PassW0rd – 14th February 2018 (Blockchain Revolution)

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Speaker C: Hello and welcome to Password. I’m Pete Warren, and I’m thinking of launching a new cryptocurrency called PeteCoin. It’s gonna be just like Bitcoin, only better. So I’ve been talking to experts about how virtual currency works, how it can be hacked, and why the prices go up and down like a roller coaster. Password’s also taking part in the Resonance FM fundraiser. Keep listening for details of how you can bid for an F-Secure home cybersecurity system. Before I can start issuing PeteCoins, I need to know how cryptocurrency works, using a blockchain ledger to keep track of who owns what. Welcome, Søren Fogh, founder of the Crypto Valley Association based at Zug in Switzerland.

Speaker A: What is blockchain? It’s a very simple construct, a very simple database way, or a very simple way of storing information where you link the information together in a way where if you change anything, everybody can see something is changed, and then they can simply reject it. It’s nothing else than that. It’s like a table in an Excel sheet. Each time you add a row to the sheet, it cannot be changed and it cannot be removed, at least not without everybody seeing that has been done. And therefore everything— so it’s a truth machine. It’s a way to store things. I usually use the metaphor when people ask that it’s like a stack of papers and this stack can only grow. And when you put a new paper on top of the stack, you cannot remove it and you cannot change it. That’s what a blockchain is. People, however, use the word blockchain for something else, and that is what I call a distributed ledger. I’d like to scoot a little into technology. Some of the people that are listening to this might actually think that, might actually know about databases, and you also have what you call replicated databases. Basically a smart backup function. So you have the same database on several computers, and when you add something in one computer, it automatically replicates it to other databases. This is also a simple distributed ledger. Instead of this, we have a— instead of the ordinary database replications, we have here a peer-to-peer network replication over millions of nodes, millions of computers spread out all over the globe, and they’re replicating this blockchain, which is a database that cannot be faked. So that’s basically what it is. Then there’s a Consensus algorithm, you know, this is also related to the mining process that— excuse me, the background is my coffee machine here. This mining process and this consensus algorithm basically solves the old double-spend problem, meaning that if I have money, I can send them to you, or Bitcoin, I can send them to you, but I can’t send them to somebody else too. So this is basically all it is. The second question you asked is why is it so popular, or why is it so much in the press now? And that has to do with the speculation around it. Bitcoin and Ethereum are currencies, as you know, and people can buy and sell them and they can appreciate in value. And recently, because of various initiatives, various technological innovations, and particularly what we are calling ICOs, stands for Initial Coin Offerings, we’ve seen a lot of money changing hands. A lot of fiat currency is siphoned into crypto, and that means people can get rich. You may have heard of it. Some people get exceedingly wealthy in very short time. This is partly unfortunate because the technology is not about that, but it’s also fortunate in the sense that this has created a lot of marketing that has created awareness around the technology. So even though people might not see its true potential right now, they have at least heard of it on a global scale.

Speaker C: The Crypto Valley Association is aiming for nothing less than world domination of this new technology, and It’s attracted a number of global brands, such as the international accounting company PwC, to set up their international blockchain headquarters in the small Swiss town. As Sören says, blockchain is a truth machine. I think of it as a bit like putting a hash through the entire internet. A hash is an algorithm that you can run through a computer and records everything done on it and then expresses it as a number. Every time you use the computer, that number changes. Blockchain is a little similar in that it holds a record of what’s happened, and that record is held on multiple computers. Transparent, trustworthy— so an excellent basis for financial transactions. Dave Birch, a visiting professor at Surrey University and a global ambassador for the currency advising company Consult Hyperion has a more primitive example from the South Pacific.

Speaker D: The way I like to try and explain it is this: there’s a very famous case in the history of money which is called the stone money of Yap. You’ll see it in all sorts of books about this kind of thing, including mine, as it happens. And the essence of the story is this: it’s a true story. There’s an island in the Pacific called Yap. And this island has no precious metals, it has no gold or silver. So the people on the island discovered that on another island nearby— actually not that near, it takes a little while to, to get there— there was another kind of rock. And so what they would do is they would go to this other island and dig up these rocks, carve them into these big stone discs, and put them on their raft and bring them back. And then when they come back, you put this— I mean, these things weigh like a ton, they’re massive. And then you put your big rock outside the chief’s house, and it’s his rock. And then when the chief needs to spend a huge amount, like perhaps his daughter’s getting married and he needs to pay a dowry, so my daughter’s marrying your son, so I give you my big rock. But it’s a big rock, it weighs a ton, so neither of us can be bothered to try and move it from where it is outside my house. So we just tell everybody that now it’s your rock instead of my rock, and that’s absolutely fine. There’s a little twist to this story, which is now and then, because obviously it was quite a ways to go and get these rocks, and sometimes there would be storms and suchlike, and occasionally they’d have to throw a rock over the side. And so this rock is now at the bottom of the Pacific, but when we got back, everybody would still agree, well, it’s my rock.

Speaker E: Okay.

