Latin America Embraces Blockchain for Digital IDs

Latin America Embraces Blockchain for Digital IDs

Buenos Aires plans to issue blockchain-based identity documents, including birth and marriage certificates, while Brazil aims to make its new blockchain-powered national ID program available across the country. Both initiatives signify a major leap in government services and personal data security.

More than 214 million people in Brazil are about to start using blockchain technology for their digital IDs, according to a recent announcement by the government. The states of Rio de Janeiro, Goiás, and Paraná will be the first to start rolling out these blockchain-based identification documents. 

They’re using a special, secure system created by Serpro, Brazil’s national data service. The plan is to have this technology available across the entire country by November 6, 2023.

Alexandre Amorim, the head of Serpro, explained that blockchain was chosen for this project because it’s a secure and decentralised way to manage digital IDs.

Blockchain technology is key in making personal data more secure and in reducing fraud, creating a safer digital environment for people in Brazil. 

The use of the b-Cadastros blockchain platform improves the safety and trustworthiness of the National Identity Card project. 

According to the government, this project is important for tackling organised crime and encouraging different parts of the government to collaborate. It also makes it easier for people to get government services and helps simplify record-keeping.

In recent years, Brazil has been trying to standardise the way IDs are issued across its nearly 30 states. This new technology will help safely share data between the Federal Revenue Agency and other government departments, as stated in the announcement.

Another big change happening in the country is the introduction of a new digital currency by the central bank. 

The government recently shared more details about this project in August and has renamed the digital currency to “Drex.” 

Past reports suggest that the central bank aims to make it easier for businesses to get funding through a special system linked to Drex. A local developer found that the code for Drex allows a central body to either freeze money or lower account balances.

Notably, Buenos Aires in Argentina has announced a similar plan that lets people get their identity documents through a digital wallet.

Blockchain-based in Buenos Aires, Argentina

Buenos Aires, Argentina’s capital, is also taking a big step to include blockchain technology in its administrative processes. 

Starting in October, people living in the city will be able to get their identification documents through a digital wallet, as revealed in a September 28 announcement

Initially, you’ll be able to get documents like birth and marriage certificates, proof of income, and school records on this blockchain system. The plan also includes adding health records and payment information down the line. 

The city aims to have a detailed plan for expanding this blockchain service throughout the country by the end of 2023.

The technology backbone of this project comes from QuarkID, which is a digital identity system created by the Web3 company Extrimian. 

QuarkID wallets use zkSync Era, a special feature built on the Ethereum network that helps it run more efficiently. This feature uses something called zero-knowledge rollups, which lets one person show another that something is true without having to share any detailed information about what that ‘something’ is.

“This marks a huge leap forward in making government services in Latin America safer and more efficient,” said Guillermo Villanueva, the CEO of Extrimian.

The information in these digital wallets will be controlled by the individual, meaning people can decide how and when to share their credentials, whether it’s with the government, businesses, or other people. zkSync Era will serve as the foundation for QuarkID, making sure everyone’s credentials are accurate and secure.

Diego Fernandez, who leads innovation for Buenos Aires, added, “This makes Buenos Aires the first city in Latin America, and among the first globally, to adopt and champion this new technology. We’re setting an example for how other countries in the region can use blockchain technology for the good of their citizens.”

Officials in Argentina are looking into another digital ID project called Worldcoin. In August, they revealed that they’re examining potential privacy issues tied to how Worldcoin gathers, stores, and uses people’s information. The project is also facing questions in Europe and Africa since it went global in July. Created by Sam Altman, who is also a co-founder of OpenAI, Worldcoin uses eye scans to confirm the identity of its users.

Crypto Miners Turn to Renewable Energy 

Crypto Miners Turn to Renewable Energy 

As environmental concerns and costs mount, the future of crypto mining is looking increasingly green. Industry leaders are exploring alternative energy solutions for more sustainable and cost-effective operations.

In 2021, when cryptocurrency prices were soaring, big mining companies borrowed a lot of money to buy the gear and set up the systems they needed to mine crypto. But then major crypto platforms like FTX and Celsius went under, leaving many of these companies broke and struggling.

With crypto prices down and competition in Bitcoin mining fiercer than ever, people are questioning whether these mining operations can bounce back from their losses. One thing’s for sure, these companies are now looking at using greener energy options to save money, make some profit, and also be a bit kinder to the planet.

How do you keep crypto mining prices low?

According to Swan Bitcoin, a company focused on Bitcoin financial services, it generally costs around $26,000 to mine one Bitcoin

However, companies that use renewable energy are finding it much cheaper, with costs ranging between $5,000 and $15,000 per Bitcoin.

A spokesperson from Riot Blockchain, a U.S.-based Bitcoin mining company, explained that thanks to wind and solar energy in Texas, their costs are among the lowest in the crypto mining business. To be exact, it costs Riot $8,389 to mine a single Bitcoin.

