The Problem: How to police crypto?

Journalist:
March 8, 2014

We have a problem

There is a problem with cryptocurrency, How do we police crypto? A big problem, and that problem is that many members of the general public see it as just another scam. Why do they believe this? Well, the fiasco at Mt Gox is one reason, the well publicised losses at Fortress are another, Flexcoin and Poloniex are just two more and then there are the cryptocoins they can buy on sites such as eBay, completing the transaction just days before the value drops and yet another pump and dump scheme reaches its climax.

Crypto is certainly getting bad press and to be fair it does deserve much of that press. We have established a virtual economy on the basis that there is a certain level of distrust and that level of distrust can be utilised acts to confirm and verify (police) our behavior. Mt Gox ‘lost’ 850,000 bitcoins and Flexcoin and poloniex lost smaller, though still unacceptable, amounts.  The average citizen, living their lives innocent of algorithms and scripts, will hear of cryptocurrencies and what they hear is generally far from positive. Bitcoin is rising in value again and that is one positive, a positive in a desert of bad news. We must take ownership of the problems of cryptocurrency and then act to address them.

Where we are

Mt Gox must know, or at least should know if there are in any way competent, where the lost bitcoins went. They must have the addresses of wallets. Flexcoin, certainly, has the addresses of two wallets that accounted for much of its losses. We are, as a community, by definition, technologically aware; therefore there is a strong possibility that a dedicated, active, mining pool could target those transactions, assuming that the full information was made available to them. They could then act to recover quantities of cryptocoins. There would need to be a payment in the form of a percentage of the coins recovered and that payment would be made prior to the return of the coins to their owners. We would now have an effective police force that can target and tackles criminal activity within our community. This ‘force’ would act without borders, performing a deep mining function, to initially recover misappropriated coins. There could well be other functions of such a group and one of these functions could be to offer a level of advice and assessment of alt coins. let’s be quite clear: Altcoins may well have the capacity, in my opinion, to be the future, as an ever more popular Bitcoin become moribund with the greater level of smaller and smaller transactions. However, unless Bitcoin tackles transaction speed then we are forced to accept that alternative cryptocurrencies must be considered. Bitcoin may well become the gold standard that supports the new cryptocurrencies.

The way ahead

To appease the general public we must consider the tackling of fraud in whatever guise it may appear:

  • Fraudulent manipulation of scripts to facilitate criminal withdrawals.
  • Tackling those pump and dump coins.
  • Auditing systems and scripts to tighten procedures
  • Highlighting and eliminating problems before criminals have the opportunity to exploit them.
  • Ensuring contracts for cryptocurrencies are fulfilled and honored.

Clearly these functions are fulfilled by every country in the world, on a non crypto level, to protect their own currency and financial transactions. There is another issue however, Are we willing to centralise some of the functionality of crypto? Clearly a digitally encrypted currency system that was set up to be self-regulating, based on the fact that there is a certain level of distrust, that depends on that mutual distrust to function to verify transactions, was fine as long as we continue to believe that the people we distrust are actually fundamentally honest. However, a determined criminal, with technical ability can manipulate, and has manipulated, the systems in place to their own benefit. We cannot allow fraud to continue on the level it has in the past. I leave you with the question: How much autonomy, if any, are we willing to give up in order to tackle fraud?

Last modified (UTC): March 8, 2014 16:26

PJ Delaney @P.J. Delaney@delboyir

Masters in Public Administration, Bachelors in Mgt., I live in Ireland, I have a bit of a background in Economics and lots of opinions on everything else.