Speaker D: And then when it comes to me giving you a dowry, we tell everybody that rock that’s at the bottom of the Pacific, it’s not my rock anymore. Now it’s your rock. So you’ve got these rocks that nobody can see, but everybody remembers who they belong to. And in essence, Bitcoin is a very similar thing. So instead of digging up huge lumps of stone, you solve complicated mathematical puzzles. So instead of requiring the work of your muscles when you’re digging big lumps of rock out of the ground, this requires the work of your computer, in fact lots of computers, and in turn requires electrical energy instead. And when you find one of these coins by solving one of these complicated mathematical puzzles, you tell everybody in the network that this belongs to— you solve the puzzle, it belongs to you. And then that’s how you create the new bitcoins. So what you can imagine is you have this global network of computers and all of the computers remember who all of the bitcoins belong to. And as long as the network agrees that you have this bitcoin, you can transfer it to everybody else. And when you transfer it to somebody else, all of the computers get told, they all double-check that it’s all correct. And as long as everything’s above board, Now everybody remembers it’s your coin instead of mine. So an imperfect analogy, but I think a reasonable analogy nonetheless. You’ve got these invisible things which required work, and you have to remember who they all belong to.

Speaker C: And that’s the principle behind Bitcoin, the best-known virtual currency. You can’t hold it in your hand, but it’s just as real as this banknote, which says, I ‘I promise to pay the bearer on demand the sum of £10’ and possibly more real than one that says ‘I promise to pay £50′. The Bank of England’s latest figures show that in 2016 around 347,000 counterfeit banknotes with a face value of £7.5 million were taken out of circulation. To put that in context, At any one time, there is an average of 3.5 billion genuine banknotes in circulation, with a face value of around £70 billion. So there’s Bitcoin, Ethereum, and now many more individual currencies, each tied to particular products and services. Startups are offering investors Instead of a share in my company or a founder’s t-shirt, you can buy a coin in my name. It’s the new crowdfunding tool. Amir Butt is one of them. He’s decided to make an initial coin offering, or ICO, for Tumor Trace, which uses artificial intelligence to make life-saving, swift, accurate cancer diagnoses with a portable machine.

Speaker E: There is a value associated with the underlying balance sheet of the company, of course, and then there is the value associated with what people are prepared to trade. And this is where, you know, the cryptocurrencies of today, their value is being controlled by having a limited circulation. And so more and more people want, and the price therefore goes up. And this is exactly what I mean. There are ways of doing cryptocurrency and tokenization which is going to change from just what people are prepared to pay for it in a restricted circulation environment to something which actually has an underlying value. Like when you spend a pound, you know, the UK government says this is what the— and the Bank of England say this is the value of the pound that you own. At the moment, there’s nothing other than the people’s desire to trade on a limited circulation that determines the value of something like Bitcoin or another coin offering. I can’t stress enough, you have The important thing about doing something which is in a cryptocurrency play is the cryptocurrency is incidental. If it’s a genuine cryptocurrency thing, what is important is how your business or what you’re proposing, how that resonates with all the elements of what a blockchain is. And it could be, for example, like Tumor Trace and other organizations look at blockchain. And if there is relevance, for which there is in an organization like Tumor Trace and other medtech companies. Some may choose not to do the ICO route. Some may choose to just do an implementation on something like Linux’s Hyperledger, which is a distributed ledger blockchain system without any element of a cryptocurrency. So, and as I say, there, I think there is going to be a shift this year from the Wild West of people launching cryptocurrencies, for example, called shitcoin literally, and actually raising money on the back of it, to having ICOs which deliver real, proper, underlying intrinsic value in the currency. A very, very good example of that, I’m sure you’re aware of, Estonia just recently have announced plans to issue a cryptocurrency, which is a national cryptocurrency, like the pound, like the US dollar. That is exciting. That’s a really exciting move. Whereas I think cryptocurrencies and the way they’re run are going to morph and change into something much more reliable over the coming months, The blockchain and what the blockchain offers in terms of sort of authorized access, security, very transparent sort of changes that you make to the data that’s held in there, that is a piece of genius that isn’t going to disappear. And it’s because of the application of the blockchain technology to a large number of businesses, that’s the thing that’s going to drive the cryptocurrency wave into something being more real. Rather than, as I said before, Emperor’s New Clothes type of arrangement.

Speaker C: So what does a blockchain mean for you? What is the attraction of a blockchain?

