Srinivasan Keshav, University of Waterloo

Imagine buying a solar panel from a hardware store, mounting it on your roof, then selling the green electricity you produce at a price you set.

Is this even possible? Some companies certainly think so. These startups are harnessing the power of blockchains to democratize green power.

Before you can understand how blockchains are part of the solution, you first need to know a few things about the green electricity market.

Today, independent auditors assess renewable-energy producers and certify their electricity as “green.” These producers can then sell Renewable Energy Certificates (RECs) to consumers who want to buy green energy.

This is how corporations such as Apple and Google can say they are 100 per cent green. They aren’t generating their own green electricity, but purchasing certificates from green-energy producers.

Of course, the actual energy they use is not always green. As long as every unit of energy they consume matches up with a purchased REC, green energy is displacing carbon-intense energy. A market for RECs creates a strong signal for investment in green electricity generation.

Some companies do power some or all of their operations using Power Purchase Agreements (PPAs). This commits them to purchasing a certain amount of energy at a certain price from renewable-energy producers over time-scales of about 20 years or so. PPAs reduce risk for generators by guaranteeing return on investment, thus creating a strong motivation for long-term investment in green generation.

Both of these approaches, however, discriminate against small generators of green electricity.

It’s not easy generating green

The certification process for RECs is cumbersome and expensive, with physical audits, so it doesn’t make sense for mom-and-pop green generators. Similarly, PPAs can only be negotiated by large green generators.

For these two reasons, small-scale green generators must make do with whatever price their local utility pays them. This price can be volatile due to meddling by legislators as well as by the utilities themselves. Thus, small generators are exposed to higher levels of risk than bigger players.

What if we could reduce the cost of certification, eliminate onerous auditing and avoid non-market price controls, so that even a small-scale green generator could de-risk investments?

This is what companies such as PowerLedger in Australia and LO3 Energy in Brooklyn provide. They use blockchains to store generation certificates that are created by tamper-proof meters attached to solar panels.

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Read more:
Demystifying the blockchain: a basic user guide

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These blockchains also store transaction records when the certificates are traded, so that the same unit of generation cannot be resold. By eliminating auditors, transaction costs and price regulation, this solution makes renewable-energy investment attractive even for small players.

A scaling problem

Unfortunately, this approach has a scaling problem.

Today’s blockchains cannot support the addition of more than a few hundred certificates or trades (we’ll call them both “transactions”) per second. This is because blockchain servers need to agree on the contents of each block, despite server and communication failure and the presence of malicious servers. This is the well-known and difficult “consensus problem.” Because of this problem, the scale needed to support hundreds of millions of solar panels is beyond the reach of current blockchain technology.

For instance, BitCoin, the best-known blockchain, supports only about 10 transactions per second and HyperLedger, IBM’s competing solution, under 1,000 transactions per second. A democratic REC system would generate transactions at a rate hundreds of times faster.

My colleagues at the University of Waterloo have recently devised a new solution to the consensus problem called Canopus.

Canopus takes a server’s location on the internet cloud into account, minimizing communication between geographically-distant servers. By keeping most communications local and fast, blockchain servers can process far more transaction records each second than a traditional consensus protocol that doesn’t take location into account. This improvement in scaling allows even mom-and-pop green generators to obtain certificates and participate in energy transactions.

One million transactions per second

We are currently building a prototype blockchain using Canopus that we hope will handle more than one million transactions per second. In our solution, smart meters attached to solar panels send RECs to brokers. Consumers can purchase these RECs using their own brokers.

If successful, our work will encourage homeowners and small businesses to invest in renewable energy technologies to become green generators. It would also encourage Ontario’s electricity consumers to become 100 per cent green, just like Apple and Google.

Indeed, since blockchain knows no boundaries, our system could allow green generators in sun-drenched developing countries to recoup their investment in green generation by selling RECs to consumers around the world. Of course, this requires placing blockchain servers in every region of the world, but this is easily done using existing datacenter infrastructure.

This would reduce the global carbon footprint, and would be more efficient — thus less costly — than deploying solar panels in sun-poor northern countries.

Blockchains are for EVs too

The development of a scalable, tamperproof and globally accessible energy blockchain would enable other energy transactions.

Emissions-free electric vehicles (EVs) allow consumers to use electricity instead of gasoline to meet their transportation needs. While consumers get incentives to purchase EVs, they receive none to operate them.

Blockchain makes it possible to reward EV owners for operating their EVs, or providing ancillary services to utilities, making the vehicles more affordable. EV owners could be further rewarded if they charged their cars with green electricity.

Close to reality?

Although the technology for building scalable blockchains will soon exist, one problem is that some jurisdictions, including Ontario, give local distribution companies tight control on integrating green generation to ensure grid stability.

