Cryptocurrency mining program Coinhive sparks controversy

Coinhive, a Javascript application that uses website visitors’ computing power to mine cryptocurrency, launched on September 14. Since, the program has generated controversy, as website owners and hackers alike insert it into a number of high-profile websites.

Coinhive markets itself as a legitimate way for websites to make money, but does not endorse the use of the script without user consent.

On September 16, The Pirate Bay, a popular torrent-downloading website, began using the program to mine Monero, a cryptocurrency similar to Bitcoin. Visitors to the site noticed spikes in their CPU usage and complained.

Later that day, The Pirate Bay issued a statement explaining that it was testing the program as an alternative to advertisements on the site.

“This is only a test. We really want to get rid of all the ads. But we also need enough money to keep the site running,” reads the statement.

Though all content on The Pirate Bay is free, the site needs to generate revenue to cover operating costs. Many of the ads that run on Pirate Bay are unseemly and/or contain malware.

The Pirate Bay’s statement says Coinhive “can be blocked by a normal ad-blocker”—AdBlock Plus and AdGuard now combat Coinhive, BleepingComputer notes. A typo in the embedded code originally caused the program to use more of visitors’ processing power than intended.

The Pirate Bay invited users to comment as to whether they would prefer advertisements or mining programs like Coinhive.

The majority of users who responded accepted mining as a viable way for the site to generate revenue, but many took issue with the site’s failure to inform users of the change.

“I think this is an interesting idea,” one user responded. “Keeping users informed is essential though. Giving registered users possibility of choosing between ads and mining might be also viable (though most of them probably block ads). Having more options how to contribute is a great idea! I will gladly contribute by providing part of my CPU when visiting TPB (as opposed to ads, I don’t like these especially due to privacy concerns).”

Other respondents acknowledged that those who downloaded free content had to pay in some way or another.

The Pirate Bay has removed the mining program from its site and has yet to say whether it plans to employ Coinhive in the future.

BleepingComputer reported Monday that it had detected the program in websites run by Showtime, a media company owned by CBS. Showtime’s main site, showtime.com, as well as its streaming domain, showtimeanytime.com, contained the Coinhive script.

It is not known whether a hacker implemented the script on the Showtime sites, or whether the company itself was testing the program. But BleepingComputer notes that the script had been set to “remain dormant” for 97 percent of the time. A hacker, that publication points out, would likely set the script to run far more often, so as to co-opt much processing power as possible before his scam was discovered.

Showtime declined to comment on the matter. The script disappeared from the sites early Monday afternoon.

Using victims’ CPU processing power to mine for cryptocurrency has long been a common practice amongst malware designers, but prior to the inception of programs like Coinhive, hackers had to download an application onto a victim’s hard drive in order to use his computer. Now, hackers can seize the processing power of any user running a Javascript-enabled browser (most browsers enable Javascript by default).

Malware developers have already embraced Coinhive. One embedded it in a Google Chrome extension, so that it ran in the background of the browser. Others have breached WordPress and Magneto sites and inserted the code there.

Some have registered commonly mistyped URLs, such as “twitter.com.com,” as domains, and run Coinhive on those sites. The program only runs until the user realizes he has input the wrong URL and leaves the page, but with enough traffic and enough domains, the engineers of the scam could generate a considerable profit.

EITest, one of the world’s most prominent malware operations, has also employed Coinhive for nefarious purposes.

Coinhive is not the first program of its kind. In 2013, Vice reports, MIT researchers developed a similar script called TidBit. But a court order shut the project down, ruling that using a person’s CPU processing power without his consent was unlawful.

Featured image via Wikimedia Commons

Bitcoin plummets as economists, regulators express skepticism of cryptocurrency boom

Bitcoin’s value, which nearly quintupled from the first of the year through the first of September, peaking at $4,950.72 per coin on the latter date, has fallen more than 20 percent this month and over 15 percent in the past seven days, as of 4:15 p.m. EST Wednesday.

The decline comes as a number of regulatory agencies and economic experts around the globe express skepticism regarding Bitcoin and other cryptocurrencies.

China banned Initial Coin Offerings (ICOs)—the means by which creators introduce and raise capital for new cryptocurrency projects—earlier this month, and Chinese news outlet Caixin reported Friday that the country might prohibit cryptocurrency exchanges entirely in the near future, Business Insider notes. 

But, Bloomberg’s Lulu Yilun Chen tweeted Friday that the Chinese government had yet to mandate the shutdown of Okcoin and Huobi PRs, two of the country’s most prominent cryptocurrency exchange platforms.

Some say China will relax the pressure it has placed on the cryptocurrency market once the government has found a viable means of regulating that market.

“China [is] saying, ok, we need to push back on these for now until we figure out how to deal with them,” said Zennon Kapron, director of the Shanghai-based financial technology consultancy Kapronasia, per Reuters, in reference to the country’s ICO ban. Kapron added that he expects the country’s government to eventually ease the ban.