Speaker E: So for a company like Tumutrace, not just Tumutrace, but other organizations, other companies who’ve got products that are being sold into emerging markets, there are various risks that you have to manage with regards to intellectual property, with regards to, for example, fakes appearing in the market masquerading as your product. And buyers of those kits and users of those kits, like for example consultants, it is sometimes challenging to make sure that you’re not buying something fake because ultimately what you’re doing is you’re, you’re basing your decisions on the kind of care that patients get based on the results that these devices and this equipment and these sort of methods then classify the samples that are being presented. That’s a big risk for consultants, it’s a big risk for patients, it’s a big risk for clinics whose reputation then gets tarnished. It’s a big risk for local, national government programs. They may use your technologies. So to have something where you are manufacturing, all the steps associated with your manufacturing and your suppliers sitting on something like a blockchain, one of the facets of a blockchain is that any data that you put on there is immediately available across a distributed network. So it’s not owned by Tumatrace or any other company. It’s in the public domain, so to say. And any then changes you then go and make afterwards because you want to fake something or you want to change something having entered it, it’s audited and fully available to anybody if you want to allow to observe. So it means when you buy a piece of kit, you know it’s legitimate, you know it’s been manufactured by, you know, according to exposed standards, etc., etc. Another thing, anything that you take to market in the medical space, you have to, certainly in Europe, go through what’s called the CE mark, Certificate European. And that is very, very onerous. It’s months and months of work of, like, electronic testing to making sure that the claims that you’re making are valid and evidenced. There are several examples of companies who operate not in emerging markets who are looking to sell their products where that kind of trial work, that kind of clinical validation and verification, is not as robust as it might be if you’re doing it in Europe or if you’re doing it in the US, for instance. And so to have that kind of information and validity available on a blockchain, again, is a massive benefit to both consumers, you know, buyers of whatever you are making, and consumers who are then used to either for therapeutics or diagnostics. And there are very, very good companies that are coming out of Oxford University, Cambridge University, and in the US who are medtech pharma-based companies who are looking to put all of that kind of process on a blockchain implementation. A blockchain is the word of the day, but effectively what it means is a, you know, a system a system where you can verifiably place transactions, a ledger as it were, and it’s something which is fully auditable, and more importantly, it’s not owned by— it doesn’t sit in the server farm of any particular organisation.

Speaker C: Other entrepreneurs are using blockchain technology and virtual coin to solve different problems, like Gareth Emery, a DJ. He’s helping musicians to get more money for their creations. More swiftly and automatically without the need to claim and chase payments in person with his system called Choon. That’s C-H-O-O-N. But he’s skeptical about some other applications of this technology.

Speaker F: You’re getting blockchain being used for anything and everything, and it’s not always a good fit. You know, right now blockchain is this massive massive buzzword and it’s getting attached to companies of all shapes and sizes and it’s not always necessary. I mean, I think you can just see that the sort of complete blockchain fever when there’s a ridiculous story about a company in the US that makes cocktails and they literally added the word blockchain to the name of their company. I don’t remember the name of the company, but like Long Island Iced Tea Cocktails Blockchain Limited or whatever, and they’d literally seen their share price soar, you know, 300% off the back of that, or something along those lines. And that’s just ridiculous, you know. For me, I’m not too bothered about that because I think, you know, history has a really good way of sorting the wheat from the chaff and sorting out, you know, what are necessary implementations and what are unnecessary So I don’t tend to get overly concerned about that. Yes, right now you’ve got blockchain being bolted onto companies that really don’t need it. For us, however, it makes total sense. You know, we have this incredibly antiquated system of contracting and accounting in the music industry. It was basically designed in the days of sheet music and jukeboxes, and it’s completely unfit for purpose in a modern world where, you know, people stream their music digitally. What does blockchain do really well? Removes intermediaries, removes middlemen, and allows for more direct transactions which are completely transparent because they’re logged online. Essentially, what blockchain does well is exactly what we need. So for us, it’s kind of a perfect use case. For many cases, it’s absolutely not. And I think, you know, I think will be historically correct on this one. I think many other usage cases won’t.

Speaker C: Okay, so, and you say you’re using it, you know, your, your blockchain use is fit for purpose. A lot of people are evidently saying we want blockchain to be used for everything. What are the areas that you think that blockchain will need to be adapted to be able to solve?

Speaker F: I think blockchain has only showed itself to be good at solving a reasonably small number of world problems at present. Now, I do believe it will get better at solving more and more problems, but right now, here’s what it’s good at. It’s good at money. I think that’s very, very clear. You know, you can send $100 million in Bitcoin from one side of the world to another, it arrives really quickly, and it’ll cost you a couple of dollars in transaction fees. You know, that’s really, really cool because the existing financial systems are pretty slow and lumbering. They’re actually much worse where I live in the United States than they are here in the UK. We’re kind of light-years ahead compared to some other places. So yeah, what does Bitcoin, what does blockchain do well? It does money very well. It does transparency very well. When you want an indisputable public record showing where money changed hands, it does that well. And it does contracts well. If you say, you know, I want to pay this person this percent for this amount of time, you know, it will lock into a contract and it will force that contract to be executed. So essentially, anything where money financing, money finances or financial contracts are involved, I think it’s great. In terms of everything else, I kind of think the jury’s out. That’s not saying we’re not going to see blockchain replacements for, you know, Facebook and stuff like that, but, you know, I just think it’s too early days yet. There are a few other uses, and one of which is really interesting, so I will mention it. Quite useful for provenance, and my wife is in the art business, and there’s been a lot of chat about using blockchain to track the ownership of a piece of art. So, you know, right now if somebody buys, say, a Warhol print, it’d be pretty difficult to check that piece is genuine and not a counterfeit. You know, you have to go back back sort of to when the piece was originally sold decades in the past, work out who’s owned it over the years, especially difficult if you don’t have the right ownership certificates. Whereas, you know, if Warhol had had some sort of, some sort of blockchain-based wallet, you could authenticate that that piece begun with him, and you could kind of track an ownership token right from when he originally issued the piece right to now. So, you know, I think that’s just one really interesting usage, but We’re gonna see a lot of blockchain companies fail, probably, you know, 80% just is not going to be necessary. And I think you’ll see some change the world, and you need to be a smarter man than me to say which ones are gonna do which. As long as the print is— was kind of, I guess, as long as the print was attached to the chain in the first place. So say, for instance, instead of the artist signing it, they put an identifier. As long as that identifier can be tied back to the original owner, yeah, you might lose the chain of ownership, but as long as you can tell that at some point that print originated from the Andy Warhol wallet, you know the print is genuine.

