WEBVTT - The Bitcoin Controversies 0:00:04.200 --> 0:00:07.520 Get in touch with technology with text stuff from stuff 0:00:07.800 --> 0:00:15.200 dot com. Hey there, everyoneted, Welcome to tech Stuff. I'm 0:00:15.280 --> 0:00:18.680 Jonathan Strickland and I'm Lauren. And in our last episode 0:00:18.760 --> 0:00:21.520 we kind of laid the groundwork about what bitcoin is, 0:00:21.600 --> 0:00:25.520 kind of refreshing your your memory, and also the breaking 0:00:25.520 --> 0:00:29.560 news at the time of recording about the possible identity 0:00:30.080 --> 0:00:32.159 discovered of the guy who who came up with the 0:00:32.159 --> 0:00:35.279 whole idea in the first place, Sato Nakamoto, who might 0:00:35.320 --> 0:00:38.199 in fact be a guy named Satoshi Nakamoto. And this 0:00:38.600 --> 0:00:42.639 was a surprise. So if you missed that episode, go 0:00:42.720 --> 0:00:44.920 back and give it a listen, Yeah, because it'll it'll 0:00:45.320 --> 0:00:47.880 definitely give you some context for what we're going to 0:00:47.960 --> 0:00:51.879 talk about today, which is the controversies of bitcoin and 0:00:51.920 --> 0:00:55.880 also what's in the future. Yo. That's a that's a 0:00:55.920 --> 0:00:58.720 really great question that many people are asking themselves because 0:00:58.760 --> 0:01:01.440 there have been so many con troversies of over bitcoin, 0:01:01.800 --> 0:01:05.880 especially in the past like three to five months. Yeah. Yeah, So, 0:01:05.920 --> 0:01:08.959 I mean, first of all, they're just the very nature 0:01:09.040 --> 0:01:11.600 of bitcoin, the fact that you get at the coins 0:01:12.120 --> 0:01:15.800 by either purchasing them in an exchange or you mind 0:01:15.920 --> 0:01:19.440 them through using computer power to solve mathematical problems. Well, 0:01:19.600 --> 0:01:22.600 if you're thinking, hey, I've done a computer I can 0:01:22.640 --> 0:01:25.960 solve math problems. Well, if you listen to our last episode, 0:01:25.959 --> 0:01:28.480 you know that you need a lot of computing power 0:01:28.520 --> 0:01:31.160 because they're you're just you're The competition you're up against 0:01:31.400 --> 0:01:34.679 is crazy. Yeah, and so some people will join mining 0:01:34.760 --> 0:01:37.480 groups sort of like almost like a lottery pool, like 0:01:37.560 --> 0:01:39.880 we were saying in the last episode. And some people 0:01:40.000 --> 0:01:42.720 force other folks to join a mining group without them 0:01:42.760 --> 0:01:46.399 necessarily knowing about it, by creating buttonets a k a. 0:01:46.959 --> 0:01:49.000 You might have also heard of buttonets being referred to 0:01:49.080 --> 0:01:52.800 as zombie computer armies. Yes, these are the boy. If 0:01:52.800 --> 0:01:55.280 you're a longtime fan of tech stuff, you've heard us 0:01:55.280 --> 0:01:57.800 talk about this. This was one of our first episodes. 0:01:57.840 --> 0:02:01.200 But essentially what this is is when a hacker uses 0:02:01.240 --> 0:02:05.880 software to get administrative access to someone else's computer. Generally, 0:02:06.040 --> 0:02:08.720 this is done by fooling the person into installing a 0:02:08.760 --> 0:02:13.680 program and then yeah, there's usually a trojan horse malware 0:02:13.760 --> 0:02:19.360 that will install a backdoor access point for for someone 0:02:19.440 --> 0:02:23.200 to go over in network and then send commands remotely 0:02:23.360 --> 0:02:25.560 so that they make your machine do stuff they wanted 0:02:25.600 --> 0:02:28.200 to do. And there are lots of different ways that 0:02:28.320 --> 0:02:31.320 hackers use bought nets, and one of them is to 0:02:31.480 --> 0:02:34.839 direct computers to mine for bitcoins. So what they're doing 0:02:34.960 --> 0:02:37.600 is they're trying to get as many different computers as 0:02:37.639 --> 0:02:41.760 possible to coordinate in this task, and then the hacker 0:02:41.919 --> 0:02:44.799 reaps the benefits. So your computer might have actually been 0:02:44.840 --> 0:02:47.079 the one to mind that bitcoin, but you don't see 0:02:47.120 --> 0:02:50.320 any of that because it's going to some hacker somewhere. Yeah. 0:02:50.720 --> 0:02:53.799 One particularly