Ether cryptocurrency, a victim of blockchain success
Virtual currency has lost more than half its value since the start of August
For all the attention afforded bitcoin, it is its rival ether that is hitting the headlines, with the popularity of its blockchain technology Ethereum driving concerns that have sent investors fleeing.
Virtual currencies have struggled across the board this month after US investment banking giant Goldman Sachs pulled back from its plans to open a trading desk for bitcoin, damaging sentiment for the entire sector.
Ether has slid 20 percent in value, taking a further hit from comments made by Vitalik Buterin, co-founder of Ethereum, which powers the cryptocurrency.
Earlier this month, the 24-yearold Russian-Canadian programmer told Bloomberg that “the (Ethereum) blockchain space is getting to the point where there’s a ceiling in sight”.
A blockchain is essentially a ledger for recording transactions, which is both open to all who use it but extremely secure, and has enabled the rise of cryptocurrency trading.
A multimillionaire thanks to Ethereum, Buterin has previously spoken about “scalability” probably being the number one challenge facing the sector.
Unlike bitcoin’s blockchain, which carries out transactions involving only the cryptocurrency, Ethereum can host different virtual tokens and also enable certain digital applications and socalled smart contracts.
Such programmes can for example automatically trigger payments without the use of a third party when predefined conditions are met, such as winning a sports bet.
Ethereum is also home to two-thirds of initial coin offerings (ICOs), essentially a fundraising tool for companies which issue the tokens against cryptocurrencies much like issuing shares on a stock market.
An explosion in the number of ICOs in 2017, two years after ether’s launch, resulted in the cryptocurrency’s price rocketing 160 times in value over a 12-month period.
The craze surrounding ICOs has also caused congestion to Ethereum’s network, contributing to ether’s price collapse beginning in January.
“The more it’s demanded, the more likely you are to clog the network,” said Jerome de Tychey, president of Asseth, an association promoting the use of Ethereum.
A clogged Ethereum results in higher charges for clients wanting their transactions prioritised -- and average fees briefly hit a record $5.50 in July according to bitinfocharts.com. Generally though, fees fluctuate around a few cents.
Delays to a planned overhaul of Ethereum’s scalability have meanwhile likely discouraged some investors from using the blockchain, according to de Tychey.
Naeem Aslam, an analyst at traders Think Markets, said Buterin “isn’t doing the job which he is supposed to do” -- that is, to make companies “trust the technology and provide them (with) what they need”.
The plunge in the value of ether has indeed been dramatic. Since the start of August, it has lost more than half its value.
Going back to May, the drop is 75 percent, with the total value of the virtual currency tumbling to about $23 billion from $82.5 billion.
Yet the huge drop has only taken ether back to its value of a little over a year ago, at some $220 for one token.
Another factor weighing on ether’s price has been the success of ICOs. The companies which raised funding in ether with ICOs now need to sell to them to cover operating expenses in fiat currencies.
According to sector analysts Diar the companies that raised funding before the price boom at the end of last year have sold off some 20 percent of their ether holdings since April, weighing on its price.
Illicit cryptocurrency mining has been surging over the past year, in part due to a leaked software tool from the US National Security Agency, researchers said last week.
A report by the Cyber Threat Alliance, an association of cybersecurity firms and experts, said it detected a 459 percent increase in the past year of illicit crypto mining – a technique used by hackers to steal the processing power of computers to create cryptocurrency.
“Activity has gone from a virtually non-exist issue to one that almost universally shows up at the top of our members’ threat lists,” said a blog post by Neil Jenkins, chief analytic officer for the alliance.
One reason for the sharp rise was the leak last year by a group of hackers known as the Shadow Brokers of “EternalBlue,” software developed by the NSA to exploit vulnerabilities in the Windows operating system.
“A patch for EternalBlue has been available for 18 months and even after being exploited in two significant global cyberattacks – WannaCry and NotPetya – there are still countless organizations that are being victimized by this exploit, as it’s being used by mining malware,” Jenkins wrote.
The rise in hacking coincides with growing use of virtual currencies such as bitcoin, ethereum or monero, which are not regulated by any government and are created through solving complex computing problems.
While some cyptocurrency mining is legitimate, hackers have discovered ways to tap into the processing power of unsuspecting computer users to illicitly generate currency.
Jenkins said the rise in malware for crypto mining highlights broader cybersecurity threats.
“Illicit mining is the ‘canary in the coal mine’ of cybersecurity threats,” he said. “If illicit cryptocurrency mining is taking place on your network, then you most likely have worse problems and we should consider the future of illicit mining as a strategic threat.”
Hackers can generate gains and use cryptocurrency for other malicious purposes such as purchasing other kinds of malware tools on the “dark web,” according to the report.
The researchers said 85 percent of illicit cryptocurrency malware mines monero, with bitcoin representing eight percent.
“Although monero is significantly less valuable than bitcoin, several factors make this the cryptocurrency of choice for malicious actors,” the report said.
Monero, according to the report, offers more privacy and anonymity, “which help malicious actors hide both their mining activities and their transactions using the currency,” the researchers said. (Agencies)
The more it’s demanded, the more likely you are to clog the network