Speaker C: And no doubt Andy Warhol would approve of this. Crypto, an exclusive new track from Gareth Emery and Ashley Woolbridge, connected to a prototype of an entirely new way for artists to be paid. You can find it and pay for it online at Tune. Once again, C-H-O-O-N. Tune is not the only system to use blockchain for getting artists and musicians a fair deal with no need to chase payments manually. In last month’s Password, we heard about Copytrack, and back in 2014, Bruce Pon introduced Ascribe to our audience. In March 2015, they quietly launched. The service is tuned for artists but is suitable for all sorts of creatives, from photographers to 3D designers. Since then, according to their website, over 5,000 creators have declared 10,000 digital works and 40,000 unique editions. Another new money-making scheme is based in the power of social media networks. Snap is its name and Alex Harrington its CEO.

Speaker G: You don’t want to have to trust the third party, right? And so what blockchain allows is a contract to be written programmatically into the program so that parties can interact in a frictionless way that’s all mediated by computers, and it holds to certain rule sets that are automatically enforced. And so what that allows, what that permits, is a scale of near-frictionless transacting that is unprecedented, and it unleashes the potential for a huge amount of commerce that doesn’t exist yet today. So, you know, in terms of reducing friction in commerce and reducing the cost of transacting, I mean, this might be the biggest innovation since, you know, a court system that enforced contract law and made it possible to do business with strangers, right? I mean, this is a really, really big innovation, one of the things that makes all these blockchain business models possible.

Speaker H: Do you want to give me an example then of what this new commerce is that people are talking about. What are these new things that we can do because of blockchain that we couldn’t do before?

Speaker G: There’s a simple financial example of— most people consider Bitcoin as, you know, a payment form in real time, right? So what all Bitcoin can do is say, I’m going to transfer value from one person to another right now. But what smart contracts can do is create conditional transfers of value, right? So comparable to an escrow, right? If certain conditions play out, that these funds will be released in the future, right? So that’s a very simple example of a smart contract. And, you know, if that gets widely used, you know, what is now a business around escrow goes away. Now there are a million other applications of this that are not even just financial, and the one that in my business that we’re intending to pursue is to leverage a network of individuals who are seeking to essentially sell their idle computing and bandwidth capabilities from their home computers, or, you know, maybe they’re sort of semi-professional and have souped-up home computers. Those people can passively, through a smart contract or, you know, the software that blockchain enables can passively sell their services through a certain rule set, be assured that they’re going to be interacting and getting compensated fairly because the rule sets are sort of baked into the technology. And that can happen on an absolutely massive scale. And so what it does is it just sort of opens up network commerce amongst peers in ways that, that haven’t been permitted before.

Speaker C: Suped-up semi-pro home computers, huh? That’s the sort of machine that an avid gamer or esports athlete might have at home, and Igor Goryev’s already turning those very machines into money. His platform rents out the huge processing power of a top gamer’s supercomputer to other gamers with less powerful machines. Keeps a record of who’s been using what, and allows the gamers renting out the machines to pay in cryptocurrency. Eagle’s the CEO of PlayKey, a cloud gaming platform that creates a sharing economy in the gaming community.

Speaker D: The problem is that weak hardware restrains the development of the gaming industry. Gamers cannot buy top-end Cloud gaming solves this problem, allowing gamers to rent powerful servers which are several times cheaper than buying a gaming PC. Experts predict the next generation of consoles will be the last. The last, which generally has a hardware component.

Speaker I: We are developing the smart contracts between gamers and how we call them miners. So miners are the people who own the powerful gaming computer and they want to share their hardware with the gamers which don’t have money on a new gaming computer. And the miners, they get rewards with tokens that they can convert into real money. And we are developing the smart contracts using Ethereum between gamer and miner. That this ecosystem can work fully decentralized.

Speaker C: Okay, so you’ve got a very powerful computer and you’ve made that investment in your very powerful computer so that you can be a gamer. And there are other people who would like to have this similar sort of gaming experience to that which you have, and they can do that because they can basically buy time on your computer. Is that how it works?

Speaker I: Yeah, exactly, Pete. So it’s like a shared economy. If we see that most of the gamers, they play only like 5% of the total time they own the computer and there is no reason for them to spend money to buy it every year in yuan.

Speaker C: So essentially it’s distributed computer gaming paid for in Ethereum or bought by a cryptocurrency.

