Bitcoin's coming of age

Metaratings
09 Apr 2013
00:00
Article

You must be living under a rock not to notice the hype around the Bitcoin crypto-currency. Running over a decentralised peer to peer network, the ability to be able to anonymously transfer any amount of bitcoins anywhere in the world without any form of government intervention or control appeals to many.

It appeals whether you are on an island in the Mediterranean or in a country where your government just took out a 5-trillion Thai baht ($34.2 billion) loan based on a 20-page project that has something to do with railways and fresh strawberries.

Detractors of the crypto-currency often dismiss it as a bubble, or label it as risky because losing the key to your virtual wallet would mean that the coins are lost forever. Not lost just from your wallet, but lost from the entire monetary ecosystem, forever. Others say that there is no legal or government backing (which is the point) while others dismiss it as something used in money laundering for drug lords.

As the Bitcoin community puts it, the traditional banking industry is built on trust. Lately, with financial crises after financial crisis, that trust has been eroded. Bitcoin replaces trust with mathematical algorithms. The central bank cannot suddenly print its way out of a recession as the supply is self-regulating and will culminate with 21 million bitcoins in the year 2140. Borderless and (if handled properly) anonymous, governments cannot control how coins flow across borders, nor can they raid our savings to pay for bank bailouts.

Leaving the whys and wherefores of Bitcoin to other authors, what is interesting is that in the past week, various elements of the system have been subjected to massive DDoS attacks and, for the most part, the system as a whole has survived, shrugging it off without panicking in a show of maturity and coming of age. Some say that the attacks were financially motivated, scaring people into dumping their bitcoins for the criminals to buy up at a bargain price. Others say the attack was on a more fundamental level, by financial institutions and states terrified of losing control over world financial markets.

The question that springs to the mind of a more technical reader is in a distributed peer to peer network, where does a criminal mastermind focus his attacks?

In the crypto-currency world one can buy coins with “real” fiat currency (many would argue that the dollars and euros in our wallet are as far removed from being real as any crypto-currency) at an exchange. Alternatively users with suitable hardware can mine it by solving complex mathematical algorithms. But because of the complexity of finding a block, it has been necessary for people to work in coordinated pools to spread the risk and reward of mining. Both nexuses have been attacked.

The world’s largest Bitcoin exchange, Mt Gox, issued a statement that it has been under a prolonged DDoS attack that had slowed things down and that its DDoS protection system had for the most part worked. Other exchanges such as Vircurex were down intermittently as were sites providing information such as bitcoincharts.com.

Mining pools such as Coinotron, Nushor, Pool-X all had outages, ranging from minutes to days, making mining impossible for those reliant on the affected pools.

The attack on the exchanges were pretty straightforward - make it impossible for people to access their money so panic selling ensues. The attack on the mining pools was a bit more complicated. On the one hand, it could just be a way to spread fear about the weakness in the crypto-currency paradigm, but the way bitcoin and all the other crypto-coins work would mean that when the pools are down, whoever is left mining would be reaping more and more rewards. The size of the reward cake is still the same, but suddenly there are fewer people scrambling for a bite and those the pools or individuals left mining during the outages would no doubt profit.

But history has taught us many lessons. When Mt Gox was attacked in the past, the price of bitcoins fell to the floor. This time, the attacks were treated as just a blip and the crypto currency continues its rise, setting new high after new high.

As for the miners, the latest wave of DDoS attacks have led many to adjust and try p2pool which, as its name suggests, is a peer-to-peer decentralised mining pool, safe from such DDoS attacks.

The real test of the maturity of the Bitcoin network is not from network-based attacks, but from lawyers and financial regulators, but that is another matter for another time and another publication.

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