While this is certainly necessary, there is no intrinsic need for green generators to be tied into a provincially mandated pricing plan such as the microFIT scheme. The province should allow generators to sell their electricity to the highest bidder, just like any other producer.

We also need to build, deploy and critically evaluate small-scale prototypes of blockchain-based transactive-energy systems so that we can learn by doing.

As solar and wind costs continue to drop and energy storage technologies reach maturity, it is becoming possible to turn away from carbon-intense electricity generation and gasoline vehicles.

Democratizing the deployment of these technologies using scalable energy blockchains will, we hope, accelerate this important societal transformation.

Srinivasan Keshav, Professor, School of Computer Science, University of Waterloo

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Schmitt Trading Ltd has launched its new site Trading Robots on 19.10.2021, 18.45 CEST.

We would love to keep you updated in the weeks to come. Please register with WordPress.com and follow our site! You can also follow us on Twitter.

To learn more about Schmitt Trading Ltd, read the section Introduction of Schmitt Trading Ltd.

To learn more about the owner of Schmitt Trading Ltd, read the section Introduction of the Company Owner.

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Raynold Wonder Alorse, Queen’s University, Ontario

Modern society has given significant attention to the promises of the digital economy over the past decade. But it has given little attention to its negative environmental footprint.

Our smartphones rely on rare earth metals, and cloud computing, data centres, artificial intelligence and cryptocurrencies consume large amounts of electricity, often sourced from coal-fired power plants.

These are crucial blind spots we must address if we hope to capture the full potential of the digital economy. Without urgent system-wide actions, the digital economy and green economy will be incompatible with each other and could lead to more greenhouse gas emissions, accelerate climate change and pose great threats to humanity.

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Read more:
How to make computers faster and climate friendly

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The digital economy lacks a universal definition, but it entails the economic activities that result from billions of everyday online connections among people, businesses, devices, data and processes, from online banking to car sharing to social media.

It’s often referred to as the knowledge economy, information society or the internet economy. It relies on data as its fuel and it is already benefiting society in many ways, such as with medical diagnoses.

Coal is still king for the internet

Rare earth elements form the backbone of our modern digital technologies, from tablets and smartphones to televisions and electric cars.

China is the world’s largest producer of rare earth minerals, accounting for close to 70 per cent of global annual production. The large-scale production of rare earth elements in China has raised grave concerns about the release of heavy metals and radioactive materials into water bodies, soil and air near mine sites.

Research on the life-cycle assessments of rare earth minerals has found the production of these metals is far from environmentally sustainable, consuming large amounts of energy and generating radioactive emissions.

It’s sometimes said that the cloud (and the digital universe) begins with coal because digital traffic requires a vast and distributed physical infrastructure that consumes electricity.

Coal is one of the world’s largest sources of electricity and a key contributor to climate change. China and the United States are the top producers of coal.

Energy hogs

The world’s data centres — the storehouses for enormous quantities of information — consume about three per cent of the global electricity supply (more than the entire United Kingdom), and produce two per cent of global greenhouse gas emissions — roughly the same as global air travel.

A report by Greenpeace East Asia and the North China Electric Power University found that China’s data centres produced 99 million tonnes of carbon dioxide in 2018, the equivalent of about 21 million cars driven for one year.

Greenhouse gases aren’t the only type of pollution to be concerned about. Electronic waste (e-waste), which is a byproduct of data centre activities, accounts for two per cent of solid waste and 70 per cent of toxic waste in the United States.

Globally, the world produces as much as 50 million tonnes of electronic e-waste a year, worth over US$62.5 billion and more than the GDP of most countries. Only 20 per cent of this e-waste is recycled.

When it comes to AI, recent research found that training a large AI model — feeding large amounts of data into the computer system and asking for predictions — can emit more than 284 tonnes of carbon dioxide equivalent — nearly five times the lifetime emissions of the average American car. The results of this work show that there is a growing problem with AI’s digital footprint.

Another area of concern is Bitcoin and other cryptocurrencies, which rely on blockchain, a digital ledger with no central authority that continually records transactions among multiple computers. The amount of energy required to produce one dollar’s worth of Bitcoin is more than twice that required to mine the same value of copper, gold or platinum. A 2014 study found Bitcoin consumed as much energy as Ireland.

Blockchain technologies such as Bitcoin are energy inefficient and unless their potential applications are developed sustainably they will pose a serious threat to the environment.

Thinking differently

The digital economy is accelerating faster than the actions being taken in the green economy movement to counter negative environmental impacts. To move forward fast, we must first start thinking differently.

The world and its intractable challenges are not linear — everything connects to everything else. We must raise awareness about these major blind spots, embrace systems leadership (leading across boundaries), boost circular economy ideas (decoupling economic activity from the consumption of finite resources), leverage an eco-economics approach (an environmentally sustainable economy) and encourage policy-makers to explore the interrelationships between government-wide, system-wide and societal results.