Previous Chinese regulations against cryptocurrencies have proved temporary. The country prohibited the withdrawal of Bitcoin investments in February, but allowed withdrawals to resume in June, Business Insider points out.

Chinese regulators are not the only ones wary of the cryptocurrency boom.

Tuesday, the U.K.’s Financial Conduct Authority released a statement cautioning investors about the risks of ICO investors, Business Insider reports. These risks, according to the FCA, include the lack of regulation governing the cryptocurrency market, the volatility of cryptocurrencies, the potential for fraudulent ICOs, and the experimental nature of cryptocurrency projects.

“ICOs are very high-risk, speculative investments,” the FCA’s warning reads. “You should be conscious of the risks involved … and fully research the specific project if you are thinking about buying digital tokens. You should only invest in an ICO project if you are an experienced investor, confident in the quality of the ICO project itself (e.g., business plan, technology, people involved) and prepared to lose your entire stake.”

Also on Tuesday, Business Insider says, JP Morgan CEO Jamie Dimon predicted an imminent crash of what he sees as the Bitcoin bubble. His prediction, so far, has been self-fulfilling. Dimon said he “would fire any trader that transacted Bitcoin for being stupid” (Business Insider’s paraphrasing).

As of 5:15 p.m. EST, Bitcoin’s value has fallen six percent on Tuesday’s news.

Business Insider notes that early this month, in an interview with Quartz, Yale economics professor and Nobel Prize winning author Robert Shiller, who predicted the crash of the housing and technology markets in his 2000 book “Irrational Exuberance,” called Bitcoin the best example in today’s market of a speculative bubble.

A “speculative bubble” occurs when unrealistic expectations amongst investors of an asset’s future performance drive the market value of that asset beyond any real gains it is capable of accruing.

In the aforementioned book, Shiller argues that the tech bubble formed because “a fundamental deep angst of our digitization and computers” compelled investors to seek a false sense of understanding and comfort by gobbling up tech stocks.

“Somehow Bitcoin…gives a [similar] sense of empowerment: I understand what’s happening! I can speculate and I can be rich from understanding this! That kind of is a solution to the fundamental angst,” Shiller told Quartz.

There is no question that investors have been exuberant about cryptocurrencies this year. ICOs have raised over $2 billion in 2017. The question is whether the exuberance is irrational. As a number of financial experts answer that question in the affirmative, once-exuberant cryptocurrency backers are growing skittish.

Featured image via Wikimedia Commons

Chinese authorities crackdown on cryptocurrency ICOs

Monday, the Chinese government banned the practice of creating and selling new cryptocurrencies, Reuters reports

With the rise of Blockchain technology, initial coin offerings (ICOs)—which give investors the opportunity to buy newly-created cryptocurrencies—have gained popularity. In total, Reuters says, ICOs have raised $2.32 billion since the inception of the cryptocurrency market; $2.16 billion of that amount has come in 2017.

In China this year, 65 ICOs have raised a combined 2.62 billion yuan ($394.6-million) and attracted 105,000 investors, according to Reuters.

The value of Ethereum, the cryptocurrency in which most ICOs are transacted, has plummeted on the news. On Sunday, one Ethereum token was worth $349.93. Late Monday, that figure had fallen 14.3 percent to $299.72. As of 1:33 p.m. Eastern Tuesday, Ethereum has recovered slightly; the USD-Ethereum exchange rate sits at 307.56 to one.

The Bitcoin-USD exchange rate has dropped 5.9 percent since midnight Monday morning on China’s news. Late Sunday night, one bitcoin was worth $4,632.46. As of 1:39 Eastern Tuesday, the value of a single bitcoin token is $4,359.07.

The market capitalization of the cryptocurrency industry as a whole dropped 11.66 percent Monday, from $165.095 billion to $145.833 billion. Since midnight Tuesday morning, though, the industry’s market cap has gained 1.7 percent. As of 1:55 p.m. Eastern, the industry is worth $148.358 billion.

“The large price falls can be attributed to panic amongst traders and profit-taking,” said Cryptocompare founder Charles Hayter, per Reuters.

Indeed, China’s announcement had many investors across the internet predicting doom and gloom. A participant in one chatroom set up for an upcoming ICO said “the music has stopped” for the cryptocurrency boom, Reuters reports.

“Sell all your bitcoins now,” another advised, again per Reuters.

The organizer of the ICO to which the chatroom was dedicated, which was meant to launch a new cryptocurrency called SelfSell, has suspended the project.

Regulators around the world are struggling to understand cryptocurrency investment and the risks associated with it, said Zennon Kapron, director of the Shanghai-based financial technology consultancy Kapronasia, per Reuters.

