Bitcoin bounces back | Criminals choose crypto | Chinese mining redoubt
In this issue
- Bitcoin bounces back
- Why criminals choose crypto
- Chinese mining redoubt faces scrutiny
From the Editor’s Desk
There is only one thing in life worse than being talked about, and that is not being talked about. So said Oscar Wilde.
If there’s any truth in that, this past week has been a good one for Bitcoin.
The original cryptocurrency has had its fair share of detractors, especially in recent times as its value has plummeted, but recent developments appear to have given it a second wind.
El Salvador last week pushed a bill through parliament making Bitcoin legal tender in the country in parallel to the U.S. dollar, piquing interest among other developing nations as a one-fingered gesture to the outsize influence of the U.S. Federal Reserve’s monetary policy.
Bitcoin has also gained popularity among hackers demanding ransom payments — although the joke’s on them, given BTC’s traceability by law enforcement. Look out for an escalation in the cyberspace arms race as villains wise up to fringe cryptos.
Bitcoin has been the talk of the town for different reasons in China, where an energy regulator has promised to shut down miners found to be powering their operations in ways that don’t quite accord with the law. Yunnan’s energy agency may not be looking to ban mining outright, unlike regulators in other parts of China, but its actions have nonetheless prompted some industry players to run for the exit.
All that should give the Biterati plenty to talk about.
Until the next time,
Founder and Editor-in-Chief
1. Bitcoin’s back
By the numbers: Bitcoin — over 5,000% increase in Google search volume.
Bitcoin has climbed back above US$40,000 this week, and was trading at US$39,559 at press time. Last week, El Salvador became a Bitcoin hub overnight when it passed legislation to adopt BTC as legal tender, and politicians in other Latin American nations and in Africa mused rather publicly that they might join in. This week, Tanzanian President Samia Suluhu Hassan told her country’s central bank to prepare for the widespread domestic use of cryptocurrency.
- In a high-profile open letter to Nigerian President Muhammadu Buhari, American football player Rossell Okung urged the West African nation to pursue “economic independence and financial sovereignty by pursuing a national Bitcoin standard.”
- Elon Musk also wrote on Twitter that Tesla would once again start accepting Bitcoin when miners had been confirmed to be using about 50% clean energy.
- The Bitcoin network has received a 90% consensus rate for its upcoming network upgrade, named Taproot.
- Taproot is a soft fork upgrade to boost privacy and the introduction of Schnorr signatures that will improve privacy and scalability by aggregating multiple signatures into a single signature. Schnorr was selected over the current Elliptic Curve Digital Signature Algorithm.
- Taproot is expected to be activated by November after obtaining majority support from the Bitcoin mining community.
Forkast.Insights | What does it mean?
The past week has seen the world’s largest cryptocurrency regain some of its value. After sinking to a seven-day low of US$34,728, Bitcoin has risen more than 20% and is above US$40,000 for the first time since May 27.
Without doubt the most interesting Bitcoin news has been El Salvador’s adoption of it as a parallel national currency. The move has raised regulatory and financial concerns at the International Monetary Fund, and it is not yet clear how the country will turn the aspirational new law into a solid, functioning reality.
IMF and other global institutions are growing concerned as a slew of Central American and African countries are also hinting at adopting Bitcoin to counter U.S. Federal Reserve policies that are inflationary and could damage their heavily dollarized economies. The Biterati, however, have been celebrating these developments.
The week saw Elon Musk return to the Bitcoin fray, and the influence of his tweets on the token shows little sign of diminishing any time soon. After the Tesla founder tweeted that the electric carmaker could once again accept Bitcoin as payment if miners went at least 50% green, BTC prices rose several thousand dollars overnight.
Striking a more measured tone, billionaire Paul Tudor Jones also reiterated his advice that investors hold diversified portfolios with at least 5% in Bitcoin as a hedge against inflation — a hot topic for this week’s meeting of the U.S. Federal Open Market Committee. Jones is reportedly going all-in on inflation trades following the Federal Reserve’s decision to allow inflation to hit 5% with no immediate plans to rein it in.
To keep the U.S. economy afloat throughout the Covid-19 pandemic, the Fed has been printing money at an extraordinary pace, boosting the supply of greenbacks in circulation by 32% between February 2020 and last month and creating almost US$5 trillion in new money supply. The valuation of the dollar has kept economists awake at night since its decoupling from the gold standard, and recent developments have raised anew the specter of 1970s-style stagflation amid the pandemic’s fallout.
Against this backdrop, one might be forgiven for thinking that Latin American and African Bitcoin-boosting politicians had taken a lead from Austrian economist and political philosopher Friedrich von Hayek, who said almost 40 years ago: “Take money out of the hands of government. I don’t believe we shall ever have a good money again before we take the thing out of the hands of government…. all we can do is by some sly roundabout way introduce something that they can’t stop.”
Hayek’s libertarian doctrine was turned into a juggernaut in the 1980s by the likes of British Prime Minister Margeret Thatcher and U.S. President Ronald Reagan, despite having lost some of its persuasive power as workers’ wages stagnated and an enormous wealth gap opened up. Might Bitcoin gain a similar appeal as it appears to promise some sort of emancipation from the hegemony of the U.S. dollar and the mandates of central banks? Watch Latin America, watch Africa, and watch this space.
2. A fistful of crypto: Hackers get choosy over ransom payments
By the numbers: JBS — over 5,000% increase in Google search volume.