We must also consider collective problem-solving by bringing together diverse perspectives from both the Global North and the Global South. We should take an inventory of the global and local damages caused by electronic devices, platforms and data systems, and frame issues about the digital economy and its environmental impact in broad societal terms.

Perhaps, the way to move the current discussion forward is to ask: What needs to be done to set the world on a sustainable human trajectory?

We must not only ask what the digital economy can do for us, but what we can collectively do for both the digital economy and the environment.

[You’re smart and curious about the world. So are The Conversation’s authors and editors. You can read us daily by subscribing to our newsletter.
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Raynold Wonder Alorse, PhD Candidate in International Relations (International Political Economy of Mining), Queen’s University, Ontario

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Annabel Bligh, The Conversation; Gemma Ware, The Conversation; Kelly Fiveash, The Conversation, and Will de Freitas, The Conversation

In this episode of The Anthill podcast from The Conversation, we’re delving into the world of Bitcoin. The cryptocurrency has come a long way since its launch by the mysterious person (or persons) Satoshi Nakamoto in 2008. The price of one Bitcoin hit a peak of more than US$19,000 in December 2017. It has since fallen below US$9,000.

Bitcoin has made a lot of headlines over the last year, but will it be the currency of the future? To find out, we spoke to professor of business history at Bangor University, Bernardo Batiz-Lazo, about what makes money money. He shared his doubts about Bitcoin – or any other cryptocurrency – going mainstream anytime soon.

And Larisa Yarovaya, lecturer in accounting and finance at Anglia Ruskin University, explains some of her recent research into the effect of US policy announcements on different cryptocurrencies. Her findings give some insights into whether or not they make good assets for investment. She also tells us how cryptocurrencies respond in different ways to the US dollar and gold.

For many, one of the big appeals of cryptocurrencies is the fact that they are not regulated by any governments. But different countries have responded in wildly different ways to the rise in popularity of Bitcoin. Initial coin offerings have been banned in South Korea, where regulators are considering shutting down local cryptocurrency exchanges. Meanwhile, the threat of regulation in China and elsewhere recently triggered a significant slide in Bitcoin’s value.

Russia, however, has been a hotbed of cryptocurrency innovation, where President Vladimir Putin wants to create infrastructure for the national adoption of virtual coins. And in Sweden there’s talk of releasing a national cryptocurrency.

The Conversation’s technology editor Kelly Fiveash spoke to lawyer Iwa Salami at the University of East London and Brian Lucey, finance expert at Trinity College Dublin, to take a closer look at what different governments are saying – and doing – about regulating cryptocurrencies.

Bitcoin has come in for some harsh criticism for the amount of energy it takes to verify every transaction involved – a process that has been dubbed “mining”. This involves large amounts of energy-guzzling computer power.

Will de Freitas went on a search to find out whether there might be a more sustainable way to make cryptocurrency in the future – by building greener computers. Along the way, he spoke to physicists Oscar Cespedes at the University of Leeds and Heiner Linke at Lund University, about whether the computers of the future might be better for the environment.

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The Anthill theme music is by Alex Grey for Melody Loops. Music in the segment on state reaction to bitcoin is Tech Toys, by Lee Rosevere. And music in the green computing segment is Distilled, by Nctrnm.

Click here to listen to more episodes of The Anthill, on themes including Sex, Growing Up, Myths, and Pain.

Thank you to City, University of London’s Department of Journalism for letting us use their studios to record The Anthill.

Annabel Bligh, Business & Economy Editor and Podcast Producer, The Conversation; Gemma Ware, Editor and Co-Host, The Conversation Weekly Podcast, The Conversation; Kelly Fiveash, Technology Editor, The Conversation, and Will de Freitas, Environment + Energy Editor, The Conversation

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Sankar Sivarajah, University of Bradford and Kamran Mahroof, University of Bradford

The cryptocurrency bitcoin now uses up more electricity a year than the whole of Argentina, according to recent estimates from the University of Cambridge. That’s because the creation of a bitcoin, in a process called mining, is achieved by powerful computers that work night and day to decode and solve complex mathematical problems.

The energy these computers consume is unusually high. Police in the UK recently raided what they believed to be an extensive indoor marijuana-growing operation, only to discover that the huge electricity usage that had aroused their suspicions was actually coming from a bitcoin-mining setup.

Thousands of similar setups, around 70% of which are currently based in China, continue to demand more and more energy to mine bitcoins. This has understandably prompted environmental concerns, with Elon Musk tweeting in May 2021 that Tesla would no longer accept bitcoin as payment for its vehicles on account of its poor green credentials.

But there are thousands of other forms of cryptocurrency, collectively termed “altcoins”, which are far greener than bitcoin – and to which investors are now turning. Many of them are attempting to use less environmentally damaging technology to produce each coin, which may ultimately herald a greener future for cryptocurrencies.

