Investments in cryptocurrency have skyrocketed over the past few months. Ethereum is the second largest digital currency by market capitalization second to Bitcoin. Since the creation of digital currency, and the underlying blockchain technology, investors have had many concerns surrounding the security of their investment and how significant their exposure to hackers may be. Recently, Parity, a company that manages a network of digital wallets of Ethereum had a security issue that resulted in the destruction of more than 300 million dollars of ether.
This substantial loss of assets was not due to a hack. The funds were actually mistakenly destroyed by one of Parity’s network developers. The source of the problem actually occurred when the developers were attempting to patch the network. The initial concern was over hackers seizing control of 32 million dollars from a few wallets. During the patching of the network, the developer accidentally took control of all of the multi-signature wallets. A multi-signature wallet simply allows for multiple keys for that particular wallet, thus allowing multiple users to have access to those funds. In an effort to address the initial problem, the developer deleted a portion of the code that transferred ownership of the wallets. This effectively locked the funds in those wallets.
Since the funds are unable to be returned, Parity is currently evaluating the situation and searching for a solution. They are disputing the claims that the funds are permanently lost stating that they are simply frozen and cannot be accessed. One of the possible solutions would be contacting the developers of Ethereum and asking to create a fork and hope that a majority of users comply. This situation clearly exposes the risk that is associated with investing in digital currency. Since the currency is not a tangible item, it can more easily be destroyed accidentally, or become inaccessible. Previous hacks have occurred that have resulted in a loss of money to investors.
This news has not had an impact on the price of Ethereum. Since this press release occurred on Novermber 8th, the price of Ethereum has actually climbed 10%. The broader digital currency market has seen an uptick in investments with OneCoin and Bitcoin leading the way to prices nearing $8,000 a coin. The security concerns with Bitcoin, however, still remain.
One of the more popular examples of theft occurred when Sean Everett, CEO of startup company Prome was hacked on the popular digital currency exchange Coinbase. He realized the attacked was occurring when he was notified that his mobile phone number was being changed. The hacker was able to seize control of his email account and liquidate his digital currency. This fear has prevented many from investing in digital currency in the first place.
Digital Currencies Have Been Hacked Before
Examples of digital currency exchanges being hacked were more frequent during the early phases. Many of these exchanges have since improved and patched many of the network issues that left some investors exposed. The inherent flaw, however, with the underlying blockchain technology is that every transaction that is verified instantly is also essentially irreversible.
This has made regulating and managing digital currency markets near impossible. In some countries, such as China, digital currency exchanges were forced to shut down due to corrupt activity. Since the transactions are irreversible and also anonymous, it has become an attractive destination for hackers and thieves to target. As a result, there has become a real need for an improvement in digital asset security, but that may not be close on the horizon. In the meantime, however, the value of Ethereum and other cryptocurrencies continue to rise and for now investors don’t seem to be shying away.