Speaker I: Our token is developed on Ethereum. So it’s fully ERC-20 token. Yeah, we made the ICO in November last year, and on this ICO we were offering these tokens to our contributors who are gamers, miners, like just ordinary people who believe in cloud gaming. We finished the ICO in November.

Speaker C: So why did you pick on Ethereum? What’s the difference between Ethereum and Bitcoin? Why is it that Ethereum appealed to you?

Speaker I: So Ethereum provides an ability to create your own tokens. You can’t do that on Bitcoin. And that’s why we decided to work on Ethereum because it’s one of the most popular platforms for creating tokens and smart contracts. There are some others like NEM, Waves. But Ethereum is more popular and like it’s easier to make on Ethereum.

Speaker E: So that’s why.

Speaker C: Right, okay. Have you got lots and lots of people signing up to this system?

Speaker I: Regarding our token offers, we have about 3,000 people who participated into the ICO. And regarding our product, so currently we have about like 2 million registered customers. And like several hundred thousands of them are paying us every year. Most of them are from Europe and CIS, but currently we are scaling to United States and to South Korea.

Speaker C: Reality TV celebrity Paris Hilton, heiress to the Hilton hotel chain, tweeted her support for an initial coin offering called Lydian last year. But then Lydian’s founder found himself in court facing charges of domestic violence, so Paris took to Twitter again to distance herself. And another virtual currency, Dash, is tied into martial arts welterweight champ Rory MacDonald. Arsenal Football Club signed a sponsorship deal with CashBet, a coin designed for online gaming. And more than 2 million people have watched the YouTube video “Poor Gamer Rich Gamer,” which gives the perfect rationale for Igor Goryev’s business model. Although this has something of an unhappy ending because poor gamer kills rich gamer, grabs his gun complete with skins or embellishments and decorations. Now poor gamer has the chance in PayKey to rent out his PC and become a miner for coin. But that huge processing power consumes a lot of energy, and according to the head of Microsoft, Satya Nadella, we’re going to need a lot more because he thinks Moore’s Law, one of the computer industry’s great mantras, could be coming to its end. The law was thought up by Gordon Moore, one of the co-founders of the giant US computer chip manufacturer Intel. Moore noticed that computer chips were doubling in size once every 18 months, an estimate that’s now been downgraded to every 12 months. Now, because of the expected explosion in the use of blockchain, which has seen computers yoked together to mine the web, as we’ve heard, Moore’s Law may not be enough to give us the processing power we need. Satya Nadella is now talking about the fact that we have to develop quantum computers. Even more worrying is the amount of electrical power blockchain and cryptocurrencies are using. For instance, in Iceland, one of the hotbeds of the data center industry, Crypto mines are now burning more electricity than all of Iceland’s homes put together. And an MP, Smari McCarthy, of the Icelandic Pirate Party, is even proposing to levy a tax on currency miners. All that boosts global warming, leading to fears that virtual coin mining will accelerate climate change. Will the new money cost the Earth? Dan Williams from Qingtek reassured us in the January edition of Password: The process of writing and validating these new blocks, called mining, is highly computationally intensive.

Speaker J: Each block must be encoded using a process called cryptographic hashing, which is repeated many times over to fulfill the technical requirements of Bitcoin. And that makes it highly computational and the reason why so much power is used. It’s also the reason why blockchain is so secure. Of course, that’s its core benefit in that it makes blocks irreversible. Because Bitcoin rewards mining with Bitcoins, a computational arms race as such has been started with more and more power resulting in more advanced mining. It’s almost a catch-22 situation. Key to note here, though, is that this is only valid for Bitcoin and not necessarily all types of blockchain. So what’s the extent of the problem? In truth, no one can say how much energy has and is being used by blockchain technologies such as Bitcoin. Some estimates have put Bitcoin’s energy consumption at around 4.4 terawatt-hours per year, which is equivalent to a small city, and some have gone as high as saying it’s 35 terawatt-hours per year, which is roughly equivalent to the annual energy consumption of Denmark. It really requires academic peer-reviewed research to find out what the extent is now and in the future. It may change. However, in any case, the power consumption is significant, especially if this style of Bitcoin blockchain continues. It’s definitely worth further investigation. And what will be the consequence if they don’t adapt? I think it’s certain that Bitcoin will increase its energy consumption over time going forward. To what extent really needs to be determined, and I think academic rigor and peer review play a part in this. I think also this isn’t just an issue for Bitcoin. But it really relates to all digital services, especially those that come from large data centers, for example cloud computing and media streaming. I’ve actually quantified a lot of cloud computing services and their environmental impact and seen it can be both better and worse for sustainability depending on its application and operation. I also think that questions revolving around the energy of the current finance system need to be explored scientifically, and that’s in order to see if in the long run a transition to a digital currency would in fact be better overall. But right now we, we really can’t say. Finally, I think sensational claims might focus on the today, but many ICT organizations are transitioning to a more sustainable world and way of doing things. And I think there really is a reason to be optimistic in the long run.