Altcoins

Of the thousands of “altcoins” in the market, ethereum, solarcoin, cardano, and litecoin have shown promising potential as greener alternatives to bitcoin. Let us take the example of litecoin as an example of how they’re doing it.

Litecoins are very similar to bitcoins, except that they reportedly only require a quarter of the time to produce. Where sophisticated and powerful hardware with a colossal energy demand is needed to mine bitcoins, litecoins can be mined with standard computer hardware which requires far less electricity to run.

[youtube https://www.youtube.com/watch?v=GmOzih6I1zs?wmode=transparent&start=0]

Other alternatives, such as solarcoin, aim to encourage real-world green behaviours. One solarcoin is allocated for every megawatt hour that’s generated from solar technology, rewarding those who’ve invested in renewable energy.

Different cryptocurrencies also use different processes to complete transactions. Bitcoin uses what’s called a “proof-of-work” protocol to validate transactions, which requires a network of miners to compete to solve mathematical problems (the “work”). The winner – and the person who mints a new bitcoin – is usually the competitor with the most computing power.

While proof-of-work is credited for being relatively secure, making it difficult and costly to attack and destabilise, it’s incredibly power-hungry. The way it forces bitcoin miners to compete with an ever-expanding arsenal of high-tech computers means it has inevitably come to demand more and more electrical power.

But there are alternatives to this form of mining. Ethereum, which is the world’s second largest cryptocurrency behind bitcoin, now uses a different protocol, called “proof-of-stake”. This protocol was specifically designed to address environmental concerns about the proof-of-work system, and it does this by eliminating competition between miners. Without the competition, there’s no computing power arms race for miners to participate in.

Given the increasing environmental scrutiny that cryptocurrency is now facing, it’s likely that any new altcoins will adopt ethereum’s system over bitcoin’s. Investors will likewise look to the green credentials of altcoins when deciding which cryptocurrency they’ll convert their bitcoin into.

Still the future of finance?

Despite the criticisms levelled against bitcoin for its shocking energy inefficiencies, the traditional financial system is far from green itself.

In the five years since the Paris Agreement on climate change, for instance, it’s reported that 60 of the world’s biggest banks have provided $3.8 trillion (£2.7 trillion) to fossil fuel companies – not very planet-friendly. One report found that 49% of financial institutions don’t conduct any analysis of how their portfolio impacts the climate.

Then there’s the sector’s electricity use. Where cryptocurrencies have the potential to run without the oversight of large financial institutions, the banking sector is built upon a huge amount of infrastructure which naturally burns through a great deal of electricity.

Banks themselves use plenty of computers and servers, as well as thousands of air-conditioned offices and fuel-guzzling vehicles. It’s difficult to estimate exactly how much energy is required to support all this activity, but one recent report found that the banking system consumes more than twice the electricity that bitcoin does.

So while bitcoin is rightly getting a battering for its outrageous energy consumption, there’s ultimately a need for all our financial systems to be green and sustainable. Banks can do this by reconsidering their portfolios and working towards net zero carbon emissions. But cryptocurrencies offer a different path to greener finance – and the altcoins that concentrate on their environmental credentials may well clean up the technology’s reputation for excessive energy use.

Sankar Sivarajah, Head of School of Management and Professor of Technology Management and Circular Economy, University of Bradford and Kamran Mahroof, Assistant Professor, Supply Chain Analytics, University of Bradford

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Nir Kshetri, University of North Carolina – Greensboro

Millions of cryptocurrency investors have been scammed out of massive sums of real money. In 2018, losses from cryptocurrency-related crimes amounted to US$1.7 billion. The criminals use both old-fashioned and new-technology tactics to swindle their marks in schemes based on digital currencies exchanged through online databases called blockchains.

From researching blockchain, cryptocurrency and cybercrime, I can see that some cryptocurrency fraudsters rely on tried-and-true Ponzi schemes that use income from new participants to pay out returns to earlier investors.

Others use highly automatized and sophisticated processes, including automated software that interacts with Telegram, an internet-based instant-messaging system popular among people interested in cryptocurrencies. Even when a cryptocurrency plan is legitimate, fraudsters can still manipulate its price in the marketplace.

An even more basic question arises, though: How are unsuspecting investors attracted to cryptocurrency frauds in the first place?

Fast-talking swindlers

Some cryptocurrency fraudsters appeal to people’s greed, promising big returns. For example, an unknown group of entrepreneurs runs the scam bot iCenter, which is a Ponzi scheme for Bitcoin and Litecoin. It doesn’t provide information on investment strategies, but somehow promises investors 1.2% daily returns.

