If blockchain is unhackable and cryptocurrencies are secure, how did cybercriminals steal 58 billion yen (U.S. $500 million) last month from Coincheck, one of Japan’s largest digital currency exchanges?
That’s one of many questions National Cybersecurity Center interim CEO Vance Brown fielded at the NCC’s first blockchain training event, Jan. 30.
And the answer was simple: While the cryptocurrency, called NEM, was built on secure blockchain technology, Coincheck was storing the funds in a low-security “hot wallet” — one connected to the internet instead of being secured offline.
“You shouldn’t keep many tokens or much value on a hot wallet, because you can hack anything connected to the internet,” Brown explained. “Cold storage wallets are not connected to the internet, so that’s safest.”
Participants at the sold-out interactive training event, “Beyond Bitcoin: Cryptocurrency and Blockchain for Beginners,” embarked on a two-hour crash course in the revolutionary technology.
Blockchain is a distributed database that verifies transactions in chronological order, using a unique cryptographic signature for each record. It forms a permanent ledger that is openly distributed among multiple parties in a peer-to-peer network. Once information is stored on the blockchain, no one can revise or tamper with it.
Blockchain’s implications for cybersecurity, contracts, identity, records and countless other areas are tremendous, and the tech world is just beginning to explore possible applications.
The training event aimed to teach members of the public and the business community the basics of blockchain technology and its potential, and how to make simple economic transactions through blockchain-based smart contracts. It also explored blockchain-based cryptocurrencies and the possible economic impact of blockchain.
Brown emphasized that the NCC is not giving financial advice.
“There are substantial risks associated with cryptocurrency — that’s just true. I mean, it is a ride,” he said. “It’s very volatile. You’ve got to be ready for a 50 percent swing with these.”
The point, Brown said, is to build a community to learn about blockchain together.
“We have a dream for this community in terms of what it can become,” he said. “The challenge for Colorado Springs is to be the most blockchain-informed community in the world. When you walk out of here tonight … you will rank in the top 0.000001 percent of the world in terms of your blockchain knowledge.
“There might be a lot you don’t know or you don’t get, but you’ll already be in the top percentile of the world in terms of what you know about blockchain. Why? Because it’s so early. We’re such early adopters.”
Brown acknowledged that saying “Explain blockchain” today is a lot like saying “Explain how the internet works” in the 1990s. “That would have been daunting then, and it would be today,” he said.
Vance Brown’s son, Collin Brown, a blockchain expert who worked for Hitachi Consulting and is now a “crypto retiree” following the cryptocurrency boom of 2017, also spoke at the event.
“You’ll see that the drivers of blockchain — the Bill Gates and the Steve Jobs of this new world, of this new paradigm — are twenty-somethings. They are Millennials,” Vance said. “We want to give you a Millennial’s perspective. [Collin] saw why [blockchain] matters very early, and he’s here to explain the ‘why.’”
Big step forward
Collin said the “second economic revolution” is happening in blockchain.
“This is the internet of my generation; this is the big step forward,” he said. “I think it’s the responsibility of those of us who understand it to spread this information as much as possible, because it’s really going to change everything. The internet revolutionized media as a whole, and I think blockchain is revolutionizing these even bigger aspects of society like government and finance. So education is really important, and bringing in more people.
“This is currently very, very young male with finance and tech background-dominated, but we want to bring in as many people from as many different backgrounds as possible. Because even if all these people with tech backgrounds have good intentions for [blockchain], it still sets such a narrow framework.”
Participants learned, step by step, how to set up a cryptocurrency wallet, and about how to avoid falling victim to blockchain and cryptocurrency scams and fads.
“We’re very likely in the same frenzy right now [as the early dot-com days] and there’s thousands and thousands of cryptocurrencies and blockchains and people are just buying them and they’re going up,” Collin said. “This is risky space and there are lots of people just buying random tokens and making a lot of money … It’s this frenzy without really understanding where the fundamental value is.
“… But at some point there will be a reckoning where all the blockchains that don’t have users or don’t have developers are going to get wiped out.”
The training also addressed issues surrounding blockchain and cryptocurrencies, including speed, energy, difficulty of use, and uncertainty in governance and regulation.
The NCC will host a second blockchain training event Feb. 27.