widespread bit of malware like this was was 0:02:53.880 --> 0:02:59.120 busted back in April. Jonathan actually blogged about it back then. Yeah. Yeah, So, 0:02:59.240 --> 0:03:00.959 I mean it's it's still one of those things that 0:03:01.160 --> 0:03:04.040 remains a concern because it's, you know, it's the world 0:03:04.120 --> 0:03:06.040 of the digital realm. I mean, it's it's one of 0:03:06.080 --> 0:03:09.600 those things where you've it's different from our physical world, right, 0:03:10.320 --> 0:03:13.400 and as we alluded to in our previous episode, the 0:03:13.520 --> 0:03:15.640 fact that all of this is different from our physical 0:03:15.720 --> 0:03:18.799 world lens bitcoins. I mean that and the fact that 0:03:18.919 --> 0:03:24.000 they are necessarily decentralized and unregulated means that sometimes people 0:03:24.120 --> 0:03:29.200 use them for less than upright purposes. Yeah, okay, so 0:03:29.280 --> 0:03:31.840 we're gonna we're gonna lay it down. Uh, you know, 0:03:32.639 --> 0:03:36.440 just be perfectly honest and blunt here, because when when 0:03:36.480 --> 0:03:38.960 I did an episode way back in the day, I 0:03:39.040 --> 0:03:41.040 think it wasn't wasn't two thousand eleven, I think we 0:03:41.120 --> 0:03:43.880 said in our previous episode, but we kind of danced 0:03:43.880 --> 0:03:45.920 around it because we didn't really want to address it 0:03:46.000 --> 0:03:47.680 very much. But it's very much something that we have 0:03:47.800 --> 0:03:50.720 to talk about, and this is markets that would support 0:03:50.880 --> 0:03:54.920 illegal trades, and illegal would depend heavily upon where you 0:03:55.040 --> 0:03:56.760 happen to be in the world, because I guess you know, 0:03:57.000 --> 0:04:00.320 laws are different in different places. But absolutely largely this 0:04:00.560 --> 0:04:07.720 was mostly focused on drugs, illicit drugs. So the famous 0:04:08.040 --> 0:04:11.480 market was the Silk Road, now the Silk Road at 0:04:11.520 --> 0:04:13.800 first of all, it took took its name from a 0:04:13.920 --> 0:04:18.000 historic trade route that connected Asia to Europe, and the 0:04:18.120 --> 0:04:21.040 idea was that this was a market where buyers and 0:04:21.080 --> 0:04:26.440 sellers could meet anonymously have these transactions. Bitcoins were accepted there, 0:04:26.600 --> 0:04:29.120 one of the few places that bitcoins were excepted, one 0:04:29.120 --> 0:04:32.280 of the earliest two and uh and you it was 0:04:32.320 --> 0:04:36.000 a tour hidden service. So this meant that you could 0:04:36.000 --> 0:04:39.000 actually log again and you don't have to worry that 0:04:39.120 --> 0:04:41.320 you're being tracked or that your identity is out there 0:04:41.360 --> 0:04:44.280 for everybody. So it was kind of a haven for 0:04:44.400 --> 0:04:48.120 this sort of activity, so much so that, uh that 0:04:48.400 --> 0:04:52.360 the illicit activity made up the majority of the things 0:04:52.440 --> 0:04:54.720 you could buy on the Silk Road. It wasn't just 0:04:55.560 --> 0:04:58.080 illegal stuff. You could buy legal stuff too. You could 0:04:58.120 --> 0:05:00.480 go to the Silk Road and buy clothing or computer 0:05:00.640 --> 0:05:03.920 parts and things like that. Sure, but one report from 0:05:03.960 --> 0:05:07.560 the Guardian said that drugs were up to sevent of 0:05:07.640 --> 0:05:09.680 what was available on that market. Yeah, at that point, 0:05:09.720 --> 0:05:11.920 you're like, I'm going to an illegal drug store that 0:05:12.040 --> 0:05:14.840 also has a computer aisle. That's essentially what you're talking 0:05:14.880 --> 0:05:18.560 about there. So I mean, and here's the thing. You'll 0:05:18.600 --> 0:05:21.479 see Bitcoin community folks, some of them, not all of them. 0:05:21.520 --> 0:05:23.159 I don't want to paint everyone with a broad brush. 0:05:23.320 --> 0:05:25.680 Certainly not, but there were some who would say, look, 0:05:25.720 --> 0:05:27.839 this is just a free market. The fact that drugs 0:05:27.880 --> 0:05:30.560 are there is that's irrelevant. We're talking about. This is 0:05:30.560 --> 0:05:34.080 where merchants and buyers can get together and exchange goods. 