The iCenter scheme operates through a group chat on Telegram. It starts with a small group of scammers who are in on the racket. They get a referral code that they share with others, in blogs and on social media, hoping to get them to join the chat. Once there, the newcomers see encouraging and exciting messages from the original scammers. Some newcomers decide to invest, at which point they are assigned an individual bitcoin wallet, into which they can deposit bitcoins. They agree to wait some period of time – 99 or 120 days – to receive a significant return.

During that time, the newcomers often use social media to share their own referral codes with friends and contacts, bringing more people into the group chat and into the investment scheme. There’s no actual investment of the funds in any legitimate business. Instead, when new people join, the person who recruited them gets a percentage of the new funds, and the cycle continues, paying out to earlier participants from each round of newer investors.

Some members work especially hard to bring in new funds, posting tutorial videos and pictures of themselves holding large amounts of money as enticements to join the scam.

Lies and more lies

Some scammers go for straight-up deception. The founders of scam cryptocurrency OneCoin defrauded investors of $3.8 billion by convincing people their nonexistent cryptocurrency was real.

Other scams are based on impressing potential victims with jargon or claims of specialized knowledge. The Global Trading scammers claimed they took advantage of price differences on various cryptocurrency exchanges to profit from what is called arbitrage – simply buying cheaply and selling at higher prices. Really they just took investors’ money.

Global Trading used a bot on Telegram, too – investors could send a balance inquiry message and get a response with false information about how much was in their account, sometimes even seeing balances climb by 1% in an hour. With returns looking like that, who could blame people for sharing the scheme with their friends and family on social media?

Exploiting friends and family

Once a scheme has started, it stays alive – at least for a while – through social media. One person gets taken in by the promise of big returns on cryptocurrency investments and spreads the word to friends and family members.

Sometimes big names get involved. For instance, the kingpin behind GainBitcoin and other alleged scams in India convinced a number of Bollywood celebrities to promote his book, “Cryptocurrency for Beginners.” He even tried to make himself a bit of a celebrity, proclaiming himself a “cryptocurrency guru,” as he led efforts that cost investors between $769 million and $2 billion.

Not all the celebrities know they’re involved. In one blog post, iCenter featured a video that purported to be an endorsement by Dwayne “The Rock” Johnson, holding a sign featuring iCenter’s logo. Videos of Justin Timberlake and Christopher Walken were deceptively edited so they appeared to praise iCenter, too.

[youtube https://www.youtube.com/watch?v=3yGlurBytwA?wmode=transparent&start=0]

Fraudulent initial coin offerings

Another popular scam technique is called an “initial coin offering.” A potentially legitimate investment opportunity, an initial coin offering essentially is a way for a startup cryptocurrency company to raise money from its future users: In exchange for sending active cryptocurrencies like bitcoin and ethereum, customers are promised a discount on the new cryptocoins.

Many initial coin offerings have turned out to be scams, with organizers engaging in cunning plots, even renting fake offices and creating fancy-looking marketing materials. In 2017, a lot of hype and media coverage about cryptocurrencies fed a huge wave of initial coin offering fraud. In 2018, about 1,000 initial coin offering efforts collapsed, costing backers at least $100 million. Many of these projects had no original ideas – more than 15% of them had copied ideas from other cryptocurrency efforts, or even plagiarized supporting documentation.

Investors looking for returns in a new technology sector are still interested in blockchains and cryptocurrencies – but should beware that they are complex systems that are new even to those who are selling them. Newcomers and relative experts alike have fallen prey to scams.

In an environment like the current cryptocurrency market, potential investors should be very careful to research what they’re putting their money into and be sure to find out who is involved as well as what the actual plan is for making real money – without defrauding others.

Nir Kshetri, Professor of Management, University of North Carolina – Greensboro

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Kevin Werbach, University of Pennsylvania

Blockchain technology isn’t as widely used as it could be, largely because blockchain users don’t trust each other, as research shows. Business leaders and regular people are also slow to adopt blockchain-based systems because they fear potential government regulations might require them to make expensive or difficult changes in the future.

Mistrust and regulatory uncertainty are strange problems for blockchain technology to have, though. The first widely adopted blockchain, bitcoin, was expressly created to allow financial transactions “without relying on trust” or on governments overseeing the currency. Users who don’t trust a bank or other intermediary to accurately track transactions can instead rely on unchangeable mathematical algorithms. Further, the system is decentralized, with data stored on thousands – or more – of internet-connected computers around the world, preventing regulators from shutting down the network as a whole.

As I discuss in my recent book, “The Blockchain and the New Architecture of Trust,” the contradiction between blockchain’s allegedly trust-less technology and its trust-needing users arises from a misunderstanding about human nature. Economists often view trust as a cost, because it takes effort to establish. But people actually want to use systems they can trust. They intuitively understand that cultures and companies with strong trust avoid the hidden costs that stem from everyone constantly trying to both cheat the system and avoid being cheated by others.

Blockchain, as it turns out, doesn’t herald the end of the need for trust. Most people will want laws and regulations to help make blockchain-based systems trustworthy.

