Why bitcoin made a comeback after the South Korean exchange hack

Why bitcoin made a comeback after the South Korean exchange hack

  • Bitcoin declined on Wednesday after a South Korean exchange hack was reported.

  • But by the same evening, the digital coin had bounced back.

Two cryptocurrency traders explain why.

Bitcoin made a comeback despite crashing after a recent hack on a South Korean exchange, and two cryptocurrency traders explained why it rebounded.

Charlie Lee, the founder of Litecoin, a global decentralized currency that is based on blockchain technology, said it was to be expected.

"Whenever there's an exchange hack, people get scared and the price drops," Lee said on "Fast Money" Wednesday. "It happens all the time."

"Whenever there's some bad news like an exchange hack, the prices drop like 5 percent," he said. "Five percent is a lot in the stock market world, but it's like nothing in the crypto space."

Bitcoin, the largest digital coin by market cap, fell from $6,718.35 to $6,561.79 Wednesday after news that the South Korean cryptocurrency exchange Bithumb was hacked and $30 million of coins were stolen.

By Wednesday evening at 5:30 p.m. ET, bitcoin had rebounded to more $6,700 in what Kelly called a "mini uptrend."

The two traders explain why.

 

1. Bithumb acted quickly

Kelly said as soon as the news was reported the exchange took action.

"They halted withdrawals and they put everything into cold storage," he said.

2. Exchange paid back investor losses

Bithumb used its own money to pay back investors.

"They immediately said, 'Any losses, we have reserves. We're going to pay for them. Nobody loses money," Kelly said.

3. Fundamentals

Lee said when an exchange is hacked, it doesn't affect the fundamentals of the underlying coins.

He likened it to a bank robbery. If a bank gets broken into and gold is stolen, Lee said, it doesn't affect the price of gold.

"So same with bitcoin," he said. "If an exchange doesn't protect their coins well enough and it gets hacked, it doesn't really change the fundamentals of the coin that they're protecting."

Additionally, a report released on Wednesday, by a Washington law firm, stated that the cryptocurrency firm Tether has enough U.S. dollar reserves to back its digital coins. The report came on the heels of investor concerns that the firm may not have actually had the reserves to back up its coins.

"The past few years people have been scared that Tether has been printing their Tether coins out of thin air and buying bitcoin with it, which might be the cause of last year's run up," Lee said. "And if they actually do have the USD backing that means that the run-up is created by real demand and not fake demand. That's really good news."

Investors have to protect their cryptocurrency better

Brian Kelly, founder and CEO of BKCM LLC, an investment firm focused on digital currencies, advised investors to hold their cryptocurrency in cold storage — which involves storing it offline — if possible.

Exchanges are "kinda the weak point here," Kelly said on "Fast Money" Wednesday.

Lee added that the cryptocurrency industry is relatively new, and exchanges are still learning to protect their funds.

"People have to get used to that, they really need to protect their coins much better than traditional finance," he said.

– Reuters contributed to this report.

 

Author: Kellie Ell

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A New Twist On Lightning Tech Could Be Coming Soon to Bitcoin

A New Twist On Lightning Tech Could Be Coming Soon to Bitcoin

Bitcoin's lightning network may be just starting to send transactions over the blockchain, but already its developers are looking to rearchitect the technology.
 

That's because, while touted as a way to significantly boost bitcoin's capacity, the network itself does require users to store a significant amount of data, which makes it difficult to download and run. As such, several lightning developers – Lightning Labs co-founder 'Laolu' Osuntokun and Blockstream's Christian Decker and Rusty Russell – have published a new proposal which imagines an alternative, "simplified" way of making off-chain transactions called eltoo.
 

But the new proposal isn't only about condensing the amount of data users need to store, it's also about keeping users' cryptocurrency safe.

 

For instance, all this data poses another problem in that if users accidentally broadcast older data, they might lose money. As such, this data has been coined "toxic information."
 

Eltoo, on the other hand, only stores the most recent off-chain transaction data, solving the well-known "information asymmetry" problem – that is if something happens to the device you're running your lightning app on – say your smartphone – you might lose access to the whole history of data.
 