0:05:34.160 --> 0:05:37.160 It's meant without government interference on that level. Sure, I 0:05:37.240 --> 0:05:40.000 mean that that's intellectually I can understand what you're saying. 0:05:40.080 --> 0:05:44.839 But practically seventy percent of the stuff there was illegal. 0:05:45.920 --> 0:05:49.240 So when you when you strip away the philosophy and 0:05:49.360 --> 0:05:51.560 look at the reality, you have to be you have 0:05:51.640 --> 0:05:55.680 to be intellectually honest and say, all right, there, these 0:05:55.760 --> 0:05:59.280 things are being done to to purchase illegal goods. Now 0:05:59.360 --> 0:06:01.600 you might think that those goods shouldn't be illegal, but 0:06:01.680 --> 0:06:04.240 that's a totally different issue. That's the whole other discussion. 0:06:04.920 --> 0:06:09.480 And at any rate, in October, the FBI got pretty 0:06:09.520 --> 0:06:13.320 deeply involved. Yeah, they arrested a man named Ross William 0:06:13.400 --> 0:06:17.599 Albrich on charges of drug trafficking, computer hacking, money laundering, 0:06:17.640 --> 0:06:23.920 and here's the big one, soliciting murder, essentially assassination. So uh, 0:06:24.200 --> 0:06:28.360 they ended up arresting him. They claim that Albrecht is 0:06:28.520 --> 0:06:31.600 the man behind the Silk Road, that he was using 0:06:31.640 --> 0:06:36.000 the handle dread pirate Roberts. Uh. You know, I do 0:06:36.120 --> 0:06:38.000 not think it means what he thinks it thinks it means. 0:06:38.040 --> 0:06:40.840 But at any rate, they arrested him. They claimed that 0:06:40.960 --> 0:06:43.320 that what that he was the guy behind the Silk Road. Albrick, 0:06:43.400 --> 0:06:46.440 for his part, denies it. Uh, and the FBI shut 0:06:46.560 --> 0:06:50.800 down the Silk Road, although almost immediately Silk Road two 0:06:50.839 --> 0:06:54.360 point oh popped up into its place. Certainly, but shutting 0:06:54.400 --> 0:06:56.880 down the system froze all of all of the bitcoins 0:06:57.000 --> 0:07:00.080 that were in circulation in that in the market in 0:07:00.080 --> 0:07:03.279 the market right, which was some three point five million 0:07:03.480 --> 0:07:05.520 US worth at the time, and the fact that the 0:07:05.560 --> 0:07:08.920 FBI sees that amount of bitcoin means that they are 0:07:09.040 --> 0:07:11.720 one of the largest holders of the currency in the world. Yeah, 0:07:11.840 --> 0:07:15.000 Makamoto and the FBI point that'd be a great children's 0:07:15.040 --> 0:07:19.080 book at any rate. Uh So, Yeah, there were a 0:07:19.160 --> 0:07:21.880 lot of people who were not happy about this, including 0:07:21.880 --> 0:07:24.000 the ones who started up Silk Road two point oh 0:07:24.120 --> 0:07:27.840 and Dreadpirate Roberts was active again, presumably on being controlled 0:07:27.840 --> 0:07:30.080 by a different person, assuming of course that Olbrick was 0:07:30.160 --> 0:07:34.320 in fact the original Dreadpire Roberts. So Silk Road two 0:07:34.360 --> 0:07:38.520 point oh on February two thousand fourteen made these would 0:07:38.560 --> 0:07:42.200 be drug dealers unhappy a second time because they announced 0:07:42.760 --> 0:07:45.920 that they had been the target of hackers and that 0:07:46.040 --> 0:07:48.840 the s grow accounts of the Silk Road two point 0:07:48.880 --> 0:07:51.920 oh have been cleaned out of two point seven million 0:07:52.040 --> 0:07:56.040 dollars worth of bitcoins. Uh Following Silk Road two point 0:07:56.080 --> 0:08:01.760 oh was another market called Utopia, which not only allowed 0:08:01.840 --> 0:08:03.880 for the sale of drugs, but opened it up to 0:08:04.000 --> 0:08:06.760 guns as well, because when you're called utopia, that's really 0:08:06.840 --> 0:08:09.720 the true avenue. Yeah no, yeah, that's I think there 0:08:09.800 --> 0:08:14.640 might have been some irony there anyway. They were also 0:08:14.760 --> 0:08:18.600 shut down just days after the site launched. Uh, the 0:08:18.640 --> 0:08:21.960 police held a sting operation and shut that one down. 0:08:22.200 --> 0:08:25.480 Now here's the thing, um, as soon as one of 0:08:25.520 --> 0:08:27.760 these markets