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On today's show:
We’ll check in on the growth of the Lightning network
We’ll look at the Bitcoin price pattern that is on the edge of breaking out
AND I’ll bring you my comprehensive report on the $500m worth of NEM that was stolen, how it happened and what’s happening next.
Story - Lightning Watch 0:50
http://lnstat.ideoflux.com:3000/dashboard/db/lightning-network?refresh=5m&orgId=1
https://docs.google.com/spreadsheets/d/14EN_vpbeLeQNFTNJ8DJbayZX33wlRINW-oQfJjveScI/edit?usp=sharing
Today’s stats.
326 nodes and 846 channels.
And a spike in Segwit:
http://segwit.party/charts/
https://btc.com/
The Bitcoin backlog is clear and tx fees down to $0.15.
Story - Bitcoin Price Pattern 13:21
Charts provided by Coinigy: https://www.coinigy.com/?r=16171fe8
We are reaching the end of this descending triangle pattern.
Story - 523m NEM Tokens Stolen 13:23
https://coinmarketcap.com/
NEM is a top 10 cryptocurrency by market cap.
https://nem.io/
NEM stands for new economic model and describes itself as a smart asset blockchain.
The NEM foundation is based in Singapore, however I believe NEM has Japanese roots, don’t quote me on that.
https://coincheck.com/
Anyway the story is that on Friday the 26th of January, Japan’s 2nd largest cryptocurrency exchange Coincheck, contacted law enforcement to report they had suffered a security breach.
Someone stole 523m NEM tokens from the exchange.
At today’s price of $0.96 that equates to just under $505m, making it the biggest cryptocurrency hack ever by dollar value.
While that’s more the the famous Mt. Gox hack, it’s a much smaller proportion of the overall cryptocurrency market than the Mt. Gox hack.
The question is how a hacker was able to steal this much money from Japan’s 2nd largest exchange.
https://docs.nem.io/en/other-wallets/iphone-wallet/multisig
Well the feature set provided by the NEM blockchain is quite comprehensive and includes a world class multi-signature wallet, meaning when the attacker proposed the transaction to send the 523m NEM out from the exchange, multiple staff members at Coincheck would have to co-sign that transaction.
If you are watching the video version of today’s episode you can see a diagram of how this works.
Making a wallet multi-sginature makes the private key for the wallet useless because it now depends on the keys of three separate people to authorise transactions.
This is all fine, except for the fact that Coincheck didn’t bother to use this feature.
So to be absolutely clear, in no way has the security or integrity of the NEM blockchain been breached. The network performed perfectly and even provided a feature designed to prevent this kind of theft.
The NEM multi-sig wallet is so comprehensive, it even allows you to have 10 signers and require all 10 of them to sign a transaction if you want. That’s the level of security you can have, if you will be use it.
Perhaps the most tragic part (and I’m getting this directly from the NEM documentation) is here where it says [red]
Then yesterday, Sunday the 28th of January, Coincheck published this article:
https://coincheck.com/en/blog/4680
In which they describe their reparations policy towards the 260,000 affect users.
The bottom line is that they will be paying Japanese Yen into each users Coincheck account at the rate of 88.549 per NEM.
They calculated that price based on a time period between Coincheck halting trading and publishing this article.
This process of refunds hasn’t begun yet but once it’s available they’ll publish instructions on how to make a claim.
Meanwhile Coincheck have been in touch with the NEM foundation who are doing their best to monitor the stolen NEM on the blockchain, in an attempt to identify the hacker and catch them.
For more information on this I’ll refer you to Alex from the Inside NEM YouTube channel who wasted no time in getting Jeff McDonald, Vice President of the NEM Foundation on for an interview.
This is a 27 minute interview where Jeff describes what the NEM Foundation is doing to help Coincheck, but does point out a clear failure to use the multi-sig wallet that is readily available.
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This is really the weakness of centralized exchanges. If the exchange has poor security in place, it puts everything left on the exchange at risk. The downside of taking everything off the exchange makes it much harder to move quickly on a price moves, plus paying fees to move your balances back and forth. As we continue to see more hacks, the greater need we have for an easy to use decentralized exchange.
There's a lot of exciting stuff happening with decentralized exchanges (DEX) right now. Bancor is up and running at bancor.network using the BNT token. Loopring (LRC) and the ZeroX Project (ZRX) is enabling anybody to make their own DEX so, rest assured, I think the crypto-community as a whole is moving quickly to being able to offer a whole raft of DEX options in the near future.
