Companies showcase their products, whether they are
physical, virtual or services. Images of Steve Jobs launching an iPhone or Elon
Musk announcing the latest Tesla generate media interest and hype.
Cybersecurity companies are no different, ESET holds an annual event for
journalists and security testers. At the event people discuss the latest
research news and find out what’s new in the company and the cybersecurity
industry.
This year’s event was held in Tallinn, the Republic
of Estonia. A country that has a very unique digital offering; it’s the first
country that offers e-Residency.
Anyone in the world can apply for a Government issued digital ID that enables
the holder freedom to start and run a global business from a trusted EU
environment for only €100.
A person can create a company online from anywhere
in the world, can get access to business banking, with no local director
needed, sign documents digitally, encrypt documents and send them securely,
plus they can submit taxes online without ever needing to relocate their global
business. To date there have been 23,735 applicants from 138 countries
establishing 3,877 companies. Incredibly, the number of people signing up
exceeds Estonia’s birth rate.
In the last few weeks, it was reported that Kaspar
Korjus, Estonia’s e-Residency Managing Director, announced the concept of adding
cryptocurrency, Estcoins. The media excitement that a sovereign state was
announcing its intention to create a digital currency resulted in some
inaccurate reporting, with the idea that it came from Mr. Korjus rather than
from the Estonian Government. As Estonia offers e-residency the concept of a
digital cryptocurrency may sound appealing, but what is it?
Understanding cryptocurrency
If you are lucky enough to have some cash, you
probably hold it in an account at a bank that provides you the ability to
transact, get a balance and has access to a payment network. The financial
institution works on a centralized methodology, and is typically accountable to
a government regulator. The centralization stops the account holder from double
spending, as every transaction is authenticated in one place.
Cryptocurrencies work on a decentralized
methodology, there is no sever or centralized place that holds account details
and transactions. Imagine 10 friends creating their own digital currency, to
make this work every friend will need to know the balance and transactions of
all the other friends in real-time. This stops friend #1 transacting with
friend #2 and #3 to withdraw the same funds, making #1 overdrawn. When #1 transacts
with #2 then all the friends need to be sent the details of the transaction and
to confirm they received it, the effect is a distribution of your balance and
history.
“Cryptocurrencies work on a
decentralized methodology, there is no sever or centralized place that holds
account details and transactions.”
To make this scale, such as Bitcoin do, waiting for
everyone to confirm would be too difficult so you need to create trusted, but
still distributed, confirmers of a transaction. These are called miners, and
they have a special encrypted relationship with each other. Imagine 10,000
friends using the currency and 100 of them being miners that have a trusted
place in the network to confirm transactions and spread the word to the
remaining participants.
With Bitcoin anyone can me a miner if they are
willing and able to create a cryptography hub that can talk to the rest of the
network. Their reward for doing this is the payment of a transaction fee paid
in the digital currency. Now you have a secure network incentivized to confirm
transactions and to stop people spending their cash more than once.
If we simplify this, it’s just a big database that
multiple entities have copies of and before a transaction can take place they
all need to agree it’s able to take place. Bitcoin works on the following
principals:
1.
It’s fast and
secure, regardless of where you transact, it works on a global network of
computers that use strong cryptography.
2.
The actual
identity of the account holder is a digital address, there is no link between
this and the real-life identity of the account holder.
3.
There are no
permissions, anyone can create an account using software without the need to be
identified.
4.
Lastly,
Bitcoin transactions cannot be reversed, once a transaction has been made the
distributed it’s final.
Cryptocurrency and state sponsorship
Is it possible for any government to create a cryptocurrency that
would share the same values of the already established, and somewhat,
successful cryptocurrencies available today?
The Republic of Estonia is a member of the European
Union and part of the Eurozone currency, bringing with it regulation and
procedures that may limit the success of any cryptocurrency that is state
sponsored. Mario Draghi, the president of the European Central Bank, quickly
dismissed the idea and stated the only currency for eurozone countries is the
‘euro’.
The success of Bitcoin is generally based on the
lack of regulation, primarily it’s the currency of choice for people that wish
to remain anonymous.
However, bad-intentioned people, like creators of
ransomware, could use it also as the payment method to unlock infected
machines, making them extremely difficult to identify – creating challenges for
law enforcement trying to bring them to justice.
Allowing people to anonymously create accounts and
transact with each other removes the visibility of tax authorities, financial
regulators and law enforcement. Making it unthinkable that any government which
is part of a regulated financial community could disregard the processes that
have been established to create a safe and trusted financial system.
This is probably just as unthinkable to the
cryptocurrency users that they should be regulated and identified in the same
way they are with traditional bank accounts.
I would like to hear the opinion of cryptocurrency
users and advocates on what the legitimate uses are for the technology driven
currency.