goes down, I'm sure other ones pop up 0:08:27.800 --> 0:08:31.040 because the demand is there. So until you get to 0:08:31.160 --> 0:08:34.760 a point where either the demand is not there or 0:08:34.880 --> 0:08:37.800 people feel that there's just not a too much risk 0:08:37.840 --> 0:08:41.360 and on a reward, then it's just going to keep happening. However, 0:08:41.480 --> 0:08:45.320 decentralizing it, you could argue, is um a worthy cause 0:08:45.640 --> 0:08:48.959 if you believe that shutting down this kind of thing 0:08:49.120 --> 0:08:51.280 is a good, good plan, right right. There are people 0:08:51.320 --> 0:08:53.439 in the bitcoin community who say, hey, this shows that 0:08:53.480 --> 0:08:56.520 bitcoins work because you can shut down the markets that 0:08:56.600 --> 0:09:00.200 aren't playing fair and everything else can keep on operating. However, 0:09:00.200 --> 0:09:02.360 the rest of the world is saying, this is a 0:09:02.480 --> 0:09:05.800 currency where the markets can get shut down and then 0:09:05.800 --> 0:09:08.959 all your money goes away, which can of course reduce 0:09:09.120 --> 0:09:13.880 confidence in that currency. So these these events are hurting 0:09:13.960 --> 0:09:17.480 bitcoin in the sense that its value can suffer because 0:09:17.520 --> 0:09:20.760 people feel less confident of it. I can, but that's 0:09:20.880 --> 0:09:23.360 not always the practical outcome of this kind of thing, 0:09:23.400 --> 0:09:25.400 and we'll talk a little bit about that later on, 0:09:25.559 --> 0:09:29.679 I think. Meanwhile, in November, in response to all of 0:09:29.760 --> 0:09:32.560 this hubbub, it was basically right after the FBI had 0:09:32.600 --> 0:09:36.040 had shut down Silk Road one UM, the U S. 0:09:36.080 --> 0:09:39.120 Senate held a hearing on bitcoin and the general potential 0:09:39.200 --> 0:09:42.760 of virtual currencies. The Federal Reserve Chairman at the time, 0:09:42.960 --> 0:09:45.640 Ben Brannank, released a letter ahead of the hearing that 0:09:45.840 --> 0:09:48.720 acknowledged that UM that the government you know, of course 0:09:48.840 --> 0:09:53.400 does not have authority to supervise virtual currencies like bitcoin UM, 0:09:53.520 --> 0:09:56.400 but also said that this kind of stuff and I 0:09:56.520 --> 0:09:59.920 quote may hold long term promise, particularly if the innovations 0:10:00.080 --> 0:10:04.319 promote a faster, more secure, and more efficient payment system UM, 0:10:05.320 --> 0:10:08.559 and that that idea, along with general curiosity about it, 0:10:08.600 --> 0:10:10.719 seemed to really be the moral of this of this 0:10:11.240 --> 0:10:15.160 Senate hearing, which was really interesting to me. UM. There 0:10:15.240 --> 0:10:18.240 was of course concern raised about bitcoin being used to 0:10:18.320 --> 0:10:22.319 drive crime, but the fact that people in the government 0:10:22.559 --> 0:10:25.199 were open to the concept and then thought that it 0:10:25.320 --> 0:10:27.800 was pretty cool and not only you know, to be 0:10:27.920 --> 0:10:30.120 used as a marker for stuff that should be shut down. 0:10:30.679 --> 0:10:34.160 I think it's great. Yeah, there's a there's a there's 0:10:34.200 --> 0:10:38.600 an unequal distribution of savv nous in the government. Absolutely, 0:10:39.320 --> 0:10:41.040 and we're gonna we're gonna cover a little bit more 0:10:41.080 --> 0:10:44.760 of that just second, because you know, some people they 0:10:44.840 --> 0:10:47.160 get it for one thing. You know, once you open 0:10:47.240 --> 0:10:50.240 a door on the Internet, that doors open, right, I mean, 0:10:50.280 --> 0:10:53.079 even if you try and remove everything, it's once it's 0:10:53.080 --> 0:10:55.000 on the internet, the idea is out there. And as 0:10:55.040 --> 0:10:57.760 we've said, bitcoin is not the only digital currency out there, 0:10:58.160 --> 0:11:02.800 and digital currency certainly is poised to be very disruptive. Uh. 0:11:03.000 --> 0:11:06.040 And you know this Bitcoin is kind of the perfect 0:11:06.120 --> 0:11:09.080 example of how disruptive it can be in the extreme. 0:11:09.480 --> 0:11:11.880 It doesn't even have to be that extreme to be disruptive. 