Problems arise without trust

Bitcoin’s creator wrote in 2009 that “The root problem with conventional currency is all the trust that’s required to make it work.” With government-issued money, the public must trust central bankers and commercial banks to preserve economic stability and protect users’ privacy. The blockchain framework that bitcoin introduced was supposed to be a “trustless” alternative. Sometimes, though, it shouldn’t be trusted.

In 2016, for instance, someone exploited a flaw in the DAO, a decentralized application using the Ethereum blockchain, to withdraw about US$60 million worth of cryptocurrency. Fortunately, members of the Ethereum community trusted each other enough to adopt a radical solution: They created a new copy of the entire blockchain to reverse the theft. The process was slow and awkward, though, and almost failed.

A new type of investment, called initial coin offerings, further illustrates why blockchain-based activity still requires trust. Since 2017, blockchain-based startups have raised more than $20 billion by selling cryptocurrency tokens to supporters around the world. However, a substantial percentage of those companies were out-and-out frauds. In other cases, investors simply had no idea what they were investing in. The blockchain itself doesn’t provide the kind of disclosure that regulators require for traditional securities.

The initial coin offering faucet slowed to a trickle in the second half of 2018 as the predictable abuses of a “wild west” environment became clear. As regulators stepped in, the market shifted toward selling digital tokens under the same rules as stocks or other securities, despite the limits those rules impose.

The myth of decentralization

The other reason that regulators have a role to play is security. Blockchain networks themselves are typically very secure, and they eliminate the vulnerability of a single company controlling transactions. However, blockchains identify the owner of an account based on its cryptographic private key, a random-seeming string of numbers and letters. Steal the key, and you’ve got the money. Ten percent of initial coin offerings proceeds has already been stolen.

Most users acquire their cryptocurrency through an exchange such as Coinbase, which trades it for dollars or other traditional currencies. They also let the exchanges hold their private keys, because that makes transactions easier and more efficient. However, it also creates a point of vulnerability: If the exchange’s records are breached, the private keys aren’t secret anymore.

Some users hold their own keys, and there are new exchanges being developed that don’t require users to give them up. These will never be as convenient, though, because the burden of managing keys and keeping them safe falls on users. Regulation will be needed to protect consumers.

Government authorities will also have a role in restricting money laundering, terrorist financing and other criminal uses of cryptocurrencies. The more decentralized a system is, the harder it will be to identify a responsible party to police illicit conduct. Some users may not care, or may see that as a necessary cost of freedom. But networks optimized for criminals won’t ever achieve mainstream success among law-abiding citizens. Ordinary users will be scared off, regulated banks and financial services firms will be prohibited from interacting with them, and law enforcement will find ways to disrupt their activities.

Regulators around the world are working to balance the flexibility to transact in new ways through cryptocurrencies with appropriate safeguards. They aren’t all taking the same route, but that’s good. When the state of New York adopted rigid registration requirements called the BitLicense that few companies could meet, other jurisdictions saw the implementation problems and took different paths. Wyoming, for example, adopted a series of bills that clarify the legal status of cryptocurrencies while imposing reasonable protections. New York is now reevaluating the BitLicense, to avoid losing business activity.

If people trust blockchain systems, they’ll use them. That’s the only way they’ll see mass-market adoption. The jurisdictions with the best regulation – not the ones with the least – will attract activity. Like any technological system, blockchains combine software code and human activity. It’s not enough to trust the computers – which, after all, are built and programmed by people. For the technology to be used widely and wisely, there must be mechanisms to hold the humans accountable, too.

Kevin Werbach is a professor at the Wharton School, University of Pennsylvania, and the author of:

The Blockchain and the New Architecture of Trust.

Kevin Werbach, Associate Professor of Legal Studies and Business Ethics at the Wharton School, University of Pennsylvania

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Iwa Salami, University of East London

The 21st-century revolutionaries who have dominated cryptocurrencies are having to move over. Mainstream financial institutions are adopting these assets and the blockchain technology that enables them, in what is perhaps the most profound development since the birth of cryptocurrencies through the launch of bitcoin a decade ago.

JP Morgan Chase has been leading the way, having announced JPM Coin earlier this year, the first cryptocurrency issued by a big international bank. When trials begin in the coming months, each JPM Coin will be redeemable for one US dollar, protecting this cryptocurrency from the volatility characteristic of the likes of bitcoin.

One of the main reasons for JP Morgan launching these coins is to offer large corporate clients a way of making international payments in real time. This could gradually replace the current global interbank funds transfer network known as SWIFT, whose wire transfer payments can sometimes take a whole business day to settle.

A few weeks later, the IMF and World Bank jointly announced the launch of Learning Coin, a private blockchain and quasi-cryptocurrency designed to help them better understand the technology. Facebook, too, was reported to be interested in launching a cryptocurrency.

