bitcoin cryptocurrency digital currency

Tim Haïdar
Posted: 03/11/2014

Bitcoin

Whether you believe digital currencies are the future of money or just a haven for every elicit transaction from drug deals to contract killings, the cryptocurrency has forever changed millennia of commerce in the space of a few years. But exactly how far will digital money go? Flash in the pan or the shape of things to come?

The concept

A cryptocurrency is a form of digital money limited to a finite supply to safeguard against inflation. Cryptocurrencies incorporate principles of cryptography and complex mathematical algorithms to create a distributed and secure decentralised econosphere, that is to say, one that is not beholden to a central issuing authority. The first currency of this kind to begin trading was Bitcoin, which was introduced as open source software in 2009 by developer Satoshi Nakamoto.

What a difference a year can make….

2013 was the Chinese Year of the Water Snake, a sign intrinsically associated with developments in the area of science and technology. No wonder, then, that this was also the Year of the Cryptocurrency.

At its zenith, the price of Bitcoin, the world’s largest cryptocurrency, had grown by a factor of 95 in 2013, skyrocketing from $13 to $1,242. At one point in November it had even surpassed the price of gold. At time of writing, the market capitalisation of Bitcoin stood at $8.26 billion, some 58 times larger than it was at the start of calendar year 2013.

There are currently 145 cryptocurrenices trading in cyberspace with a total market capitalisation of $11 billion, analogous to the GDP of a small country. More than 75 per cent of this total is made up of Bitcoin stocks alone.

In line with the rise of the cryptocurrency marketplace has come a whole host of digital currency related services. Since the beginning of 2014, business intelligence firm, Venture Scanner, has composed "amarket map of the entire Bitcoin startup ecosystem", tracking 338 companies that have raised a collective $83.7 million of funding in areas from exchanges and infrastructure to Bitcoin news and data services.

The next step for this nascent micro economy is the jump from anti-establishment and counterculture transaction systems to mainstream payment method of choice.

Bitcoin: The new PayPal with the same teething problems?

There are many similarities between the rise of the Bitcoin phenomena and the stratospheric route taken by international e-commerceand money transfer giant, PayPal. When PayPal was launched in 1999 by internet financial services company X.com, it rocketed to a million users in just six months.

The early years of PayPal were plagued with by persistent fraudulent activities from phishing – the attempt to acquire sensitive information by masquerading as a trustworthy entity in an electronic communication – to organised crime rings using the service to run stolen credit numbers acquired on the black market.

Bitcoin is a currency, and as such is susceptible to the machinations of the net-savvy fraudster. Its existence on the internet also means that it is under threat from the type of criminal that works with a keyboard and mouse, not a crow bar and getaway car.

The recent case of Bitcoin exchange MtGox, which was shut down in February 2014 after losing 744,408 Bitcoins to hackers, is a prime example of the dangers awaiting the cyber investor in the domain of the digital currency.

The cyber security threat

There are more than 100 different malware families currently targeting user wallets and exchanges to steal Bitcoin and 40 other cryptocurrencies. The current average detection rate for these malware families across all antivirus tools was 48 per cent.

According to the Dell SecureWorks Counter Threat Unit, the most popular malware program, PredatorPain, accounts for a third of attempted Bitcoin robberies, and costs only $35 to purchase (with a tutorial) on underground forums.

Speaking to computer safety magazine Security Watch, Pat Litke, security analyst advisor at the Unit said: "A beginner programmer could create something that would steal Bitcoins."

One of the most effective ways to secure cryptocurrency is through cold storage or "split wallets" where digital money is kept offline and away from the possible vulnerabilities that exposure to a live internet connection would entail.

Tim Haïdar
Posted: 03/11/2014

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