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This Bitcoin Botnet is Vying to Be Future of Secure IoT

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%name This Bitcoin Botnet is Vying to Be Future of Secure IoT

Strong claims need strong proof, so when the founders of NeuroMesh described their bitcoin-based product as an “unhackable botnet”, there were a lot of questions to be asked.

Still, the claim has already been backed by such accolades as a second-place prize in the MIT $100k startup challenge and a shortlist position in the ongoing Atos IT Challenge 2017 – both of which lend weight to the credibility of the project.

Founded by Greg Falco, a PhD candidate at MIT studying cybersecurity, and Caleb Li, an MBA student at the same institution, NeuroMesh is seeking to find solutions to security issues in the Internet of Things (IoT).

IoT ‘vaccine’

The pair saw what they say is a gap in the market for a security product that would specifically work within the confines imposed by low-power, limited-storage devices.

NeuroMesh’s idea is to mimick the same tactics hackers use when trying to compromise machines in the first place – installing lightweight code that hijacks the kernel and then dials out to a command and control (C&C) server, adding the machine’s resources to a botnet directed by the bot ‘herder’.

“We wanted to create a vaccine for IoT devices by first installing our own security software on the kernel,” said Li. “It’s like playing ‘King of the Hill’, so we become the only ones that can control the device.”

One of the main points of vulnerability for a botnet is an attack on the C&C server, something that’s often observed when competing hackers try to knock their rivals’ botnets offline and commandeer the devices.

NeuroMesh’s solution is to send commands to devices secured by their technology via OP_RETURN codes in the bitcoin blockchain – code that allows for the transmission of arbitrary data (such as ‘Mined by Antpool’, ‘Happy halving day’ or in one case, the text of an encyclical letter by Pope Francis).

“That means we can actually send out a blacklist of IP addresses that these IoT devices shouldn’t talk to over the bitcoin blockchain,” Falco explained, adding:

“Usually [with botnets] you could shut down a central server where the command is coming from, but with the blockchain we don’t have to worry about that because it’s entirely decentralized.”

New research twist

In practical terms, this involves a C&C server connected to a bitcoin wallet address which can sign transactions. In turn, IoT devices in the NeuroMesh net would run an SPV client which reads only transactions signed by NeuroMesh, and execute the commands contained in the OP_RETURN data.

Because data is propagated between bitcoin nodes in a decentralized manner, in theory reading these commands does not give any further information about the location of the server which originally issued them.

Dr Michael Siegel, Associate Director of MIT’s IC3 cybersecurity consortium and a research advisor for the NeuroMesh project, says that Li and Falco’s work comes out of a tradition of research into secure communication between distributed systems.

“It’s a clever use of a small piece of code that can run on many types of devices,” Siegel told CoinDesk.

He continued:

“It’s a great idea: not totally new, but, in the IoT space, the combination of what they’re doing with botnets, blockchain and central command is something new they’ve established, and appears to be an extremely secure environment for managing small distributed devices.”

Falco also confirmed that the uniqueness of the NeuroMesh offering is in finding a new use for existing practices.

“While what we’re doing is new from a commercial standpoint, there’s been several case studies of white-hat security researchers doing what we’re doing to close vulnerabilities in a system,” he said.

Other risks

Roman Sinayev, a security software engineer who designs anti-malware systems at Juniper Networks, is familiar with the concepts behind the NeuroMesh project (although he’s not seen the software in action).

Assuming the code is written without any exploitable errors, then the result would be a secure communication channel, Sinayev said.

Further, he pointed out that blockchain isn’t required to hide communications.

“[A]nother way would be any kind of P2P programme like BitTorrent,” he said. “You could also use many different proxy servers and change the IPs, or you could use some intermediate service – embed information in pictures on a public channel, for example.”

Without having seen the code, Sinayev stressed that it’s impossible to verify that the NeuroMesh product works exactly as described. However, he suggested that (as with all security software) best practice would be to have an independent audit once the product is finalised.

On a similarly cautionary note, MIT’s Dr Siegel pointed out that technology is not always the weakest point of a system, saying:

“Underlying this is a very secure system with sound technology and difficult to break security. But this doesn’t stop humans from doing really dumb things! On the end of it, you’ll have someone who controls the passwords and controls access, and that person could always do something stupid.”

Even factoring in human error, the bitcoin network has proven to be extremely resistant to malicious activity, and it’s this property that Falco and Li are hoping to tap into with their IoT product.

Li said:

“We call it ‘unhackable’ because to date, the bitcoin blockchain hasn’t been hacked.”