0:11:12.320 --> 0:11:16.160 So uh, it's interesting. And and that that senate hearing 0:11:16.240 --> 0:11:19.600 where we had senators talking frankly about this kind of stuff, 0:11:19.920 --> 0:11:22.760 lent a lot of legitimacy to bitcoin in the eyes 0:11:22.840 --> 0:11:26.559 of the community and really the world outside the community. 0:11:26.600 --> 0:11:29.280 A lot of people who were curious about this currency 0:11:29.400 --> 0:11:32.400 but didn't know a whole lot about it. However, that 0:11:32.480 --> 0:11:36.600 does not mean that we suddenly entered a a beautiful 0:11:36.679 --> 0:11:39.640 dream state in which no one was using bitcoin for 0:11:39.800 --> 0:11:43.280 nefarious purposes, and sometimes they may or may not have 0:11:43.400 --> 0:11:47.120 been fully aware of how nefarious they were. So Charlie 0:11:47.280 --> 0:11:50.120 shrim he's a he's a former head of a company 0:11:50.160 --> 0:11:53.360 called bit Instant, who was on a trip. He was 0:11:54.080 --> 0:11:57.079 for the past couple of years been living a pretty 0:11:57.200 --> 0:12:01.160 lush lifestyle, a lot of wining and dining, flying around. Uh, 0:12:01.280 --> 0:12:04.160 this fellow from Brooklyn was living the high life. And 0:12:04.880 --> 0:12:06.480 the reason was he was using you know, a bit 0:12:06.600 --> 0:12:09.360 Instant was this company that was kind of a handler 0:12:09.440 --> 0:12:13.920 for bitcoins, could could facilitate bitcoins and and really acting 0:12:13.960 --> 0:12:18.960 as like a transaction house. Now, he was arrested as 0:12:19.000 --> 0:12:21.800 soon as he got off a plane under charges that 0:12:22.559 --> 0:12:26.679 he had committed conspiracy to commit money laundering and also 0:12:26.920 --> 0:12:29.760 he failed to report suspicious activity. Plus he had a 0:12:29.840 --> 0:12:33.880 charge of acting as an unlicensed money transmitter. Now all 0:12:33.920 --> 0:12:37.920 of those charges are from his alleged business with an 0:12:38.559 --> 0:12:42.520 with a man named Robert Faia, who was accused of 0:12:42.600 --> 0:12:45.120 being a bitcoin merchant who was working with drug dealers 0:12:45.200 --> 0:12:48.240 to buy and sell items on the silk Road. And 0:12:48.440 --> 0:12:52.079 so it's kind of Ah. There's an email exchange between 0:12:52.200 --> 0:12:55.760 shrem and Faia. That's the key of this case, that 0:12:56.559 --> 0:13:00.800 so Faia's approach was that he was trying to transmit 0:13:01.160 --> 0:13:05.280 large amounts of money and bitcoins, and the law is 0:13:05.360 --> 0:13:07.839 still trying to catch up in the United States particularly, 0:13:07.920 --> 0:13:11.280 but across the world in general with the existence of 0:13:11.320 --> 0:13:15.120 bitcoins and how is that handled in transmissions when it's 0:13:15.200 --> 0:13:19.840 not actual US dollars And in general, if you're considered 0:13:19.880 --> 0:13:22.520 you're considered to be a money transmitter once you reach 0:13:22.559 --> 0:13:25.079 a certain level. So a lot of people were telling 0:13:25.120 --> 0:13:29.440 shrim hey, you know, let's let's make the the top 0:13:29.600 --> 0:13:32.360 amount a thousand bitcoins. You can't transmit more than that 0:13:32.440 --> 0:13:35.520 because more than that you're going to get and then 0:13:35.559 --> 0:13:38.000 they're gonna say you are an unlicensed money transmitter, which 0:13:38.000 --> 0:13:40.640 in fact is one of the charges. But this guy 0:13:40.760 --> 0:13:42.760 f i AA was doing a lot of business with them, 0:13:42.800 --> 0:13:45.520 and eventually shrim I guess was feeling really pretty comfortable 0:13:45.600 --> 0:13:49.520 with the whole thing, and they were possibly, uh transmitting 0:13:49.520 --> 0:13:53.240 as much as ten thousand or more bitcoins in a week. 0:13:53.679 --> 0:13:56.679 So yeah, it eventually got the the attention of the 0:13:57.440 --> 0:14:01.600 the government and they went after them. So although part 0:14:01.679 --> 0:14:04.559 of that Senate hearing included the canny observation that that 0:14:04.840 --> 0:14:08.840 cash is probably still the best medium for laundering money. Yeah, 0:14:09.040 --> 0:14:11.719 and in fact, that was that would come back. In 0:14:11.840 --> 0:14:16.000 February two, fourteen, Uh, following this whole bit instant and 0:14:16.360 --> 0:14:19.560 shrim thing, a U S senator proposed that the United 0:14:19.560 --> 0:14:23.520 States put a ban on bitcoins, which doesn't work when 0:14:23.520 --> 0:14:26.320 you're talking about decentralized virtual currency. Yeah, you can't really 0:14:26.400 --> 0:14:29.760 ban something that isn't technically legalized in the first place. 