Speaker C: Dan Williams is the director of QuingTech, based in Reading, where their think tank is involved with Microsoft and a number of other companies in trying to green the technology industries by making them more sustainable and less harmful to the environment. You’re listening to Password on Resonance FM with me, Peter Warren. After this, you can hear DJ Ritu with A World in London. But we’re talking about cryptocurrency, and if you happen to have any Bitcoin, we can accept them as donations to our fundraising drive. Just go to the Resonance FM website, donate button, and select Bitcoin. Pounds and euros are also welcome. And there’s a wide range of offers in our online auction at eBay, including a cybersecurity router from F-Secure with a family rules function. That lets you protect all the family, covering up to 5 devices such as a desktop, iPad, smartphone, and 2 laptops. The Family Rules allows you to program downtime for young people and adults, as well as blocking access to harmful content. F-Secure’s Pulao Sufi explains: We have all sorts of rules for our kids.

Speaker B: It’s very, very common that we have some rules for, let’s say, for bedtime or family meals, or I don’t know, washing hands, or various other daily activities, but somehow these rules seem to disappear when it comes to using devices or the kids’ online usage. And this is really a concern, and I think that’s also very much to do with the fact that, I mean, our generation did not grow up with this. I mean, This is a very new situation for us parents. I mean, we didn’t have smartphones and tablets laying around and constantly trying to tempt us to interact with them. So I think this is fairly new for parents’ side as well. So to setting these kind of healthy boundaries for our kids online is something we need to learn as well and take responsibility there. So of course, one thing, parental controls or at as we like to call it, family rules at F-Secure. What can that do to help and support parents in this role is really to have this kind of an open discussion with your child and have the child really like an active participant when talking about it, about the dangers and why it might not be a good idea to spend too much time online. So that will really help and support in the process And then when jointly agreed, then the behaviour is also much positive on the child’s side in the end.

Speaker C: F-Secure Sense router is in the Resonance FM auction with a guide price of £100, potentially saving up to £80. Look on eBay for London Musicians Collective and you’ll find the full listing and a picture of the router. Why are we doing this? We need to raise enough money to build a new studio to keep Resonance FM sounding great and free from advertising and sponsorship. So, how do we know how many pounds does it take to buy a Bitcoin? The original price was set in 2013. It was the cost of electricity for 30 days divided by the number of Bitcoins it generated or mined. Bitcoins are special unique numbers and only a certain amount of them can possibly exist. You mine them by harnessing enough computing power to run millions of calculations. Essentially what you’re doing is you’re going through chunks of blockchain, but it’s not a lottery. The mining process is driven by how much computational power you can apply to the task. So you’re essentially mapping out bits of the internet. As we heard earlier, Gamers with spare processing power can rent it out, but it can also be stolen and used by criminals. Jarvid Malik of the cybersecurity company AlienVault even claims the North Korean government is hijacking websites to mine for Bitcoin.

Speaker H: So what we found, our researchers found, just, just at the end of the year was there was some compromised websites and they were all sending the mined cryptocurrency to a university in North Korea. So that’s how, you know, the link was quite clear there. That is very visible. You could see where all the compromised websites were and where all the mined cryptocurrency was going. So in terms of those websites, what were those websites? Was this being done without the websites knowing, or were these websites that had been deliberately created to do this? [Speaker:DAVID] So these were websites that were unaware, pretty much. So a lot of times, I mean, it was just through third parties that were compromised, whether it would be like an unpatched server that they were able to install the malware onto, or whether they were compromising a third party. So that could be, say, something like a WordPress plugin or a script that a website would put in for accessibility, for example. So it could be a script that could help visually impaired users to navigate their site more easily. That could have it being compromised and installed in there.

Speaker C: I think we could take this with a pinch of salt since North Korea has hardly any internet capacity. But the Bitcoin does seem to be going to a North Korean university. Some other governments, less isolated than Kim Il-Jong, are blaming the technology for criminal acts. So Qatar has banned cryptocurrency, along with Algeria, Morocco, Bolivia, Ecuador, Kyrgyzstan, Bangladesh, Nepal, and Cambodia. China is prohibiting initial coin offerings. The British government’s relying on international cooperation with law enforcement agencies in the European Union, according to the UK Treasury. They’ve sent me a statement insisting: “We are introducing new rules to bring virtual currency exchange platforms and e-wallet providers into anti-money laundering and counter-terrorist financing regulation. This EU-wide rule change means that activity in this area will now be supervised by the relevant authorities. This will result in these firms’ activities being overseen by national competent authorities in these areas. We expect these amendments to come into force at EU level in spring 2018. Michael Harris is the head of financial crime compliance at LexisNexis. I pointed out to him that now enforcement agencies are noticing that criminals are moving out of Bitcoin, and they’re already on to the next new technology.