World baby image via Flickr

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Charts: Determining the Ideal Block Size for Bitcoin

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Willy Woo is an entrepreneur, investor, trader and cryptocurrency enthusiast.

In this guest piece, Woo weighs in on the block size, analyzing the charts to offer a novel take on bitcoin’s big debate. Ultimately, he finds that there’s little evidence to suggest current network congestion is a fatal flaw.

Screen Shot 2017 03 24 at 11.43.59 AM Charts: Determining the Ideal Block Size for Bitcoin

Bitcoin has been operating for eight years, from the early days when we only saw a few transactions in each block, through to today, where blocks are crammed packed and congestion is the norm.

One benefit of seeing congestion this early in bitcoin’s life is we get a great set of data of the network under load. In this study, we’ll take a look at bitcoin’s transactional data to see if it points to an ideal block size (if there even is such a thing).

The chart above shows the transactions per second on the bitcoin network over time.

It’s a log graph that shows exponential growth as straight lines, where the bubbles denote the size of bitcoin’s mempool (think of it as a kind of storage tank that temporarily holds transactions before they are processed).

Despite users complaining that the blocks are now crammed full, and that the network overloading, this graph tells a surprising story. While we see by Q4 of 2016, the mempool swelling to take up peak loads, the network catches up off-peak.

The network is keeping up with exponential demand.

Yes, we are seeing congestion, but no, we are not yet turning away any significant transaction volume due to this congestion. If this was true, we’d see this as a downwards arc on our log graph instead of our straight line.

But that’s not to say we aren’t very close to the limits soon and our arc away from a straight line will likely happen in the weeks and months ahead.

Projecting demand

We can use this chart to project future transactional demand.

Say, by the next block reward halving in 2020, we can expect around 20 transactions per second on the network. Having predicted 20 transactions per second by 2020, I’ll now explain why this probably won’t be true.

The bitcoin network is mainly used as a store of value, but by 2020, bitcoin’s price volatility should be stable enough for it to be used as a currency. I suspect then we’ll see a step change upwards as merchants start using it for general commerce.

Something like the Lightning Network (which allows for nearly unlimited transactions for the cost of four normal transactions) would open new use cases such as microtransactions for the IoT.

The two takeaways are that we can use this chart for predictions, but they will only be valid as long as bitcoin’s use case remains the same.

For now it’s store of value, in future it could expand greatly.

A side note on ‘coffee’

Users of the bitcoin network, and in particular businesses, tell us that fees have increased to the point where paying for coffee and other even smaller use cases (such as ad network payments) are not viable anymore.

The argument is that bitcoin is losing utility for general commerce, therefore the bitcoin network is at risk of declining as payments move to cheaper, competing alternative cryptocurrencies.

Clearly, we see that the exponential growth of transactions per second hasn’t skipped a beat. This tells us the ‘paying for your coffee with bitcoin’ use case, though much talked about, was essentially a negligible aspect of the network transactions.

Otherwise we would see a declining curve. The network is keeping up. It’s core use case has always been transmitting and securing high values securely.

As mentioned earlier this will change as bitcoin volatility becomes stable enough to be used as an everyday currency.

We are currently in the phase of bitcoin as a store of value. Bitcoin used as a currency is a few years away, so we have time to work out how to cater for the orders of magnitude increase that would come.

This does not discount the fact businesses are experiencing pain from high fees and slow confirm times, which we’ll look into further.

Miner revenue

Maybe a year ago, there was debate among miners whether big blocks or small blocks would yield them higher profits.

Some were even saying big blocks would allow more transactions to be carried, and therefore more fees would be generated. However by Q4 2016, we saw the impact of momentary peak hour congestion hit the network.

It’s been clear that a demand driven market has emerged, resulting in much higher revenues.

Here’s a graph plotting the fees impact of congestion on the network.

Screen Shot 2017 03 24 at 11.45.37 AM Charts: Determining the Ideal Block Size for Bitcoin

As average block size hits 95% of maximum, the mempool starts ballooning, users start leapfrogging one another with their fees in to get into the next block without delay. As a result the fees start to hockey stick… just a pure vertical climb in fees.

If you were a miner, solely motivated for short-term profit, you would want the maximum block size to be small enough to always keep those blocks 95% filled.

You’d want to limit the supply of transaction space so the fees competition gets rabid. The optimal block size for miners is “small enough to drive congestion”

Question: What would 8MB blocks have produced in fees?

