Cryptocurrencies have exploded into the mainstream in the last year or so, which has meant that blockchain, coin mining, ICOs (Initial Coin Offerings) and other terms once reserved for the nerdy internet, are now being tangled with by people interested in making some quick money OR interested in the applications of blockchains.
Today we thought we'd do a dive into some of these concepts, and how they are being manipulated by some actors for short-term gain.
Blockchain and mining, the basic concepts
Blockchain technology was first described in a 2009 paper released under the pseudonym Satoshi Nakamoto. It was invented as a distributed transaction ledger for BitCoin. The power of Blockchain is in its ability to authenticate a transaction (whether a contract being signed, money changing hands or anything you want proof of), without the need for a central trusted authority.
Mining is how blockchain transactions are authenticated. In the blockchain network, computers are processing and validating transactions and adding them to the blockchain. As cryptocurrencies mature, more processing power is required to keep up with the pace of transactions.
AltCoins and ICOs
While BitCoin is the OG of cryptocurrencies, many others have entered the market. Recently, new alternative coins have entered the market through Initial Coin Offerings (ICOs). Much like an Initial Public Offering of stock from a company, this is your chance to get in on the ground floor of the next big cryptocurrency. They dominated 2017, and the BitCoin market took a huge tumble when China outright banned ICOs.
A word to the wise, over half of the coins created in 2017 (and were available to buy through ICOs), have already failed:
Many technologists herald the blockchain as a revolutionary technology which will dismantle centralised systems of finance. At the same time, lots of other opportunists are using cryptocurrency markets as a way to get rich quick while the frenzy over BitCoin and its peers continues.
But with any rapidly growing technology, the perverse incentives are revealing themselves. Mining for cryptocurrencies requires an incredible amount of energy. Here are just two comparative examples of the energy needs of cryptocurrencies.
- Processing a bitcoin transaction consumes more than 5,000 times as much energy as using a Visa credit card: https://spectrum.ieee.org/energy/policy/the-ridiculous-amount-of-energy-it-takes-to-run-bitcoin
- The environmental impact of Bitcoin mining is worse than actual mining: https://motherboard.vice.com/en_us/article/a34gjb/bitcoin-mining-more-energy-intensive-wasteful-than-gold-mining
Until the computer processing power to authenticate transactions doesn't have to impact on the environment, this is not a sustainable model.
Of course, some people have found ways to outsource their energy consumption, by using coin mining scripts to manipulate web users into having their own CPU's leveraged for coin mining.
If you visit a website that has a coin mining script on it, what happens is that your CPU is being used to mine cryptocurrencies for someone else. These scripts can be added without the website operators knowledge, due to the reliance on third-party software.
Just this month, many UK and US government sites were infected with a coin mining script through a third party programme called Browsealoud, which reads out web pages for people with vision problems: https://www.reuters.com/article/us-bitcoin-cyber/u-s-uk-government-websites-infected-with-crypto-mining-malware-report-idUSKBN1FV0VO
Even Elon Musk can't keep hackers at bay, as Tesla was also infected by coin miners: https://www.bleepingcomputer.com/news/security/tesla-internal-servers-infected-with-cryptocurrency-miner/
The potential of blockchain is real. The ability to secure and authenticate transactions using decentralised points of confirmation has the potential to change the way finance, democracy and trade work globally and destabilise centralised point of power like governments and banks.
But until it doesn't cost the earth to mine cryptocurrency, and while the greatest benefactors of coin mining are people injecting malicious malware into the websites you use and trust, cryptocurrencies are not the panacea they are made out to be.