Speaker H: Let’s be honest, I think you, you know, you, you described actually there, Pete, exactly what has happened. You know, the authorities, the governing bodies have basically been trying to play catch-up, you know, with— in dealing with what is a very smart, intelligent, you know, bunch of people who were able to use technology to their advantage for their, you know, illicit purposes. And until we kind of embrace that and say, look, you know, on the flip side of that coin, the authorities need to embrace blockchain chain technology, modern transaction software, and the very latest state-of-the-art sort of systems that are available to track this down. You know, we’re going to be playing catch-up all the time. You know, we’re never going to get in front. And I think, you know, that’s the challenge that we’ve got. You know, the good thing is there’s a lot more awareness. You know, I think people have woken up to what’s going on. The other fact is that at some point, you know, call it whatever the cryptocurrency is, at some point somebody needs to encash that into a fiat currency. And there’s a point of weakness. You know, that’s something we’ve got to get much better at spotting. You know, when illicit monies are being attempted to be converted back into a, you know, a sort of, let’s call it a real currency. One of the questions that someone is inevitably going to ask is, you say that there are lots and lots of transactions that are going on that criminals are doing, but then you also say but you can’t see them. So how do you know that they’re making them if you can’t see them? Well, I think the research has shown, and I’m certainly not an expert in the specifics of the research, but certainly from what I’ve been reading about this and studying and from the experts, is that patterns are emerging that tell us that these are typically patterns associated with illicit movements of money, you know, from money laundering, from tax evasion. From contraband and various other forms of criminal activity. Typologies are getting better understood and analyzed by experts in this field. And those patterns begin to emerge which then say actually we can begin to discern these sorts of patterns from the illicit use of, typologies that go with illicit use of money movements. Okay. You said that some of the big banks are making it difficult to make these investments, or they’re making it difficult to facilitate them. One of the things that the banks seem to be responding to isn’t just that. It is that they seem to be worried that people will get caught up in a speculative bubble generated by these currencies. So, for example, Lloyds the other day and I think Barclays both suggested or both started to warn their customers not to invest in Bitcoin. Yeah, absolutely. And obviously from the bank’s perspective, what they don’t want is to end up with, you know, significant liability as a result of, you know, poor investment decisions by people, you know, piling into digital currencies without really understanding and knowing them and seeing what— certainly what’s happened in Bitcoin over the last few months, you know, where we see the dramatic fall So they’re protecting their interests clearly. But there is a side effect of that which of course is the fact that we’re now becoming much more aware of the purpose of a lot of the Bitcoin investment that’s been going on. So I think we’re at the beginning of something that is only beginning to dawn on the enforcement agencies and the major financial institutions as to what actually has been going on. I suspect we’re looking at the tip of an iceberg at the moment.

Speaker C: So is cryptocurrency really just another way to let criminals and oppressive governments into every aspect of our lives, slowing down our computers as they suck out our computing power for their nefarious mining activities, mining coins to pay for guns, drugs, pedophile pornography, prostitution, and all of those other services that we know you can get in the cyber supermarket of of the dark web. Dr. Vitor Jesus from Birmingham City University’s computing department.

Speaker H: It is not hackable, indeed.

Speaker G: It is—

Speaker H: there is— of course, I’m going to make a lot of remarks about this, but in essence, the principle which has been proven that it does work, it’s been running for years. Bitcoin is now worth, well, many, many billions, $500 billion or something of dollars. It is literally a treasure hidden in plain sight, and nobody was able to crack So it does work. So in terms of the principle, the blockchain, it is unhackable in the sense of whatever was written in the blockchain can never be changed ever in the future. Well, there’s always a limit, but I say not in the near future, not in the next decades, it will be able to change that. Likely never ever. Of course, but this is only the blockchain. Everything around it Well, then it’s good old security. Everything is hackable, everything is breakable. So if I want to hold bitcoins, I will need some sort of software or hardware, and every software will have bugs, will have ways to change and ways to manipulate. So then again, one thing is the technology in itself, the principles, and then how it is implemented, how it is actually made into a system that’s usable. So what you’re saying then is, okay, you did this ledger, this record, that can’t be hacked, but if you have currency that is based on blockchain, like Bitcoin for example, that where that is held, that that can be hacked? Because we’ve seen a lot of this, haven’t we? We’ve seen hackers breaking into people’s Bitcoin wallets, we’ve seen the exchanges being attacked and Bitcoin being stolen. In fact, there’s even been a case in the Thames Valley where somebody was held up at gunpoint and forced to move Bitcoin from one account into another account. Indeed, so the technology in itself is secure. Very little things, very few things I can, I can say it’s as secure by design, but then again everything around it’s good old security. So we need wallets to hold cryptocurrencies and that means we need the device, a mobile phone, or a laptop. Well, if the mobile phone is not properly protected, if it requires passwords that for some reason are within reach of, say, the bad guys, well, it’s not really a matter of whether Bitcoin is secure or not. It’s, say, managing everything around it. There’s nothing Bitcoin can do about me leaving a password written on a Post-it, for example. But that’s as far as it is, say, insecure. The technology in itself, it is very, very secure.

Speaker C: Another threat facing online currency exchanges is a distributed denial of service, or DDoS, attack. This is what happens when a website, or in this case a currency exchange, is bombarded with thousands of automated requests that make it crash. Ashley Stephenson has been studying them. He’s the managing director of Corero, a company that blocks DDoS traffic.