0:14:30.080 --> 0:14:31.720 But in this case, it was funny because you know, 0:14:31.880 --> 0:14:35.840 you had other senators saying this doesn't make any sense. 0:14:35.920 --> 0:14:39.280 And in fact, I propose we banned currency because, as 0:14:39.320 --> 0:14:42.440 it turns out, currency is often used for illegal activities. 0:14:42.480 --> 0:14:45.480 In fact, if you look at currency, the US dollar 0:14:46.200 --> 0:14:50.440 versus the bitcoin, boy, dollars are used in crime way 0:14:50.720 --> 0:14:53.840 more frequently, all the time, every day. So we got 0:14:53.960 --> 0:14:56.600 to get rid of that. And that was I mean, 0:14:56.880 --> 0:14:59.320 that's about where that that new story. It was very 0:14:59.440 --> 0:15:03.280 much a kind of uh, you know, said drowbone kind 0:15:03.320 --> 0:15:07.760 of moment. Then we get to the hacking stories, the 0:15:08.560 --> 0:15:13.840 bigger hacking stories, because we previously mentioned um, uh, well no, 0:15:14.000 --> 0:15:16.480 and also the bot net kind of stuff, of of 0:15:16.600 --> 0:15:20.400 individual hacking. But um, but there is of course hacking 0:15:20.440 --> 0:15:24.400 of bigger fish, bigger money fish. Yes, exactly, because bitcoin 0:15:24.600 --> 0:15:27.840 the currency. They they're very quick to say that the people, 0:15:27.880 --> 0:15:30.640 the keepers of the bitcoin are quick to say that 0:15:30.680 --> 0:15:33.680 the currency itself is not what has been hacked. It's 0:15:33.760 --> 0:15:36.960 not someone has figured out how to unravel the bitcoin 0:15:37.120 --> 0:15:39.040 so that they can make copies of it, which was 0:15:39.080 --> 0:15:41.760 one of the big fears about digital currency. Yeah, because 0:15:41.920 --> 0:15:44.520 people think, hey, if I download a song, I can 0:15:44.600 --> 0:15:47.200 make copies of that song for all of my friends, 0:15:47.600 --> 0:15:49.560 which is exactly what the music companies don't want me 0:15:49.600 --> 0:15:51.440 to do. But I'm totally gonna do it anyway. What 0:15:51.520 --> 0:15:54.200 would stop me from doing the same thing about downloading 0:15:54.240 --> 0:15:57.280 a bitcoin and then making lots of copies. So that 0:15:57.560 --> 0:16:03.880 has remained safe. However, institutions that are dedicated to handling 0:16:03.960 --> 0:16:08.800 bitcoins have not had the same level of safety and security. Absolutely. 0:16:09.120 --> 0:16:11.960 So one of the big ones you've probably heard it, Uh, 0:16:12.120 --> 0:16:15.000 It was a Japanese company called mount Cox, which was 0:16:15.080 --> 0:16:20.280 originally a Magic the Gathering card exchange. Yeah, so weird, 0:16:20.920 --> 0:16:24.800 but at any rate, I believe it was in January. Man, 0:16:24.960 --> 0:16:26.760 this was a big one, right, This was the one 0:16:26.880 --> 0:16:30.720 where they were robbed. Hackers had managed to exploit a 0:16:30.800 --> 0:16:34.560 security vulnerability in the Mount Cox Exchange non exchange. Think 0:16:34.600 --> 0:16:37.720 of an exchange as a place where you can exchange currencies, 0:16:37.880 --> 0:16:40.880 So you could purchase bitcoins or you could sell off 0:16:40.960 --> 0:16:44.040 bitcoins at this exchange. They would base the value on 0:16:44.160 --> 0:16:47.080 whatever the market would bear at that time. Well, the 0:16:47.160 --> 0:16:50.120 hackers had been able to exploit a security vulnerability for 0:16:50.520 --> 0:16:53.320 the course of a couple of years. Actually, Uh, it 0:16:53.480 --> 0:16:55.520 was just that the Mount Cox folks kind of figured 0:16:55.560 --> 0:16:58.920 it out gradually, and then then the news broke and 0:16:58.960 --> 0:17:01.960 then that's when every thing really fell apart. Yeah, February. 