Thieves love bitcoin. Why wouldn’t they? Pseudo-anonymous digital cash that can easily be laundered, and taken while being personally physically secure from any sort of immedate counter-aggression. What more could a thief ask for? Not to mention that you can make off with much more than in any typical bank robbery, like the most recent bitstamp hack, where the bandits made off with around 19,000 BTC.
At first stealing bitcoin was pretty easy–here is a list of several early hacks put together on bitcointalk. But you can see that over time it has been getting harder and harder to rob exchanges. Why is the good life of a crypto-thief going extinct?
It is because crypto-thieves are putting themselves out of work–they are helping solve the security issues of bitcoin! We can see this evolution over the course of the last few years with hacks becoming more sophisticated, detailed, and sneaky as the price of bitcoin grows, and the network expands to include more people. Now altcoins, with less savvy developers, and smaller exchanges which lack the same resources as major bitcoin exchanges are being targeted more frequently. This is occurring because the security infrastructure around smaller exchanges that cater to altcoins are less developed than bitcoin, so altcoins are being targeted more like the NXT hesit from BTER last year.
As the various altcoin ecosystems develops, they will either gain enough traction to exude the same antifragile properties of bitcoin, or drown under the weight of major attacks. Either way, the whole ecosystem evolves so that with weak coins die, and powerful ones survive. The same is true for exchanges as well; with each major attack or exploit that is carried out, a ton of money is stolen, but then the hole is then almost immediately fixed, or the exchange dies. This one-time ‘security fee’ now raises the bar for all hackers; as the post-mortium analysis of what happened is generally shared with the whole ecosystem of exchanges. The more people try to exploit exchanges or the crypto-currencies themselves, the more flaws are found and fixed, making the system strong and harder to exploit in the future.
The Antifragile Nature of Bitcoin
Bitcoin is antifragile, meaning that the more you try to break it, the stronger it becomes. That is why the exchanges with horrible practices like Mt. Gox have died, or at least will be reanimated under much better security. This is not a fluke, but is how distributed networks function; as they are antifragile.
In fact, the only reason that bitcoin has even evolved to where it is today is because of its antifragle properties. No matter what has happened–the demise of the Silk Road, Mt. Gox, and almost 1/2 of major exchanges have failed–bitcoin is still here. Furthermore, bitcoin has not just remained, but security has improved dramatically both on the side of consumers, and exchanges in response to these catastrophes. Even the core protocal is getting more secure as more time and energy is spent developing bitcoin, with features like multisig not even being introduced until 2011. I am sure after the most recent bitstamp heist there will be a post-mortem amongst the major exchanges to ensure a theift like this does not happen again.
This antifragility goes beyond just learning from mistakes, as the whole bitcoin ecosystem works offensively in response to such events. Major exchanges are not sitting around waiting to respond to a heist, they are innovating and developing to make themselves more secure and more difficult to steal bitcoins with each passing day. Coinbase’s vault is a great example of this. When people started to complain that Coinbase could go the way of Gox, Coinbase responded with multisig vault, which means they couldn’t even steal bitcoins stored there if they wanted to! I’m not one for keeping coins with any service, but it’s good to know that such features are available for those who may not want to secure their own coins, or spend the extra bits on something like Trezor.
This kind of development in turn makes it easier for the average consumer or business to have confidence in bitcoin. This paired with already low economic barriers to entry to use bitcoin creates a payment system that is both more secure, and cheaper to use that any other payment system that has ever existed. Anyone with a computer can setup an webpage and sell something to people directly for bitcoin with much more ease, and less expense than any other payment system. This lower barrier to entry is also creates a greater degree of resiliency within the network, as it distributes the risk for the ecosystem among many actors, unlike centralized payment entities.
The price of bitcoin, which has taken a major hit in recent days, also works in an antifragile nature. Having made absurd gains over the last two years (for good reason), the market was overheated, and so a large sell-off started. Although this became a vomit-inducing ride for some noobs to the game, this was actually a good thing! Such an adjustment in price not only shook out speculators and capitalist of all kinds, but it allows for the price per bitcoin to become ‘reasonable’ to people who were looking to invest, but thought bitcoin was overvalued. This drop in price allowed for a whole new wave of folks to invest, which in turn distributed the network even more. As the price rises and falls, we will see this process happen over, and over again.
The Evolution of the Bitcoin Ecosystem
The advent of colored coins, multisig wallets, and properties contracts all seem like they will come to fruition in 2015, and are all going to bring forward a new boom in the bitcoin ecosystem. Again, it will be through a string of thefts, hacks, and exploits which will allow for service providers to improve themselves and allow for the network to get stronger. It is this process of creative destruction that allows for the demise of smaller weaker parts of the network which will allow for more evolved ones to take there place. I am confident that as we move into the coming years that service, security, and creative thefts will only get better, along with the security response to each event as well.
So this one is for the thieves, criminals and neer-do-wellers! Keep doing what you do best, it improves the security of the bitcoin network and ecosystem, and reward those for their unsolicited pen-testing services.
Next: What is the intrinsic value of Bitcoin?