In our ongoing series on cryptocurrency, we thought it was important to point out a specific issue that reared its head this past week. This issue definitively makes the case for regulation and standardized platforms.
For those that may not know, if you buy and sell things using cryptocurrency, you work with or transact in the blockchain hierarchy. To conduct transactions, validate purchases or contracts in the blockchain (When you hear “Blockchain” think platform or network) certain software is used that are referred to as ‘bridges’. These are similar to the ones that connect pieces of land (chuckle chuckle), yet here they connect pieces of the blockchain or platforms in cyberspace for transaction purposes. When thinking about this, think of the movie Tron. Where a digital reality became physical and programs were people. Consider these bridges virtual in nature, existing to allow interaction with different currencies and different blockchain matrices. You utilize these ‘bridges’ the same way everyone else does, or else you could not communicate between platforms. The same way in which different software in computer communicates with one another or apps on your smartphone work in unison or together.
One of the most popular bridges utilized by cryptocurrencies, Wormhole, was hacked this passed week. The hackers were able to enter the blockchain and steal more than $300 million in cryptocurrency.
You see, to trade between two different cryptocurrency platforms, one needs to utilize the bridge. Now, what happened this past week is the bridge was HACKED. That is right, a team of hackers hit the bridge connecting Ethereum and Solana to the tune over $300 million. That is right you did not misread it. That is how much in cryptocurrency that was ‘stolen’ from the blockchain and there is not a damn thing anyone can actually do to stop it.
Why you may ask? Well the sheer nature of what governments are working on doing, is regulating the blockchain network that all cryptocurrency is verified on. You see the masses out there really to this day do not understand how a cryptocurrency transaction really works. They just discuss it at bars, dinners and want to sound cool at the next get together.
In the real world, a cryptocurrency transaction for a purchase is a digital contract in essence. Someone offers something, someone negotiates or agrees to payment and then a transaction occurs. The problem is, because the currency is unregulated and untraceable, no one knows where it came from, how it got there and who actually owns it. Since it is all code at the end of the day and in order to utilize it one must use a set of codes or transfer it into an account where it is converted into a local currency or just taken for the good or service. But once a transaction is done, it is not un-doable. It ceases to exist and is finite. This is precisely why it is so popular with certain industries and more attractive to manipulation and scams.
As previously stated, since we have explained that the bridges are the way in which different platforms communicate on the blockchain (remember – network), so what is open to frequent attack is the actual network that connects these platforms and in a matter of seconds millions upon millions of cryptocurrency is hacked, stolen or lets face it just – taken.
What does this mean for you, well right now unless it was your currency, not much. But it does affect the overall market for such currencies and the ability to trade, purchase, sell and utilize certain currencies on the blockchain. It can also affect individual cryptocurrency prices by the risk factor associated with them as they trade.
What this shows us is that more infrastructure is needed for these currencies to become the norm and have the backing of a regulatory body or agency that makes it difficult to steal value from other holders. Without that you have the equivalent of the initial gold rush to the West Coast and people got held up at gun point for their gold. Except now it can be done thousands of miles away utilizing a hack and subnetworks to hide where the real perpetrators are.
Obviously with any other type of currency one does not worry about a digital hack that renders the ownership of the currency changed. If you have credit card fraud on your account, the bank will credit it and you will not be responsible. If you have a problem with a bank account no matter what currency you are using the bank will under federal law indemnify you from any loss up to $250,000.00 per account (you know FDIC Insurance). It seems using old fashioned cash is a bit safer huh…………….
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