“As far as NEM is concerned, tech is intact. We are not forking. Also, we would advise all exchanges to make use of our multi-signature smart contract which is among the best in the landscape. Coincheck didn't use them and that's why they could have been hacked. They were very relaxed with their security measures," Wong said. https://www.zerohedge.com/news/2018-01-26/over-400-million-stolen-hacked-japanese-cryptocurrency-exchange
Ah! Finally found you on Steemit. Have been listening to your podcast for a month now and have REALLY appreciated your perspective on everything.
In regards to NEM, that's a VERY important distinction you are pointing out here... that they didn't actually have the full security in action to prevent this. Bet they must be kicking themselves pretty hard now eh? oops!
I'm very interested in the growth of the lightning network and like your updates on it. Is there a link to the graphic you show with all the nodes? You call it the network graph.
Here you go https://lnmainnet.gaben.win/#
Yeah, you really dig up some useful charts from god-knows-where on the internet. Thx for yer efforts!
Thanks, Much appreciated :)
Haha, as cool as it is I spent about 10 seconds on it and was like, alright I'm done with it now :P
Chris, finally checking you out on DTube, usually I listen to your podcasts on the drive home from work. Listening to your analysis regarding the various coins...support lines...retracement...etc; I understand how these things work with the stock market because trades are largely automated. In crypto, many investors know nothing of investing and buy because they heard a podcast, saw a YouTube video, or heard friends discussing it. Additionally, news can swing things either direction. How do these math models work in a market with few rules and low investor education?
There are certain universal patterns such as the Fibonacci sequence which transcend lower level chaos. This is a huge area of study https://io9.gizmodo.com/5985588/15-uncanny-examples-of-the-golden-ratio-in-nature
Thank you for the link. I'm currently reading "The Wisdom of Crowds" by James Surowiecki which is about how the masses (even uninformed) usually predict correctly. I know a number of crypto projects are touching on the same topic...this is just a fascinating time to be involved in the space.
Great work Chris! I've been a fan of your podcast version for the last 6 months or so and have finally got myself signed up to Steemit and DTube thanks to your continued support for both platforms. Starting to look into EOS as a developer too ;)
Here you go: https://objectcomputing.com/resources/events/building-apps-with-eos
Great video, fan of NEM myself.
I learned early on as part of my research, you should always have control of your wallets and private keys. Centralized Exchanges are vulnerable to attacks from a number of sources and these attackers are incentivized to attack as they have concentrated sources of assets to take with one attack.
Interesting how the exchange is handling this. Come to show how much money they make...
does anyone know how much profit an exchange like this makes per year? They found an extraordinary large amount very quickly to be able to credit to users accounts
I think I read a couple of days ago that Coinbase/GDAX had a $1.2B profit last year! Incredible even though they only trade 4 assets but are one of the largest in volumes.
anyone interested in setting up an exchange?
I hope coincheck will able to get back stolen NEM :-)
excellent steemit post
The attack saw the @Bitcoin wallet company losing their NEM #cryptocurrency worth R6.3bn
Thank you man for your efforts, i subscribed your channel
Watching on YouTube right now... The daily lighting and Bitcoin charts are getting a bit old, fyi. Thanks for the nem story!
Good work.
Good on Coincheck for admitting the mistake and taking steps to retify it. Will be interesting to see if they can be successful in cooperating with other exchanges and law enforcement to recover the funds. Once atomic swaps are viable there may be nothing that can be done. Assuming the private crypto currencies do work perfectly. I can see this as motivation for governments to focus on private crypto at some point.
Subscribed ! :)
Hi, I love your show but normally listen to the podcast. Could not find this episode on Google Play podcasts, or Stitcher. Did you forget to upload to those places?
--A paid-up Cryptoversity Patron - Advocate since 2017.
Decentralized platform prevents this kind of occurrence
You can't run an exchange when you have 10 people manually signing all multisig transactions. You have to automate it and there goes your security.
considering the amount of money at stake surely all centralised exchanges should be learning from this type of incident, how much do they invest in security and auditing that security? Maybe they should not try to accomplish everything in house. There should be a market for external security companies to regularly audit exchanges.
There is, such as https://www.bitgo.com/
Thanks Chris. So do we know what was the issue was with this exchange? Did they not use some external expertise to validate their security or was the method of validation not up to scratch?
Would it be worth doing a feature on how we all could run our own lighting network node
Not until there is a user friendly app
There need to be a security check on NEM.
A huge loss tho!