"With eltoo, we reduce the risk of funds being swept away. We remove this toxic information," said Decker, who noted that the proposal's name is a joke of sorts – the phonetic spelling of "L2," which stands for layer-two, what many people call technology like lightning that pushes transactions off-chain.
 

And this is something Decker is very interested in since he's experienced the problem personally.
 

"This actually happened to me," he said, adding:
 

"I had an old lightning node on my laptop. I restored it. I didn't know I didn't have the newest state. The guy closed the connection because they knew it was an old state! Because he could steal it. Which he did, by the way."
 

All about revoking

Developers have long been trying to come up with a way for users to make a bunch of transactions using bitcoin, without bloating the blockchain with unnecessary data.
 

That's really what most of the scaling debates are all about.

 

But the first attempt to do this was way at the beginning of bitcoin's history when off-chain transaction capabilities were experimented with using so-called "sequence numbers" to keep track of which off-chain transaction is the most recent.
 

The idea was simple – if Alice has $10 and sends a $1 transaction to Bob, obviously her balance dwindles to $9.00. This then gets a sequence number "1." If later, she sends Bob $4, her balance is now $5, and this most recent transaction gets a sequence number "2."
 

But according to Decker, the mechanism "didn't work out," because miners didn't have any reason to enforce the rules and replace old transactions with the more recent ones.
 

Miners could just broadcast the one transaction where Alice's balance drops to $9 (even though she had made another transaction that dropped her balance to $5). While it's unclear why a miner might want or decide to not revoke a transaction for another one, they could decide to do so since there was no enforceability.
 

In this way, revoking old transactions in crucial otherwise Bob might not get the second transaction and Alice could run away with the money.
 

This "lack of enforceability" is a problem that wasn't solved until 2015.

 

And the lightning network is the best-known solution to this problem so far. Today, revoking old state is accomplished with the "L2-penalty" model – whereby a lightning wallet or node stores all of these intermediary states, then, if someone tries to broadcast an earlier, now-invalid state, this is detected and the cheating user is punished by losing money.

 

Eltoo and L2

But, three years on, the researchers are, in fact, going back to the idea of using sequence numbers to revoke old transactions.
 

Unlike bitcoin's old code, which didn't have an enforcement mechanism for these sequences, eltoo adds a procedure that makes every state update prescribed. Every state update – Alice sending Bob money, for instance – is composed of two transactions, each of which both parties store and which totally replace the prior update transaction.
 

"Only the last settlement transaction can ever be confirmed on the blockchain," the introductory blog post explains.
 

The tangential advantage of this system is that it increases lightning's scalability. With eltoo, each lightning node doesn't need to store all the intermediary states, rather, it stores only the most recent version and some information about the transaction itself, such as it's corresponding settlement transaction and potentially the HTLCs that spend from that settlement, the post notes.

What's perhaps the most beneficial part of the proposal, though, is that it isn't built on a "winner takes all" model.
 

Instead, eltoo and older L2 penalty schemes can be used side-by-side.

 

"Eltoo has quite different tradeoffs. I'm not implying it's better in all senses," Decker told CoinDesk, pointing to some arguments on the bitcoin developer mailing list about the technology increasing waiting times for transactions to be settled.
 

Still, overall, he's pretty excited about eltoo and the simplicity it brings, adding:

 

"We don't know which one is nicer, but I would like eltoo as the better option. I think eltoo is easier to explain and to extend later on."

 

Code obstacle

Not only are developers still discussing the proposal's merits, but there's another thing standing in the technology's way – "sighash_noinput."

 

This long-anticipated code option needs to be added to the bitcoin codebase for the cryptocurrency to be able to support eltoo (at least in an efficient form).
 

To understand why, it's important to know what the basic sighash function does. It works as a flag of sorts that specifies what part of the transaction data needs to be signed when it's transferred over to someone else. Users can choose from a range of options – for instance, the default flag, sighash_all, indicates that all parts of the transaction need to be signed, meaning that none of these parts can be changed throughout the process.
 

The proposed "sighash_noinput" function could flag that the "input" data going into a transaction doesn't need to be signed. And in turn, that the input data can change over time, from when the transaction was created to when it's written to the blockchain.
 

