As is my usual default with sophisticated technologies, I’ve long thought I was too dumb to understand cryptocurrency, which always struck me as make-believe cash with the full faith and backing of the government of hocus pocus. Elon Musk was among crypto’s biggest cheerleaders and he’s supposedly a genius, so I readily concluded that my technology pea brain lacked the capacity to understand the brilliance of digital currency, which requires massive computer power doing as much damage to the climate as burning gas and cattle farming. It struck me as foolish and misguided to question the CEO whose Tesla outfit is the darling of climate change alarmists.
This weekend I was again reminded that a major component of Musk’s genius is his appreciation of the maxim typically credited to the circus impresario P.T. Barnum, “There’s a sucker born every minute.” Bloomberg reported that in 2017 when Musk unveiled a video demo of a Tesla driving itself to the tune of “Paint It Black,” the road-test data that Tesla submitted to California regulators revealed the number of autonomous miles Tesla had driven on public roads in the state was zero. Musk’s brilliance includes shades of a con man and he has replaced Barnum’s circus as “the greatest show on earth.” New York Post columnist Charlie Gasparino today published a column providing more fodder just how Barnumesque Musk really is.
What also made me question my crypto skepticism was the disclosure that the SEC had filed charges against “celebrity” Kim Kardashian for promoting the cryptocurrency EthereumMax on her Instagram page without disclosing that she was paid $250,000 for the public endorsement. In my mind, that was a waste of SEC resources; those looking to Kardashian for investment advice are the folks for whom we must endure airplane demonstrations on how to buckle seat belts. There’s no hope for them.
If Kardashian’s following is EthereumMax’s target market, that speaks volumes.
This AFP story the Times of Israel republished yesterday about the biggest crypto heist in the industry’s limited history made me again question whether I’m the tech moron I make myself out to be. If you aren’t aware of the theft, you should be: Binance, the world’s biggest exchange for crypto assets, disclosed that scammers stole $580 million of its digital currency, exploiting “an exploit” in the company’s system that led to extra production of the exchange’s dedicated virtual monies.
The good news is that Binance said the theft was “contained” because the company managed to freeze 80 percent of the stolen currency, meaning that only $100 million of crypto was unaccounted for.
“Your funds are safe,” tweeted Changpeng Zhao, the chief keeper of Binance’s electronic ledger.
Some perspective is in order here. If Binance safeguarded real money, the $100 million theft would rank as the third biggest robbery of all time, trailing only two bank heists that occurred in Baghdad, a city that doesn’t immediately come to mind when it comes to safety and security.
Zhao apparently wasn’t all that rattled by his company’s failure. Here’s what he also tweeted.
Imagine if Chase was robbed of $100 million and bank CEO Jamie Dimon bragged on Twitter about his limited involvement dealing with the matter because he was catching up on his ZZZs.
As best I can understand, Binance’s crypto robbers took advantage of what’s known in industry parlance as an “exploit,” which people of my generation would call a security “flaw” or “vulnerability.” To move money from one crypto exchange to another, one must cross an electronic “bridge” that is remarkably easy to attack. Brinks has yet to step up to the plate.
Experts have been warning about security lapses on cross-chain bridges all year, which shouldn’t come as a surprise. Chainalysis, whose analysis is hopefully better than their spelling, said in August that bridge exploits accounted for around $2 billion in crypto thefts this year. That’s about equal to the combined stolen amount of the ten biggest real-money heists of all time.
Little wonder. According to Elliptic, another crypto analysis firm, the technology to monitor so-called cross-asset and cross-chain transactions doesn’t yet exist. As well, Elliptic said bridges “tend to accumulate large amounts of locked assets on numerous blockchains, many of which may not have advanced security or auditing cultures due to their relative obscurity.” (emphasis mine.)
Who are these modern day Bonnie and Clydes? More likely, they have names like Ki-woo and Chae-Yeong.
In April, the FBI accused North Korea of stealing $620 million in cryptocurrency from the video game Axie Infinity. According to the New York Times, the theft, one of the largest of its kind, “provided the strongest evidence that cryptocurrency heists have become a highly lucrative yet relatively risk-free (emphasis mine) way for North Korea to raise funds to buttress the regime during the pandemic and to finance its weapons development.”
Risk free? Think of it as an electronic smash and grab with the zero consequences store looters face in California.
I’m not alone in my doubts about cryptocurrency. Famed investor Warren Buffett is also skeptical, having publicly said that if he was offered all the bitcoin in the word for $25, he still wouldn’t take it.
“Whether it goes up or down in the next year, or five or 10 years, I don’t know,” Buffett said at Berkshire Hathaway’s annual meeting last April. “But the one thing I’m pretty sure of is that it doesn’t produce anything. It’s got a magic to it and people have attached magic to lots of things.”
I’m not certain what gold produces, yet that’s been deemed a valuable asset for centuries. And Buffett’s record evaluating pioneering financial products is far from stellar. When ETFs were first introduced, Buffett dismissed them as “financial weapons of mass destruction.” ETFs proved to be one of the greatest financial innovations of all time.
What’s given cryptocurrency credibility in my mind is that Fidelity, a company I trust and admire, has entered the space. But perhaps my longstanding awe of Fidelity and its technological prowess is misplaced.
I signed up for Fidelity’s multi-factor authentication thinking I was getting state-of-the-art identify protection. I’ve since learned that’s far from enough security – not even close. If I know that, hopefully so does Fidelity CEO Abigail Johnson and she’ll up Fidelity’s security game.
One thing is for certain: You’d better hope that my technology acumen really is as limited as I previously believed because if I understand cryptocurrency correctly, it’s a dumb and risky investment whose potential harm is not yet fully understood.