High-profile ransomware attacks have prompted G7 nations to take action, with the White House calling on government agencies to safeguard potential targets from a rising number of ransomware attacks in which cryptocurrency is becoming preferred for payment.
“These transnational criminal enterprises leverage infrastructure, virtual currency, and money laundering networks, and target victims all over the globe, often operating from geographic locations that offer a permissive environment for carrying out such malicious cyber activities,” the White House said in a statement.
- This past week, meat-processing giant JBS paid US$11 million in Bitcoin to cyber criminal group REvil.
- Earlier this month, the U.S. Federal Bureau of Investigation successfully recovered Bitcoin from cybercriminals known as DarkSide, which carried out a cyber attack on Colonial Pipeline and shut down a 5,500-mile gasoline pipeline in the U.S. How the FBI was able to recover those assets remains unknown.
- The recent attacks will likely not be the last we hear of crypto-involved ransomware attacks. John Chambers, the former CEO of American technology heavyweight Cisco, expects more than 65,000 ransomware attacks in the U.S. alone this year. “That’s probably a conservative number,” he told Yahoo! Finance.
Forkast.Insights | What does it mean?
Vaccines are rolling out, stadiums are filling up again, and people are planning holidays as the world transitions to a post-Covid era. But a digital affliction appears to be gaining momentum.
“We are on the cusp of a global digital pandemic, driven by greed, a vulnerable digital ecosystem, and an ever-widening criminal enterprise,” the former director of the U.S. Cybersecurity and Infrastructure Security Agency told a congressional hearing on ransomware attacks.
With convenience and pseudonymity provided by Bitcoin’s digital transactions, cyber criminals are showing the world the ease and comfort of crypto payments.
But one common misconception about Bitcoin is that its transactions are fully anonymous and invisible.
In reality, Bitcoin isn’t quite so simple.
Every transaction made on the Bitcoin network is recorded on the blockchain for everyone to see, forevermore. A criminal’s digital footprint might as well be cast in stone. Bitcoin makes it easy for blockchain forensics specialists to track iffy transactions.
In response, services such as “mixers” have been developed to allow users to hide their digital footprints. A crypto mixer allows users to send cryptocurrencies to pools of crypto with inflows from numerous wallets. The crypto is mixed within those pools, then distributed among participants to help cover their digital tracks.
But even mixers aren’t impossible to trace using today’s blockchain forensics, according to Kobre & Kim partner Benjamin Sauter, who says crypto recovery can be easier than tracking traditional bank transactions.
Cybercrime is expected to increase, but as long as Bitcoin is demanded for ransom, tracking the assets will always be possible.
But if hackers demand for ransom privacy coins such as Monero, things may not be quite so straightforward.
3. China syndrome
Following rumors of a possible ban on cryptocurrency mining in the southwestern Chinese province of Yunnan last week, its energy regulator has clarified an approach to the industry that looks set to rein in rogue operators.
- The Energy Administration of Yunnan on Tuesday clarified to Forkast.News on a phone call that it had issued a notice ordering inspections of power use in Bitcoin mining.
- The details of the notice were reported by the China Securities Journal on Saturday. It stated that any Bitcoin miners found to have used unauthorized access to electricity or who had evaded paying power bills would have their power supplies cut off immediately, and that any miners that may pose safety risks due to their use of power would have their operations shut down and undergo rectifications. That came after Forkast.News broke news on Friday upon hearing of a rumored ban on crypto mining in the province.
- Yunnan’s energy authority declined to comment on the progress of the crackdown. The campaign is expected to be completed by the end of June, according to local media reports.
- One crypto industry source who asked for anonymity told Forkast.News on Monday that his mining operations in Yunnan had had to close down. He said that the hydropower station that had supplied electricity to his mining facilities had received the government notice.
Forkast.Insights | What does it mean?
China accounts for more than half of global Bitcoin production, but as the country’s cabinet continues its clampdown on Bitcoin mining, an exodus of miners from the country has begun.
Yunnan had been a sanctuary for crypto miners, and was the fourth largest Bitcoin mining hub in China, after Xinjiang, Inner Mongolia and Sichuan. Unlike coal-fired power generation in Inner Mongolia, where cryptocurrency mining is now completely outlawed, Yunnan’s abundant hydropower resources have powered the province’s crypto mining operations, contributing little to China’s huge carbon footprint.
However, a common practice in Yunnan Province is for miners to source electricity directly from hydropower stations to avoid paying fees to the government or the state grid. This appears to have motivated the Energy Administration of Yunnan to issue a notice last week ordering a probe of misappropriation and unauthorized use of electricity by Bitcoin miners and promising punishment for those avoiding paying their way.
Because of droughts in the region this year, water levels in Yunnan’s main reservoirs have been severely reduced. The International Tin Association even said in late May that some smelters in the province had been forced to reduce their power consumption as the energy authority struggled to keep power generation at normal levels.
Most of China’s tin smelters are concentrated in Yunnan, alongside a large proportion of the country’s aluminum and zinc smelters, which are clearly more valuable to, and a higher priority for the Chinese government than Bitcoin mining, the regulation of which has been vague. That may have contributed to the close scrutiny that Bitcoin mining in the region now finds itself subject to, and particularly the government’s desire to seek out and shut down illegal mining operations siphoning power from the grid.
Zhou Xiaochuan, a former governor of China’s central bank said two months ago: “The purpose of finance is to serve the real economy. Both digital currencies and digital assets should be closely integrated with the real economy and serve the real economy.”
That sentiment appears to be front of mind for Yunnan’s authorities as they and their colleagues in other parts of China toe the central government’s line.