Speaker G: Well, the, the—

Speaker H: in terms of DDoS, obviously there’s been a lot of cyber attacks on, uh, the, the cryptocurrency world, um, and on one side you have the hacks where people actually steal coins, but they’ve also been DDoS attacks on exchanges and That’s more of a traditional kind of attack methodology in terms of DDoS. The most likely scenario is for some reason, and we can discuss those reasons or motivations, that they want to take that exchange offline so that people who have accounts on that exchange and want to trade on that exchange are prevented from doing so because they can’t get to their account. So it’s a temporary freeze, if you will, on their ability to trade the currency on that exchange. And there are many— there have been many discussions about the motivations. They include, you know, competitive exchange-to-exchange where obviously a reliable exchange probably will end up with more subscribers and more transactions than an unreliable exchange. But there’s also been talk of marginal trading on volatility and freezing exchanges. And just like with buying tickets, if you know exactly when an exchange is going to unfreeze, that gives you an unfair advantage maybe in when you trade a currency related to the direction you’re driving, trying to drive the price. And if you trade fast enough and large enough, even those small advantages add up to large gains. So there are multiple motivations for attacking an exchange with DDoS. And we believe, you know, from the reports that we’ve seen, we’ve seen several of those demonstrated. Although it’s hard to find exact proof unless you catch the instigator. By observing what’s going on, you can often circumstantially figure out what’s happening.

Speaker C: Professor David Birch has a different vision for the future of money based on identity and trust, a sort of distributed trust in the community where you live or the global values that you believe in like a religion. He thinks the future is positive.

Speaker D: You might well see money based in cities, for example. I mean, the World Economic Forum published a thing last year about how the future of the economy is city-centric, and I think certainly young people would recognize that the trajectory to success is very heavily related to how close you are to the biggest cities. So it could be that cities become more of an economic centre. I know it’s a crazy thing to think about, but, you know, getting London out of sterling, for example, and having London money might be a very good thing. For all of those people who argue that the euro doesn’t make any sense because the economy of Germany isn’t the same as the economy of Greece, well, that’s frankly true of London and Middlesbrough.

Speaker C: So in a sense, though, what you seem to be saying it though, is that this is a currency based on trust and prospects. Because obviously, London is a large financial market, much more of a financial market than say Greece. And so, if there is a currency then what you’re doing for London, what you’re doing is saying, what I’m doing is trading on the value of London.

Speaker D: Yes, I think that’s broadly true. And I think if you see the future economy as being more city-centric, which actually I do, I’m very sympathetic to that point of view. I think economic policies that were based more on cities and less on countries, you know, would be more successful. Then you’re correct. But it isn’t just cities, because you see, the reasons why people might want to, you know, use different currencies or feel affiliation to different currencies might not be economic. You know, you could imagine a global Islamic dinar, for example, that people might want to use. Or you could imagine hyperlocal currencies like the Brixton Pound evolving into something more in the electronic space. There’s going to be lots of these kind of things. I think what the token and ICO marketplace tells us is there’s a potentially vigorous private money market around the corner where you’ll have companies issuing their own money and hopefully competing to keep the value of those monies up. Now I know people are listening to this and thinking, well, that’s crazy. I don’t want 1,000 different kinds of money in my wallet. When I walk into a shop, I don’t want to see 1,000 different prices displayed in 1,000 different currencies. But of course, that’s not— that isn’t the future. The future is You know, I look at the price of something on Amazon and my mobile phone tells it to me in Guildford groats because Guildford groats is the currency that I use most of the time, and I use it to pay my council tax in Guildford, and I’m happy, you know, assessing things in the Guildford groat. And when I press the buy button, my phone and Amazon might have a discussion about thousands of different kinds of currencies. What have you got? What do you want? But of course, I wouldn’t be in that loop. You know, my personal AI bot, which has been programmed to optimize my currency collection for my retirement, would be taking care of these negotiations. And this would all happen in nanoseconds. So I press the button to buy something, and you have this fantastically rich cash money market sitting behind it. But for you and I, we just press the button on our phone and buy things.

Speaker C: Maybe it’s utopia, and city currencies will turn out to be passing fads like the dot-com bubble of the 1990s and the tulip craze of the 17th century, or the European Exchange Rate Mechanism, or even the Yap stones at the bottom of the Pacific Ocean. That’s all from this month’s Password with me, Peter Warren. You still have a chance to bid on eBay for the F-Secure Sense cybersecurity router with family rules. Look on eBay for London Musicians Collective, that’s the Resonance FM charity. And there are many more offers to help you donate to the radio station as well as giving yourself a brilliant experience. You can chip in with Bitcoin or just plain old pound sterling. Dollars or euros. We don’t mind, we want your money. Password is a Future Intelligence production for Resonance FM, and you can find out more about technology in society at the FI website, or log on to csri.info for the latest in cybersecurity news. Password’s produced by Blue Buffery, and Jane Wyatt writes the script. Next month It’s an all-female show marking International Women’s Day. We don’t get paid for this, not even in Peatcoin. It doesn’t exist. So all the money you send goes directly to helping Resonance FM stay on air. Thanks for giving, thanks for listening, and goodbye.

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