Mitigating the negative externalities and existential risks posed by miner-extractable value (MEV) to smart-contract blockchains.
The French cybersecurity company Nigma Conseil and the Austrian Institute of Technology (AIT) have revealed to have collaborated on developing a new blockchain forensics tool. The agreement was signed on Feb. 25 to work on e-Nigma, a proposed compliance tool.E-Nigma provides its users with a way of conducting due diligence investigations in response to Know Your Customer (KYC) and Anti-Money Laundering (AML) regulation. Like other similar tools, it monitors and organizes blockchain transactions.The platform provides several advanced features such as risk scoring and wallet clustering. It is able to identify addresses with real-life identities by scraping through both the clear and dark web. It builds on the open-source cryptocurrency forensics platform provided by AIT, GraphSense. AIT is a government-owned research institute headquartered in Vienna. The technology was built as part of an AIT-led program called TITANIUM, which was formed to investigate transactions in “underground markets.” The program was awarded a 5 million euro ($5.4 million) grant by the European Union to mitigate cryptocurrency crime.Fabien Tabarly, CEO of NIGMA Conseil, commented on the collaboration: “The synergy between a leading European academic research institute and our team of developers has been instrumental in implementing the most innovative tools to fight financial crime in virtual currencies.”Blockchain forensicsE-Nigma is working in a competitive field, with similar solutions being provided by companies like Chainalysis, Elliptic and CipherTrace. As money laundering regulations around the world turn more stringent, many companies in the cryptocurrency and traditional finance sectors are turning to blockchain forensics tools. Chainalysis recently announced its collaboration with both Bitfinex and Tether, helping the service provider maintain compliance.Elliptic has turned its focus on banks, with a compliance tool letting them understand the true risk from cryptocurrency exchange transactions.
Bitcoin and its users employ a variety of obfuscation techniques to increase their financial privacy. We visualize a representative selection of these techniques in Figure 1 based on their time of invention/creation and our assessment of their similarity to obfuscation vs. cryptography. We make several observations. First, techniques used in Bitcoin predominantly fall into obfuscation, with stronger techniques being used exclusively in alternative cryptocurrencies (altcoins). Second, there is a trend towards stronger techniques over time, perhaps due to a growing interest in privacy and to the greater difficulty of developing cryptographic techniques. Third, obfuscation techniques proposed at later points in time are seeing less adoption, arguably a result of their increased complexity and need for coordination among participants (Möser & Böhme 2017).
Discussions of cryptocurrencies and other blockchain technologies are bedeviled by a nearly universal assumption that attributes that are possible to achieve in theory are guaranteed to be realized in practice. Examples include decentralization and anonymity.Back in June David Gerard asked: How good a business is running a Lightning Network node? LNBig provides 49.6% ($3.7 million in bitcoins) of the Lightning Network’s total channel liquidity funding — that just sits there, locked in the channels until they’re closed. They see 300 transactions a day, for total earnings on that $3.7 million of … $20 a month. They also spent $1000 in channel-opening fees.Even if the Lightning Network worked (which it doesn’t), and were decentralized (which it isn’t), Gerard’s point was that the transaction fees were woefully inadequate to cover the costs of running a node. Now, A Cryptoeconomic Traffic Analysis of Bitcoin’s Lightning Network by the Hungarian team of Ferenc Béres, István A. Seres, and András A. Benczúr supports Gerard’s conclusion with a detailed analysis.
In this paper we initiate a quantitative study of the decentralization of the governance structures of Bitcoin and Ethereum. In particular, we scraped the open-source repositories associated with their respective codebases and improvement proposals to find the number of people contributing to the code itself and to the overall discussion. We then present different metrics to quantify decentralization, both in each of the cryptocurrencies and, for comparison, in two popular open-source programming languages: Clojure and Rust. We find that for both cryptocurrencies and programming languages, there is usually a handful of people that accounts for most of the discussion. We also look into the effect of forks in Bitcoin and Ethereum, and find that there is little intersection between the communities of the original currencies and those of the forks
Ethereum meanwhile has a different, albeit more high-class problem: Its developer community, some 250,000 strong according to Consensys, is large and ponderous—and that comes at the expense of innovation. On the other hand, the sheer number of developers may help them to wrap the issue up quickly.
Bitcoin’s mining hardware (hashrate) has tripled since December, as can be seen above, even while price has fallen by 3x since December.It is now therefore a lot more expensive to mine a bitcoin than in December, while at the same time one mined bitcoin is worth a lot less.At some point miners are unable to afford energy costs or to keep up with adding more and more hardware as their old one becomes useless due to the constant increase of hashrate difficulty. So they close shop.Some miners, however, like Bitman, have lower costs, presumably because they manufacture themselves the mining hardware.So as other miners struggle, like Bitfury which has now dropped to 2%, Bitmain starts gaining more and more hashrate to the point they are now nearing 51%.The above bitcoin hashrate chart, however, even in a common sense way, looks quite unusual because it rarely goes down, if ever.Rather than responding to the price action, the hashrate appears completely detached. A situation that can not go for much longer because that increased new hardware itself puts pressure on price as the new barely profitable miners need to sell everything to cover costs.
PoW 51% Attack CostThis is a collection of coins and the theoretical cost of a 51% attack on each network.
A few months ago, it was publicly exposed that ASICs had been developed in secret to mine Monero. My sources say that they had been mining on these secret ASICs since early 2017, and got almost a full year of secret mining in before discovery. The ROI on those secret ASICs was massive, and gave the group more than enough money to try again with other ASIC resistant coins.It’s estimated that Monero’s secret ASICs made up more than 50% of the hashrate for almost a full year before discovery, and during that time, nobody noticed. During that time, a huge fraction of the Monero issuance was centralizing into the hands of a small group, and a 51% attack could have been executed at any time.
Smart contracts are fundamentally bad software engineering, part 666 of a never-ending series — PeckShield have been running an automatic scanner on the public Ethereum blockchain:Built on our earlier efforts in analyzing EOS tokens, we have developed an automated system to scan and analyze Ethereum-based (ERC-20) token transfers. Specifically, our system will automatically send out alerts if any suspicious transactions (e.g., involving unreasonably large tokens) occur.They’ve found a couple of beauties, which they’ve branded “BatchOverflow” and “ProxyOverflow.” These affect multiple ERC-20 tokens — which are the basis for almost all ICOs.The root cause is that smart contract coders just copy each other’s code a lot, because who needs formal methods when you can cut’n’paste’n’bodge.