Investing Idea: Blockchain Auditing Firms
- Exchanges and wallets. For example, the CoinDash ICO was interrupted when hackers broke into the CoinDash website and changed the “transfer address” to one they controlled. A similar hack was carried out on ClassicEtherWallet, where hackers used social engineering (i.e., really good phone skills) to convince the hosting company to point the domain name to another website they controlled. These hacks were not technically complex, but a matter of redirecting the existing systems to ones they controlled.
- Forks and upgrades. When one altcoin “spins off” from another, it can cause confusion on the blockchain. As an example, when bitcoin cash split off from bitcoin, investors held equal amounts of both. It is advisable, Kotish says, to avoid buying or selling near the fork date, so that all transactions can be properly reconciled on both ledgers.
- Smart contracts. Here Kotish gave the example of Parity Wallet, where hackers stole millions from user wallets by finding an unreported bug. Parity has since implemented a bug bounty program, paying volunteer developers to find any potential bugs in their wallet code. This kind of “open source auditing” is necessary for blockchain projects because, as Parity put it, “the greatest disinfectant is direct sunlight.”
Investing Idea: Blockchain Surveillance Companies
- Dark Markets: New online markets to buy and sell illicit goods will spring up just as quickly as law enforcement shuts them down (think Silk Road).
- Bitcoin Laundering Sites: Also called “mixers,” “tumblers,” or “cleaners,” these sites run bitcoin through dozens of shell accounts to make it harder to trace.
- Bitcoin ATMs: Increasingly, physical bitcoin ATMs are being used to convert bitcoin into cash and vice versa, which is another way of erasing the digital trail that bitcoin leaves behind.