Prior to China’s announcement, the U.S. Securities and Exchange Commission, as well as similar agencies in Singapore and Canada, warned that regulations would likely be needed to control the cryptocurrency market.

The lack of regulation governing cryptocurrency and investment in it is unprecedented. Blockchain, the backbone of cryptocurrency transactions, functions without a centralized overseer.

The nature of investment in cryptocurrency is also unconventional. When one contributes to a fundraiser for a traditional company, one generally receives a share in the company and/or a security. ICO investors, Reuters notes, receive neither.

Therefore, Reuters points out, an investment in a cryptocurrency is little more than a bet that demand for that currency will exceed supply, driving up value. It is a risky bet, considering the volatility of cryptocurrencies.

With risks to investors so high, government regulators are purportedly taking strides to protect their citizens. Cryptocurrency expert and Blockchain proponent Oliver Bussman said, per Reuters, that the lack of private financial advice firms in China obligates the government to be especially vigilant in protecting the finances of its constituents.

Of course, many would argue that it is an investor’s own responsibility to protect him/herself.

Despite some predictions that China’s move spells the beginning of the end of the cryptocurrency boom, many experts believe the regulatory shutdown is but a temporary measure designed to give the country’s government time to develop a strategy by which to handle cryptocurrencies.

“China, in many ways, is no different than the U.S. or Singapore in saying, ok, we need to push back on these for now until we figure out how to deal with them,” Kapron said, per Reuters, adding that he expected regulators in China to eventually ease the ICO ban.

Bussman says, per Reuters, that cryptocurrency technology is too revolutionary, too integral to the future of global economics, to be shutdown. Cryptocurrency, he says, has already worked itself into the fabric of modern investment.

“The initial coin offering is a new business model leveraging blockchain technology and it will remain. This is not the end of the ICO – absolutely not,” he said.

Featured Image via Flickr/BTC Keychain

What is Bitcoin?

Bitcoin is a peer-to-peer digital currency system that uses mathematical formulas (“cryptography”) in lieu of traditional, centralized financial institutions to protect users’ currency and verify and process transactions.

The currency was created in 2009 by an unidentified developer or group of developers operating under the alias Satoshi Naskomoto, who wrote this white paper describing the technology behind the system and the advantages Bitcoin offers in the marketplace.

The writer of the paper argues that a monetary system that depends upon a third party to verify transactions cannot make transactions irreversible, as said third-party must always mediate disputes. Moreover, the mediator charges for its services, and the cost of commerce rises.

Bitcoin employs two layers of verification: a user’s “wallet” and the Blockchain, a collective, public ledger that records every bitcoin transaction.

A wallet ties a specific amount of bitcoins to a specific user via two unique, encrypted “keys,” one public and one private. The private key contains a confidential “signature” which proves a user’s right to spend certain bitcoins. The public key derives from the private key by way of a mathematical process so complex it is impossible to reverse engineer. In other words, although a wallet’s public and private keys are linked, no user can deduce another user’s private from his/her public key.

The public key is hashed (read: condensed) to form an address. Like a physical address or an e-mail address, a bitcoin address is how users find and send things to one another. In order to maintain anonymity, it is recommended that users only use a given address once. In other words, users should generate a new address for each transaction. One wallet can contain multiple addresses, but the Bitcoin website advises that users spread their bitcoin stakes across multiple wallets so as to preserve anonymity.

A host of bitcoin wallet services, such as Electrum and Armory, offer an array of different types of wallets. Wallets can be stored on a desktop, a mobile device, a piece of hardware, or the internet. Some wallets store the entire blockchain, which currently consists of more than 100 GB of data, and is growing all the time, locally. Others store only the most recent blocks in the chain.

As mentioned, the blockchain a public ledger. Every ten minutes, a new “block” containing multiple transactions is published on the blockchain. Each block is marked with a timestamp, verifying that a user gave a certain amount of bitcoins to another user at a certain time.

The timestamp acts to prevent double spending, to which other decentralized exchange systems are inherently vulnerable. “Double spending” is the practice of spending the same currency in multiple transactions. If transaction records are private, and no authority has access to them, those dealing in an abstract form of currency like electronic payment cannot verify that a buyer has not already spent the funds he is appropriating for a given purchase. The blockchain, on the other hand, checks time stamps and rejects any transaction User A makes with User C using bitcoins he/she has already transferred to user B.

When a transaction is submitted to the blockchain, bitcoin “miners” use computing power to work to solve a “proof-of-work” problem that allows for the block to be added to the chain. The miner whose computers first solve the “proof-of-work” problem is rewarded in bitcoins. Thus, new bitcoins enter circulation.

By ensuring that a certain amount of work must be done to create a new block and new bitcoins, the system guards against an overload of requests and prevents inflation. As bitcoin’s popularity increases, more and more people will become miners. As more and more people become miners, it will be harder and harder to solve the “proof-of-work” problem. This method ensures that bitcoins are created at a decelerating pace.

