in my estimation, makes it even less secure than a regular database.
And while fiat currency is a mutually agreed upon illusion, it is at least backed by organizations with wealth and power (governments, mostly), cryptocurrency isn't backed by anything at all.
Bankman-Fried was just playing the people playing stupid games.
But the simplest explanation of what happened I've seen, 25 words or less:
People put their crypto in his "bank", he replaced that crypto with one he created himself, and spent theirs.
I think the biggest problem is that people leave their money in exchanges. You can even leave EUR in there, it doesn't have to be crypto (at least in coinbase you can).
Unless they're using the exchange to constantly trade alt coins, I don't see why anyone with half a brain doesn't transfer their coins into a private wallet as soon as the they get them. So far, exchanges have been hacked, mismanaged, owner "died" with keys... Your balance in exchanges is not insured or backed by the state - you're basically trusting some random guy on the internet with your hard earned cash.
It's also possible to have a private wallet hacked, lose keys, etc., but I think it's much safer than treating an exchange as a bank.
I don't think this FTX thing was a problem related to blockchain being insecure, but it is possible that vulnerabilities could be discovered in the future (or are already known and kept secret), which could bring the entire value of the affected currency to 0.
Back to crypto, these guys are discovering once again what systemic risk means: people lending money to each other and no one is liquid enough if one fails to pay.
There’s this other exchange Binance that wants to avoid other companies to fail.
It does not have anything to do with blockchain nor crypto for that matter. It’s about human nature and how it can be harnessed by the fraudster.
It does not matter what the great delusion is be it crypto or tulips the believers are so convinced that it is true and that they are going to get rich on it that they are willing to overlook that warning signs and even attack those who point them out.
And this then a rich ground to cultivate a fraud. Most of the ground work in the regulatory authorities are young people who are also believers. So pick an unknown audit firm with partners who have no experience of the big time and a staff of young believers and you are off to the races.
Blockchain is a technology that securely (using cryptographic functions) guarantees that the changes that were made are accurately logged. I.e. you can't fiddle with the change records of the database to make it look like something else happened, as that would entail cracking the cryptography.
It can be distributed or centralised.
Cryptocurrency (bitcoin, ethereum) are applications that run on blockchain. Other applications are available.
Banks have a lot of security over how people can log in online with multi-levels etc. to withdraw money but if the people who own the bank run off with your money then it is gone.
While I agree with the criticism of crypto... thats a bit simplistic. The key problem here is that Bankman-Fried got a lot of trust from investors and clients... and simply defrauded them. That has fundamentally nothing to do with crypto - using customer funds to do high risk gambling and then go to jail when your business fails is not exactly new. From Archegos to Bernie Madoff... same same.
What is different here is the scale of the business as well as the stakeholder involved. He apparently managed to convince some of the biggest names in the VC business with some half arsed excel sheets. Not compliance, no rules and not the slightest care in the world.
Most fraud involves cupidity, deceit and decidedly low technology. But there are and have been sophisticated frauds involving changing existing transactions (I know, I work in IT security). You go in, you do something naughty, you delete the change log entries or amend them to make them look like nothing happened. If you've full access to the db system, it's not hard. You can't do that with blockchain. The point of blockchain is that transactions are verified. You can trust the change log. That's it. What you do with that trust is up to you. It's very useful in some contexts.
My first point was that people confuse cryptocurrencies with blockchain. The one is built on the other but they're not the same.
But you're right. Blockchain won't stop people scamming your nan.
Blockchain has been around for a long time now, (15 years or so ??) and there still doesn't really seem to be a good use for it, it's replaced nothing !
It's just another way of doing the exact same thing. And if you enter a false transaction it is no more capable of identifying it as having been a bad transaction than Luca Pacioli was.
I have sat in on quite a few pitches now on crypto and fintech in general and it is always the same - kids with no knowledge of who fraud is actually committed because they have never dealt with it in the wild and no knowledge of running an investment business, all convinced they are doing something new, something different, something that is this disruptive - the word disruptive must be in the presentation, when in reality 95% are doing nothing new and are just wasting everyone's time including their own.
Of course it isn't. But that's not what blockchain does. It doesn't allow you to hide that you made a bad transaction. It's all there in the logs. Everything that happened can be reconstructed faithfully.
There are many non-financial non-investment applications of blockchain technology. But most people think blockchain = cryptocurrency = investment bubble. And that's simply not true.
No other transactional system (database, whatever) based on any other technology can guarantee that its change logs haven't been tampered with. That is the single USP of blockchain.
Again, you're saying "bitcoin/blockchain" as thought cryptocurrency and blockchain are the same thing. They're not.
The blockchain cannot guarantee that its change logs haven't been tampered with either. It is not bulletproof, nor is at as secure as folks like to think.
For one, blockchain is a concept . Ultimately it is software that implements that concept and just like all software will have design defects and bugs leading to exploits.
And there are a variety of ways to rewrite history, create fraudulent history, and generally muck with a blockchain distributed ledger.
Blockchain software is just like any other technological tool, it does some things well, some things poorly, and nothing perfectly. But it doesn't live up to the hype.
It’s as secure as HTTPS, online banking, PGP… since it uses the same cryptographic concepts. Sure, they’re not bulletproof either - good enough for online commerce though.
Blockchain is not a concept. It’s a real working technology. Without it being a real working technology, Bitcoin wouldn’t exist. Bitcoin does exist and is in use by millions, QED. That true whether you’re a crypto fanboy or a crypto sceptic - I’m the latter.
I did some work on it in Pharma as a way of securing transactions between labs/doctors/pharmacies/pharmaceutical companies. The biggest obstacles were regulatory, not implementation.
Distributed ledgers have all kinds of additional security concerns. My favorite is the 51% attack. If I were a large organization with unlimited budgets (ahem... the NSA/CIA/FBI...) I would already control 51% of the major ledgers, and have the scale to have 51% of all of them.
Running an entirely internal distributed ledger, that I'd consider as secure as anything else I run internally.