Remember meForgot password?
    Log in with Twitter

article imageOp-Ed: Blockchain looking dumb after $400 million ‘disappears’

By Paul Wallis     Jan 26, 2018 in Business
Tokyo - It’s exactly what blockchain is supposed to prevent; $400 million in an obscure cryptocurrency called NEM simply vanished. The exchange is baffled, and the blockchain myth of transparency has taken a serious kick in the teeth.
The $400 million was there, and then it wasn’t. CoinCheck has confirmed the loss. Somehow, that money was transferred “off the exchange”, and disappeared in a haze of lack of information. NEM disabled withdrawals, a pretty savage, but appropriate, response, but the money hasn’t been found.
Various pundits have been cataloguing the woes of cryptocurrencies in the last few months. The current state of play is looking more like an office after a long boozing session than anything to do with finance.
Reasons for crypto-fatigue include:
“Fear of regulation”. This makes sense if you think your investments should be as unsafe as possible, or if your money laundering operation wants to be cheap about the procedural starch. The ongoing perception of cryptocurrencies as the criminal investment of choice isn’t exactly reassuring, either. Meanwhile, the exchange response is arguably a lot tougher than any regulatory enforcement would normally be, another tell-tale of increasing paranoia in a market which wasn't too sane in the first place.
Too much too soon. The casino-like cryptocurrency madness of 2017 was always going to be a train wreck. Not all cryptocurrencies are going to be insanely overvalued, and they aren’t.
There are now thousands of obscure, largely useless cryptos on the market now, absorbing investment capital and therefore reducing the amount available for ridiculous prices.
…So the NEM version of Wile E Coyote isn’t helping polish the tarnished crypto coins image much. Much more worrying, however, is the “illicit transfer” scenario. That’s supposed to be impossible with a blockchain environment.
Blockchain is all about transparency, and is arguably the one really useful thing Bitcoin has achieved in real terms. There aren’t supposed to be any loose ends, or ways of making money vanish.
Why did it fail in this case? Was someone inattentive, or corrupt? Was there a hole in the NEM system? This money can’t have just vanished all by itself. It is possible for data errors to transfer money to non-existent places, but that doesn’t seem to be the case with NEM. The money is no longer on the exchange, where it’s supposed to be.
Hackers are another possibility. The original fountain of Bitcoin, Mt. Gox, went bankrupt after losing a roughly similar amount stolen by a hacking attack. The ability to fake transactions in a blizzard of digits isn’t exactly unknown, and NEM may have been hit with this old standard approach.
There’s an irony here, too. Swiping cryptocurrencies is at least theoretically stupid. If that NEM money comes back on the market, which it has to do to realize value, it’s an instant giveaway. Its value on the market is effectively invalidated, at least in theory, by the loss/irregularity of its prior trading. The money could, in theory only, be worthless, because it has no trading lineage.
Transactions don’t just happen in blockchain systems. They’re validated, every step, every time. Reintroducing this money anywhere on Earth will start a new audit trail, and if the money isn’t well hidden, it’ll be very visible to market operators and exchanges.
On the other hand, if you’ve just knocked off $400 million, you’re probably not too fussed about the theory of blockchain. You’re more likely to be interested in the fact that a weakness in that theory has just made you 9 digits of fun in the sun.
The crypto-cartels need to be aware that this loss is a potential bullet in the brain to the cryptocurrencies, if it’s not fixed.
This opinion article was written by an independent writer. The opinions and views expressed herein are those of the author and are not necessarily intended to reflect those of
More about NEM tokens scandal, cryptocurrencies, bitcoin, cryptocurrency regulation, Mt Gox
More news from
Latest News
Top News