0:17:02.720 --> 0:17:05.159 By the way, I mistook that January. Well, it had 0:17:05.200 --> 0:17:08.520 certainly been happening before, but but it wasn't announced till 0:17:08.840 --> 0:17:10.959 till then. Yeah, And and it turned out that they 0:17:11.080 --> 0:17:15.800 lost seven hundred fifty bitcoins that belonged to customers, plus 0:17:15.880 --> 0:17:18.880 an additional hundred bitcoins that belonged to the exchange itself. 0:17:19.720 --> 0:17:23.879 And at the time, that was about half billion dollars 0:17:23.960 --> 0:17:27.120 worth of bitcoins. Uh at if you took it at 0:17:27.160 --> 0:17:30.960 the that the the value of bitcoins in US dollars 0:17:31.119 --> 0:17:33.560 at the time the news was announced, keeping in mind 0:17:33.920 --> 0:17:36.159 these stuffs had been going on for a while as 0:17:36.240 --> 0:17:40.639 hackers had found this vulnerability. So that was pretty much 0:17:40.680 --> 0:17:43.960 the end of Mount Gus at least, maybe not the end, 0:17:44.040 --> 0:17:46.760 but it certainly sent them into the equivalent of bankruptcy 0:17:46.880 --> 0:17:50.560 in Japan. In fact, the CEO had to step forward 0:17:50.680 --> 0:17:54.760 and bow and apologize to uh to customers, because that's 0:17:54.840 --> 0:17:58.760 the that's the custom in Japan. And the last I heard, 0:17:59.240 --> 0:18:02.399 the ends are that he will step down once a 0:18:02.880 --> 0:18:06.520 suitable replacement is found for him. There are other companies 0:18:06.640 --> 0:18:09.800 that are even in worse shape than that. Yeah. Just 0:18:09.960 --> 0:18:12.440 a couple of weeks later, flex Coin, which which is 0:18:12.680 --> 0:18:16.160 a kind of bank for bitcoins UM, had to shut 0:18:16.200 --> 0:18:19.399 down after being hacked and and losing how many eight 0:18:19.920 --> 0:18:24.760 nine bitcoins? Yeah yeah, Now by this time the value 0:18:24.760 --> 0:18:27.520 of those bitcoins were less valuable than the ones from 0:18:27.560 --> 0:18:29.959 the previous ones because bitcoin had taken quite a hit 0:18:30.440 --> 0:18:33.640 in its value. H So, yes, there were more bitcoin 0:18:33.760 --> 0:18:37.119 stolen in the flex coin story, but they were you know, 0:18:37.359 --> 0:18:39.160 they weren't worth quite as much. Yeah, they were. Oddly, 0:18:39.200 --> 0:18:42.879 they were worth less because confidence was lower UM, and 0:18:43.720 --> 0:18:48.000 it also was you know, banking quotation marks because well, 0:18:48.320 --> 0:18:52.040 it's not technically a bank because it is necessarily uninsured. 0:18:52.880 --> 0:18:56.040 That's you know, that's part of the whole anarchist package, right, 0:18:56.119 --> 0:18:59.560 it's not it isn't beholden to some government agency or 0:18:59.640 --> 0:19:03.320 some other corporate entity. And so because they weren't ensured, 0:19:03.400 --> 0:19:06.360 there's no way to to to cover that money. Yeah, 0:19:06.760 --> 0:19:09.520 so that money is gone and as a result, the 0:19:09.560 --> 0:19:13.119 company is shutting down. The only bitcoins that they retained 0:19:13.680 --> 0:19:15.879 were what in what they called cold storage. They had 0:19:15.920 --> 0:19:19.000 two different styles of storage. There was a hot wallet, 0:19:19.560 --> 0:19:23.560 which was called that because the the bitcoins were active 0:19:23.680 --> 0:19:26.480 on network servers that were connected to the Internet. And 0:19:26.560 --> 0:19:28.159 the reason for that was so that they would be 0:19:28.240 --> 0:19:31.760 available for transactions, because you don't want that transaction to 0:19:31.840 --> 0:19:33.680 take forever. You don't. You don't you don't want to 0:19:33.680 --> 0:19:36.240 have someone to have to go physically hook a hard 0:19:36.359 --> 0:19:38.439 drive up to a server in order to access your 0:19:38.440 --> 0:19:42.119 bitcoin every time. Um, but that cold storage is very 0:19:42.200 --> 0:19:45.080 much the Battlestar Galactica kind of kind of the new 0:19:45.280 --> 0:19:47.480 the New. Okay, I'm looking at you, frankly, I'm like, 0:19:47.560 --> 0:19:51.399 what the big silver cylon or is this sexy cylon 