Lets run a hypothetical scenario… say Bitcoin XT was approved and we have 8 MB blocks today, what would miners be earning from fees?

Obviously, supply overwhelms demand and dynamic fee algorithms in wallets will set lower fees according to network conditions.

We can use our graph to estimate the new earnings.

Today’s transactional load is using 0.95 MB of space per block on average, you can read this from the bubbles at the right of the chart (you can see this more clearly at Blockchain.info).

This would be a 12% fill rate with 8 MB blocks. At 12%, the graph shows miners earning 0.1 BTC per block from fees. Today, miners earn 1-2 BTC in fees with 1 MB blocks, so 8 MB blocks would serve to reduce this by a factor of 10-20x.

The ideal block size for users

Okay, let’s move on to the what users want – fast confirmation times, reasonable fees and good security.

We’ve seen the speed of the network grind to snails pace at peak times. The graph below shows how long we are waiting for a confirmation as the blocks reach their maximum.

Screen Shot 2017 03 24 at 11.46.35 AM Charts: Determining the Ideal Block Size for Bitcoin

The bubble sizes denoting the number of transactions in the mempool just goes crazy whenever blocks are 95% or more filled, and confirm times just go vertical.

Even before things get crazy at around 80%, the median confirm times start to deviate upwards significantly.

It’s important to note that the higher the fees we pay as users on the system, the more security we get as miners can afford to compete with higher hash power with more revenues. This becomes super important in due time as the block reward subsidy drops with each halving event.

Currently, fees make an important part of miners revenue – 1.5 BTC fees vs 12.5 BTC in reward subsidy. At the next halving when the subsidy drops to 6.25 BTC the fees component will become critical to the security of the network.

Thus, there is a “goldilocks zone” for fees, not too cheap for better security and not too expensive.

My conclusion here is the ideal block size to keep confirm times from ballooning while keeping fees and security reasonable is around 80% of blocks being filled.

Putting it all together

So we have three results so far.

  • 1 MB blocks currently has kept pace with network demand so far, despite undesirable delays in transaction processing times and expensive fees during congested time.
  • The most optimal block size to maximize miner’s revenues is any size small enough to congest the network which is around 95% filled or more. Getting congestion and an onset of “leap frogging” fees scenario between users would be the optimal miners game to play.
  • The transaction confirmation times start to suffer when blocks are above 80% filled. At this level, fees are reasonable but not exorbitant, but not too cheap to substantially impact the security model of bitcoin as the block reward subsidy diminishes in future years.

The optimal network, based solely on the economic game theory, will need to balance security and miners revenue, speed, and low cost of transactions.**

Given these constraints, I think the best block size would have to be dynamic, adjusting to network transactional demand to keep it inside the sweet spot as much as possible. The goal would be to keep the blocks at around 80% filled.

At this setting, the median confirm times will be unaffected, yet will keep the demand driven fees market high enough to be significant for miners and therefore the security of the network in years to come. But, it would be still 4x cheaper than today’s congestion driven price.

In this light, monero’s approach to dynamic blocksizing where the adjustment is algorithmic according to network load seems ideal.

It would constantly be adjusting to keep the best balance between miners revenue, security and reasonable fees for users.

** These considerations completely ignore technical aspects of the network which others have covered at great length such as block propagation times and Great Wall of China impacts.

Data units image via Shutterstock

Disclaimer: The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, CoinDesk.

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A Winklevoss ETF Reboot? Analysts See Uphill Battle Ahead

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runners stairs A Winklevoss ETF Reboot? Analysts See Uphill Battle Ahead

A decision by a major exchange to fight the SEC rejection of a proposed bitcoin ETF has little chance of success, according to analysts polled by CoinDesk.

Bats BZX Exchange, one of the largest US equities markets, recently filed a petition asking US regulators to reconsider a ruling on the bitcoin fund proposed by investors Cameron and Tyler Winklevoss. Should it be approved, the Winklevoss Bitcoin Trust would be the first-ever bitcoin-based ETF, and would list on the Bats BZX Exchange.

However, SEC decisions are rarely overturned, according to Jeff Bishop, ETF expert and co-founder of investor message board platform RagingBull.com.

Bishop said:

“The only reason it would be overturned would be if new facts were produced to overcome [the SEC’s] initial objections.”

Phil Bak, a former New York Stock Exchange managing director and current CEO of ETF issuer ACSI Funds, also painted a bleak outlook for the appeal, stating that he does not know of any instances where a rejected ETF was successfully petitioned.