Meanwhile, financial firm 20|30 became the first company to float on a mainstream regulated trading platform using blockchains, when it issued shares in the form of “equity tokens” similar to a cryptocurrency on the London Stock Exchange.

It is all a far cry from the rationale for creating bitcoins and blockchains in the first place: to decentralise finance away from the dollar-dominated system of fiat currencies and to gradually render financial institutions obsolete.

Good, bad and ugly

Yet this space remains attractive to those seeking to undermine US financial hegemony. Iran and Russia are both looking at launching state-backed cryptocurrencies, in response to US threats to disconnect them from the SWIFT payments system. This would enable these countries to join other blockchain-based payment networks, with the potential to steadily weaken the international payments system.

Other threats to global finance from cryptocurrencies abound. Services making it easier to conceal their movement, such as cryptocurrency tumblers, are said to be enabling fraudulent activities. There is growing evidence that cryptocurrencies are financing terrorism; while they are supposedly also vulnerable to rogue states – the UN recently accused North Korea of stealing US$571m (£441m) from five cryptocurrency exchanges in Asia.

When you combine these concerns with the steady shift of cryptocurrencies towards the mainstream, it makes many observers very nervous: cryptocurrencies still represent well below 1% of global trading, but they are growing fast. The Basel Committee on Banking Supervision, which oversees international banking, recently warned that cryptocurrencies were a risk to global financial stability, and advised banks to look at their direct and indirect exposure and protect themselves.

Standard setting

Cryptocurrency regulation remains a very grey area. These assets are traded on two types of platforms, known as centralised and decentralised exchanges.

Centralised exchanges, such as Coinbase or Robinhood, are platforms for connecting buyers and sellers, which enable them to buy or sell digital currencies either for other digital currencies or fiat currencies. The platform takes a fee for each transaction, and the amount of regulation varies from country to country. On decentralised exchanges, such as Block DX, traders sell cryptocurrencies directly between one another. These comprise a much smaller proportion of trading, and tend to be unregulated. They are harder to control – not least because much of the activity occurs on the dark net.

The Financial Actions Task Force (FATF), the global standard setter against financial crime, is working towards global regulation of cryptocurrences on centralised exchanges. It recently met with industry representatives from around the world as part of a consultation to finalise global standards. This will inform proposals for regulation due to be announced by the FATF in June.

One major aspect is Regulatory Technology (RegTech), which refers to technology that makes it possible to identify cryptocurrency activities such as the identities of traders doing transactions on blockchains. It will be interesting to see what the FATF has to say next month about the adoption of a RegTech global standard, which many would argue is crucial to making cryptocurrencies more transparent.

On many other regulatory issues, the world remains a patchwork. France, for example, is looking at banning cryptocurrencies known as privacy coins, which are designed to make it particularly difficult to trace their owners. Ireland has amended its Anti-Money Laundering Bill to include cryptocurrencies, while the UK is moving in a similar direction – going beyond the existing relevant EU regulations.

Japan, seen as a world leader on crypto regulation, is introducing new rules capping the amount that traders can borrow from exchanges to trade cryptocurrencies. Mexico and Canada are also looking at regulating cryptocurrency exchanges. The US, meanwhile, recently issued a clarification of the status of cryptocurrencies issued through initial coin offerings. Germany is planning to regulate these, too.

These moves are welcome but hardly sufficient in global terms. A single country can impose tough standards on its cryptocurrency exchanges, but when transactions involve another exchange located in another country with no regulation, there’s nothing the domestic authorities in the first country can do to track payments once they have been transferred. Equally, you don’t have to go too far to find holes in the system: the EU regulations on money laundering don’t cater for tumbler services, for instance.

Bringing enough countries onboard to make a major difference is not going to be straightforward, particularly with so much acrimony between Russia, China and the West at present. For global regulation to be far-reaching, it would also need to include the entire system – including decentralised exchanges, but they appear to be too problematic to focus on at the moment.

All the same, there is clearly a growing desire to take the wildness out of blockchains and cryptocurrencies. These technologies are only going to become more mainstream; and the greater their share of the global economy, the greater their threat to the system as a whole. At least as far as centralised exchanges are concerned, the days of cryptocurrencies ruled by romantic buccaneers and pirates are slowly coming to an end.

Iwa Salami, Senior Lecturer in Financial Law and Regulation, University of East London

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Pranshu Bajpai, Michigan State University and Richard Enbody, Michigan State University

Right now, your computer might be using its memory and processor power – and your electricity – to generate money for someone else, without you ever knowing. It’s called “cryptojacking,” and it is an offshoot of the rising popularity of cryptocurrencies like bitcoin.