0:19:51.720 --> 0:19:55.320 by Well, it's about sexy silocek. But but but but 0:19:55.359 --> 0:19:57.400 I'm referring, of course, to to the part of Battlestarre 0:19:57.440 --> 0:19:59.960 Galactic at the new series in which a few members 0:20:00.000 --> 0:20:01.639 that the government had started going like, you know, we 0:20:01.760 --> 0:20:04.840 really shouldn't have computer networks or large networks hooked up 0:20:04.880 --> 0:20:07.639 to other large networks, because that's a terrible plan for 0:20:07.800 --> 0:20:10.800 security for security purpose. So and that's exactly what they 0:20:10.840 --> 0:20:13.000 were doing with cold storage, and that they were essentially 0:20:13.040 --> 0:20:15.560 having these on servers that were not connected to the Internet, 0:20:15.880 --> 0:20:19.359 and they said, you know, it's really hard to steal 0:20:19.520 --> 0:20:22.200 money when that money is not connect to the Internet. 0:20:22.240 --> 0:20:24.760 It's not impossible. You can use some social engineering and 0:20:24.840 --> 0:20:27.200 get direct access to the actual machine and be able 0:20:27.240 --> 0:20:29.760 to do it that way. Sure, but that is much 0:20:29.800 --> 0:20:33.399 more difficult. Yeah, that's mission impossible, risky as opposed to 0:20:33.560 --> 0:20:36.639 the net risky. Yes, if I could mix my terrible 0:20:37.280 --> 0:20:42.360 Hollywood depictions of stealing stuff anyway, flex Coin said, it's 0:20:42.400 --> 0:20:44.399 going to work very hard to make sure that the 0:20:44.920 --> 0:20:48.440 coins and cold storage get to the valid owners of 0:20:48.560 --> 0:20:52.480 that currency before they shut down totally. So you would 0:20:52.520 --> 0:20:55.000 think that because we're talking, you know, we're recording this 0:20:55.080 --> 0:20:57.600 in March two thousand fourteen. We're talking about story that 0:20:57.720 --> 0:21:01.040 broke in late February two fourteen. Clearly we wouldn't have 0:21:01.080 --> 0:21:04.040 any more stories to talk about about hackers getting access 0:21:04.080 --> 0:21:07.680 to bitcoins. Ah, yeah, now we do. Yeah, because it 0:21:07.760 --> 0:21:09.720 turned out that this morning, when I was looking at 0:21:09.760 --> 0:21:12.600 the news, one of the items was that actually was 0:21:12.640 --> 0:21:15.359 this afternoon. It was even later than this morning. There 0:21:15.400 --> 0:21:18.320 was a company called Poland Polo n X p O 0:21:18.680 --> 0:21:22.080 l O n I e X poloni x I guess uh. 0:21:22.200 --> 0:21:27.159 They lost around fifty grand worth of bitcoins in US dollars. Uh. 0:21:27.240 --> 0:21:29.880 The actual number of bitcoins lost were seventy six point 0:21:30.080 --> 0:21:33.360 six nine. Like we said in our previous episode, bitcoins 0:21:33.400 --> 0:21:36.520 can be divided down into teeny tiny numbers. They lost 0:21:36.560 --> 0:21:39.959 seventy six point six nine bitcoins, which represents about twelve 0:21:40.080 --> 0:21:43.359 point three percent of all the bitcoins they had in storage. 0:21:43.440 --> 0:21:48.040 So their solution temporarily is to reduce everyone's account by 0:21:48.119 --> 0:21:51.440 twelve point three percent to distribute the loss across all customers. 0:21:51.720 --> 0:21:54.760 That's a terrible way of covering a loss, right, you 0:21:54.880 --> 0:21:57.400 might think, but my money wasn't stolen, and now you're 0:21:57.480 --> 0:21:59.919 stealing my money. Not supposed to be temporary they are 0:22:00.040 --> 0:22:04.040 supposed to work at trying to recover in some fashion 0:22:04.240 --> 0:22:07.240 the value of those bitcoins and restore it to everybody 0:22:07.280 --> 0:22:11.040 so that uh, this distributed loss is not felt so 0:22:11.240 --> 0:22:14.240 keenly and that it's eventually restored. But yeah, you would 0:22:14.240 --> 0:22:18.920 imagine that this would probably make some customers a little miffed. Certainly. 0:22:19.080 --> 0:22:22.719 I've seen some online responses to that my fitness um 0:22:23.240 --> 0:22:27.200 of of people just going like, you participated in a 0:22:27.320 --> 0:22:31.760 currency designed for thievery, and you were surprised when it 0:22:31.840 --> 0:22:34.359