‘Immature markets’

There are a number of significant obstacles that could prevent the petition from getting anywhere, according to those CoinDesk surveyed.

To have any real chance of succeeding, Bats would need to address every single objection listed in the SEC’s rejection letter, according to Bak.

The SEC stated its objections to the proposed fund in a 38-page ruling, emphasizing the bitcoin market’s lack of exchange regulation and surveillance-sharing agreements that would help prevent market manipulation across jurisdictions.

This reference to regulation could eliminate the proposed ETF’s chances of survival in and of itself, since, for many, part of bitcoin’s appeal is its ability to function without the interference of regulators and central banks.

On the plus side, the letter lets the exchange know what hurdles they need to overcome to be successful, said Bak.

Yet, according to cryptocurrency fund manager Jacob Eliosoff, the reasons the SEC gave for rejecting the proposed ETF are fundamental to the bitcoin market.

Petar Zivkovski, COO of leveraged digital currency trading platform Whaleclub, said the petition is unlikely to change the SEC’s stance.

He said:

“The reason for the rejection is fundamentally tied to the state of bitcoin and the bitcoin markets – they are currently too immature, illiquid, and rampant with manipulation for the SEC to approve an ETF.”

Possible approaches

Joe Lee, co-founder of Magnr, gave a more in-depth perspective, speaking to the risks associated with listing an ETF on the Winklevoss’ Gemini exchange.

Liquidity was the number one cause for rejection, he asserted. Further, Gemini’s liquidity levels are low, making it easy for traders to manipulate “a financial product based off the exchange or its quoted prices”, he said.

“A petition will not change this,” he added.

Yet, while the the situation may appear less than promising, there are still rays of hope. The simple fact that Bats has decided to petition the SEC decision means the agency’s rejection may not be final.

Further, since Bats knows exactly why the SEC rejected the fund, the exchange can consider different approaches in an effort to alter the ruling.

At the time of report, Bats had not provided any comment on its strategy going forward or why the SEC might overturn its ruling.

However, a representative told CoinDesk that more documentation was likely to be filed soon.

Running up stairs image via Shutterstock

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Bitcoin Support Weakens As Price Drops Below $1,000

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Bitcoin prices fell below $1,000 this morning as support for the digital currency waned.

Prices had hit a low of $969.35 by the time of reporting, having started the session at an average of $1,029.95, CoinDesk Bitcoin Price Index (BPI) data indicates.

At press time, the average price of bitcoin was $977, a fall of over 5% for the session. Since the start of trading, markets had peaked at an average of $1,032.34.

Bitcoin’s price also dipped below the $1,000 mark over the weekend, hitting a low of roughly $947, before recovering the following day. Prices revived to above $1,115 yesterday, but have again since declined.

It’s not immediately clear what’s driving this market dip. One factor could be lingering concerns over the prospects of a bitcoin hard fork, which could result in two wholly separate blockchains.

Still, sell orders now outnumber buy orders, data from BFXdata shows, with sells accounting for 53% of trades in the last hour and 55% of trades in the last 24 hours on the Bitfinex platform.

The market move stands in contrast with developments from earlier this month.

As of mid-March, the bitcoin price had stayed above $1,000 for over a month, its longest ever period above that level.

Pool image via Shutterstock

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Alibaba Turns to Blockchain in Fight Against Food Fraud

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China-based e-commerce giant Alibaba has teamed up with PwC to develop a system to reduce food fraud using blockchain tech.

The Alibaba Australia project, which also includes AusPost and nutritional supplement maker Blackmores as partners, is aimed to improve the way foods are tracked, cutting down on the risk of counterfeit products on the market.

The so-called ‘Food Trust Framework’ effort will see the partners build a pilot blockchain platform in Australia that will track products from producer to consumer.

“This will include the development of a pilot blockchain technologies solution model for vendors to be utilized by participants across the supply chain,” Alibaba said in a statement today.

According to ZDNet, Alibaba said the blockchain platform would allow shipments to be tracked in real-time, as well as improving security and transparency in the fight against fraud.

“The signing of today’s agreement is the first step in creating a globally respected framework that protects the reputation of food merchants and gives consumers further confidence to purchase food online,” said Maggie Zhou, managing director of Alibaba Group Australia and New Zealand.

Food fraud has increasingly become an issue, especially in Alibaba’s home nation of China. The new initiative is being seen as a testbed for solutions to the issue that has cost lives in the country and elsewhere.

The move may also bolster Alibaba’s reputation following accusations that its online marketplaces are rife with counterfeit goods.

Fake food image via Shutterstock

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