And this is exactly what eltoo needs, since the concept is that all the state in between the beginning and final transaction will be deleted, meaning the input will be different from the start and the end.
 

When asked whether he thinks the sighash_noinput proposal will get merged into the bitcoin codebase, Decker laughed and said, "Ever since SegWit, I stopped making these predictions."
 

He's pointing to the fact that Segregated Witness (SegWit) had broad support from the bulk of bitcoin's most active developers, but ended up stirring up a years-long battle within the community. The code change was only added to bitcoin last August, even though it was proposed more than two years prior.
 

Still, even though it's early, the sighash_noinput function is a relatively easy change to make to bitcoin's codebase, Decker said.
 

Plus, it's been theorized for some time that the change would have many positive implications for developers, he continued. Because of these potential benefits, a handful of Twitter users have begun adding the code change to their profiles to express their support, much like Twitter users did during the scaling debate (with #No2X becoming popular among those who were opposed to the Segwit2x initiative).
 

Remaining hopeful, Decker concluded:
 

"Every day new use cases join the sighash_noinput front."

 

 

Author Alyssa Hertig May 29, 2018 at 04:00 UTC

Posted by David Ogden Entrepreneur

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3 Reasons the Bitcoin Price Hit $8,000 Today

3 Reasons the Bitcoin Price Hit $8,000 Today

3 Reasons the Bitcoin Price Hit $8,000 Today

The bitcoin price touched the $8,000 mark on Friday morning (or Thursday night, depending on your time zone), enabling the flagship cryptocurrency to check another milestone off its to-do list before it reaches five-figure territory.
 

Bitcoin Price Touches $8,000

Just days prior, the bitcoin price had been trading below $6,000, but a mid-week rally raised bitcoin back to its pre-dip level and ultimately vaulted it to a new all-time high of $8,040 on cryptocurrency exchange Bitfinex.


BTC Price Chart | Source: BitcoinWisdom

At present, the bitcoin price is trading at a global average of $7,741, which translates into a $129.2 billion market cap.

 

3 Factors Behind Bitcoin’s Rally

While a multitude of factors contribute to the movement of the bitcoin price, three stand out as primary drivers of the present rally:
 

1. Wall Street’s Anticipated Entry Into the Markets

Ever since regulated U.S. derivatives exchange operator CME announced it would add bitcoin futures contracts to its product offering, analysts have been counting down the days until Wall Street makes its first major entry into the cryptocurrency ecosystem. Anecdotal evidence indicates that prominent institutional investors are eying the markets with interest — enough interest that Coinbase is launching a cryptocurrency custodial service specifically targeted at institutional investors with more than $10 million in crypto assets.

Related to this is the fact that Wall Street investors are increasingly bullish on publicly-traded companies that enter the bitcoin or blockchain space. Payment processor Square, for instance, received a significant bump to its share price after it rolled out a bitcoin pilot program to a limited number of users of its Square Cash app.

square-cash-bitcoin-price-nov17

2. Successful Lightning-Based Atomic Swap

Though less likely to make its way into the mainstream press, another factor influencing bitcoin’s rally is the successful completion of the first off-chain atomic swap. Accomplished using lightning network technology, developers at Lightning Labs traded testnet bitcoin for testnet litecoin trustlessly and without leaving a record of the transaction in either blockchain. Once the lightning network reaches mainnet implementation, this feature will enable the creation of decentralized cryptocurrency exchanges.

 

3. SegWit2x

Finally, some analysts believe that the bitcoin price received a small bump due to the fact that a minority percentage of miners continued to signal for SegWit2x even though the fork’s most prominent advocates had called for its cancellation. Spencer Bogart, head of research at Blockchain Capital, had told Bloomberg Quint that he believed “some capital is rotating out of other crypto-assets and into bitcoin to make sure they receive coins on both sides of the fork” in the event that it did execute as planned. However, the fork did not occur — or at least has not yet — and fork-compatible nodes remain stuck at block 494782.

 

Author: Josiah Wilmoth on 17/11/2017

 

Posted by David Ogden Entrepreneur
David Ogden Cryptocurrency Entrepreneur

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