Instead of minting coins or printing paper money, creating new units of cryptocurrencies, which is called “mining,” involves performing complex mathematical calculations. These intentionally difficult calculations securely record transactions among people using the cryptocurrency and provide an objective record of the “order” in which transactions are conducted.

The user who successfully completes each calculation gets a reward in the form of a tiny amount of that cryptocurrency. That helps offset the main costs of mining, which involve buying advanced computer processors and paying for electricity to run them. It is not surprising that enterprising cryptocurrency enthusiasts have found a way to increase their profits, mining currency for themselves by using other people’s processing and electrical power.

Our security research group at Michigan State University is presently focused on researching ransomware and cryptojacking – the two biggest threats to user security in 2018. Our preliminary web crawl identified 212 websites involved in cryptojacking.

Types of cryptojacking

There are two forms of cryptojacking; one is like other malware attacks and involves tricking a user into downloading a mining application to their computer. It’s far easier, however, just to lure visitors to a webpage that includes a script their web browser software runs or to embed a mining script in a common website. Another variant of this latter approach is to inject cryptomining scripts into ad networks that legitimate websites then unknowingly serve to their visitors.

The mining script can be very small – just a few lines of text that download a small program from a web server, activate it on the user’s own browser and tell the program where to credit any mined cryptocurrency. The user’s computer and electricity do all the work, and the person who wrote the code gets all the proceeds. The computer’s owner may never even realize what’s going on.

Is all cryptocurrency mining bad?

There are legitimate purposes for this sort of embedded cryptocurrency mining – if it is disclosed to users rather than happening secretly. Salon, for example, is asking its visitors to help provide financial support for the site in one of two ways: Either allow the site to display advertising, for which Salon gets paid, or let the site conduct cryptocurrency mining while reading its articles. That’s a case when the site is making very clear to users what it’s doing, including the effect on their computers’ performance, so there is not a problem. More recently, a UNICEF charity allows people to donate their computer’s processing power to mine cryptocurrency.

However, many sites do not let users know what is happening, so they are engaging in cryptojacking. Our initial analysis indicates that many sites with cryptojacking software are engaged in other dubious practices: Some of them are classified by internet security firm FortiGuard as “malicious websites,” known to be homes for destructive and malicious software. Other cryptojacking sites were classified as “pornography” sites, many of which appeared to be hosting or indexing potentially illegal pornographic content.

The problem is so severe that Google recently announced it would ban all extensions that involved cryptocurrency mining from its Chrome browser – regardless of whether the mining was done openly or in secret.

The longer a person stays on a cryptojacked website, the more cryptocurrency their computer will mine. The most successful cryptojacking efforts are on streaming media sites, because they have lots of visitors who stay a long time. While legitimate streaming websites such as YouTube and Netflix are safe for users, some sites that host pirated videos are targeting visitors for cryptojacking.

Other sites extend a user’s apparent visit time by opening a tiny additional browser window and placing it in a hard-to-spot part of the screen, say, behind the taskbar. So even after a user closes the original window, the site stays connected and continues to mine cryptocurrency.

What harm does cryptojacking do?

The amount of electricity a computer uses depends on what it’s doing. Mining is very processor-intensive – and that activity requires more power. So a laptop’s battery will drain faster if it’s mining, like when it’s displaying a 4K video or handling a 3D rendering.

Similarly, a desktop computer will draw more power from the wall, both to power the processor and to run fans to prevent the machine from overheating. And even with proper cooling, the increased heat can take its own toll over the long term, damaging hardware and slowing down the computer.

This harms not only individuals whose computers are hijacked for cryptocurrency mining, but also universities, companies and other large organizations. A large number of cryptojacked machines across an institution can consume substantial amounts of electricity and damage large numbers of computers.

Protecting against cryptojacking

Users may be able to recognize cryptojacking on their own. Because it involves increasing processor activity, the computer’s temperature can climb – and the computer’s fan may activate or run more quickly in an attempt to cool things down.

People who are concerned their computers may have been subjected to cryptojacking should run an up-to-date antivirus program. While cryptojacking scripts are not necessarily actual computer viruses, most antivirus software packages also check for other types of malicious software. That usually includes identifying and blocking mining malware and even browser-based mining scripts.

Installing software updates may also help users block attacks that try to download cryptojacking software or other malicious programs to their computers. In addition, browser add-ons that block mining scripts can reduce the likelihood of being cryptojacked by code embedded in websites. Further, users should either turn off or use a strong password to secure remote services such as Microsoft’s Remote Desktop Connection or secure shell (SSH) access.

Cryptocurrency mining can be a legitimate source of revenue – but not when done secretly or by hijacking others’ computers to do the work and having them pay the resulting financial costs.

Pranshu Bajpai, Security Researcher, PhD Candidate, Michigan State University and Richard Enbody, Associate Professor, Computer Science & Engineering, Michigan State University

This article is republished from The Conversation under a Creative Commons license. Read the original article.