Bitcoin’s founders only allowed for 21 million bitcoins to be mined. So, like any commodity, bitcoins are finite, cannot be obtained without work.

In an effort to preserve decentralization, bitcoin mining is open to anyone with an internet connection and the appropriate hardware.

Rather than mining, one can buy bitcoins using traditional currencies via an exchange service such as Coinbase.

BitCoin’s value surges despite looming scalability challenges

As of 2:18 Eastern Monday, a single bitcoin is worth $4,282—an all time high for the cryptocurrency, invented in 2008. The bitcoin-USD exchange has soared more than 200% this year, as investors in Korea and Japan increasingly seek to buy the cryptocurrency—some such investors are willing to pay premiums of up to 30%—and May’s New York Agreement helps it to accommodate expansion.

A wide array of investors have jumped on the bandwagon, some more enthusiastically than others. “Whether or not you believe in the merit of investing in cryptocurrencies…real dollars are at work here and warrant watching,” Goldman Sachs analysts wrote in a note to clients, per Bloomberg.

Joshua M. Brown, a financial advisor at Ritholtz Wealth Management, is among those who, despite their skepticism, cannot resist BitCoin’s upside. When the cryptocurrency first became part of investors’ vernacular seven years ago, Brown observed in a blog post in mid-July describing his first-ever BitCoin purchase, it was subject to all the volatility that accompanies a “new and unproven” investment opportunity.

Now, though, the cryptocurrency has been hanging around in the public eye for quite a while, and recent developments such as the New York Agreement may lead to stabilization.

As a limited resource as well as a medium of exchange, Bitcoin has properties of a commodity as well as a currency, Goldman Sachs’ note to clients points out. The United States IRS does not recognize Bitcoin as legal tender but, rather, treats it as property for tax purposes.

BitCoin’s value is not supported by some inherently valuable asset like gold or silver, but the lack of such a standard is par for today’s currencies, according to Tim Courtney, CIO at Exencial Wealth Advisors.

“The first thing to understand is that, just like every other currency, there is no asset backing digital and cryptocurrencies,” Courtney told TheStreet. “In the past, some currencies were backed by gold or silver, but that’s no longer the case.”

Without any sort of backing, Bitcoin derives all of its value from supply and demand. BitCoins, in other words, are only worth what someone is willing to pay for them.

“When you see returns on digital currencies moving up, that means demand for them has outnumbered the sellers out there,” Courtney explained to TheStreet.

BitCoin will face a minefield of obstacles as it scales up to satisfy increasing demand. One such challenge could be unprecedented volatility. In late June, Ethereum, a cryptocurrency similar to Bitcoin, dropped from $300 dollars to $0.10 on a single, multi-million-dollar exchange, CNBC reports.

Courtney observes, per TheStreet, that there was no way to reverse the trades, as there would have been had the crash involved “established assets.”

“…there is no security to your [cryptocurrency] trades if something unexpected happens,” Courtney told TheStreet.

‘”What we’ve been doing in the stock market to prevent flash crashes, they’re nowhere near that in the cryptocurrency market,” adds Joe Saluzzi, co-founder of Themis Trading, per CNBC.

Bitcoin also runs the risk of devaluing itself as it expands, Courtney says. He cites the “constrained supply” of Bitcoin as an integral part of its value—basic microeconomics principles hold that if a commodity is in high demand but short supply, its price will rise.

Yet, as Bitcoin expands to serve increasing demand, it will become less and less scarce, and may, therefore, lose much of its value. In other words, like any other currency that loses its scarcity, Bitcoin will be subject to inflation.

BitCoin has long been vulnerable to cyberattacks. As its popularity grows, it will increasingly become a target for hackers. Exchange services BTC-e and Bitfinex both reported being hacked last week, according to CNBC.

The security and anonymity of BitCoin make it a suitable platform through which to launder money, demand ransoms, and carry out other nefarious transactions. All transactions carried out on contraband distribution websites like the AlphaBay and Hamsa, both of which authorities shut down in July, are conducted via BitCoin. Late last month, alleged BTC-e operator Alex Vinnik was arrested on suspicion of having laundered more than $4 billion his clients generated through a variety of criminal enterprises.

“It’s hard to imagine the IRS, Treasury etc allowing anonymous transactions without any reporting becoming a global standard for US persons,” Brown wrote in his blog post.

Still, Brown says, he is not willing to miss out on the potential upside of an investment in BitCoin. “I’m old enough to realize that just because I don’t see a use for something, that doesn’t mean I won’t be proven wrong by others who do,” he writes.

Judging by the spikes in the cryptocurrency’s value—it seems to hit a new high every day, of late—plenty of other investors are indeed anxious to prove Brown wrong.

Featured Image via Flickr/Zach Copley