Kent Halliburton from Sazmining, a company that hosts Bitcoin mining operations, pointed out that the biggest cost in mining is electricity. He said that miners naturally want to find the cheapest power available, and renewable energy often fits the bill because it sometimes produces excess electricity. He also mentioned that data from the Bitcoin Mining Council indicates that the Bitcoin network is becoming increasingly sustainable, with 59% of mining now carbon-free and growing each year.

Phil Harvey, the CEO of Sabre56, a company providing infrastructure for crypto mining, said that they’re helping several mining companies set up operations at their facilities in Wyoming and Ohio. This move towards renewable energy appears to be a growing trend among miners who are thinking about their long-term success.

Crypto miners have ingenious designs to keep running costs low

Phil Harvey from Sabre56 said their mining center in Gillette, Wyoming, known as “Bonepile,” has around 2,200 mining machines running on a mix of energy sources. Nearly 29% of this energy is renewable, coming from wind, recovered energy, and hydropower. The machines they use are a mix of MicroBT Whatsminer M50s and Bitmain Antminer S19s. The Bonepile site uses a special design to keep the machines cool: they force air into the facility, which helps prevent the machines from overheating and allows for hot air to naturally exit.

This design is different from the usual methods used in the mining industry, where typically additional systems are used to suck hot air out, but there’s no special system to bring fresh air in.

On the other hand, OceanBit is taking a unique approach to renewable energy for mining. Michael Bennett, the co-founder, explained that they are incorporating Bitcoin mining into their ocean thermal energy power plants. This allows them to adjust to fluctuating energy demands, deliver power more quickly to offshore projects, and also make extra money from unused energy.

Ocean thermal energy, according to Bennett, is a massive and largely untapped renewable energy source. It uses the temperature difference in ocean water to generate electricity, similar to how hydro and geothermal energy work. Bennett thinks that Bitcoin could be the key to making this type of energy more widely used because it helps solve some of the commercial challenges associated with ocean thermal energy.

Diagram of OceanBit’s thermodynamic cycle. Source: OceanBit

Nathaniel Harmon, who co-founded OceanBit with Michael Bennett, explained how their system is a win-win. The ocean thermal energy conversion (OTEC) process produces cold water as a byproduct, which is perfect for cooling the specialized computers used in Bitcoin mining, known as ASICs. On the flip side, these ASICs produce low-level heat, which can be recycled back into the OTEC process. This creates a cycle that makes both operations more efficient and cost-effective.

Bennett also mentioned that OceanBit is aiming to reveal its research and development power plant in Hawaii by 2024.

Alternative energy sources

Stronghold Digital Mining, a crypto mining company in Pennsylvania, is taking a different approach by using waste coal to power its mining activities

This waste of coal, which is left over from the coal mining process and mixed with various impurities, has been a pollution issue in Pennsylvania for years. Greg Beard, the CEO of Stronghold, said they’re working with local environmental agencies to clean up these waste coal piles and use them for energy.

Beard pointed out that the waste coal has been a major source of water pollution and has also caught fire spontaneously over the years, releasing toxic fumes. By converting this waste into energy, Stronghold either powers its own Bitcoin mining or feeds electricity back into the local grid. Beard argues that this makes their operation more efficient than other miners who are just looking for cheap power.

However, this method isn’t without its critics. Using waste coal still means burning hydrocarbons, and some groups claim that these kinds of plants actually pollute more than new coal plants. Stronghold also faced backlash when it planned to burn tire-derived fuel at one of its plants. Russell Zerbo, an activist with the Clean Air Council, said that the plant should be reclassified as a solid waste incinerator, which would subject it to stricter air pollution monitoring. So, while Stronghold’s method does help clean up waste coal, it also raises environmental questions.

The challenges of using renewable energy 

While it’s good news that crypto mining companies are moving towards alternative energy, there are hurdles that could slow down this transition

Kent Halliburton mentioned that people often misunderstand the benefits that Bitcoin mining can bring to local communities, like creating jobs and making use of excess or wasted electricity. Electricity is hard and expensive to store, so if it’s not used or stored right away, it goes to waste.

Phil Harvey pointed out another challenge related to the location of their mining facility in Gillette, Wyoming. Due to the high altitude, the air is thinner, making it harder for their machines to pull in enough air for cooling.

Additionally, the issue of thermal pollution exists, where hot air from mining machines is released into the atmosphere. To counter this, some companies are getting creative. For example, Genesis Digital Assets uses the hot air generated by its mining machines to grow vegetables in colder climates.

So, while the move towards renewable energy in crypto mining is promising, there are still a variety of challenges that need to be addressed.

It looks like renewable energy will play a key role in the future of crypto mining. Bitmain, a top company in crypto mining gear, is now focusing on water-cooling technologies, as the demand for such eco-friendly options will keep rising.

Nearly 25% of all Bitcoin miners are already using water-powered setups. Wind and nuclear energy come in second and third as the most popular sources of power for these miners.

The Perilous Intersection of CBDCs and Government Oversight

The Perilous Intersection of CBDCs and Government Oversight

NYU law professors Richard Epstein and Max Raskin published a paper to explain the potential hazards of central bank digital currencies, highlighting the risk of overstepping governmental boundaries and the importance of maintaining the ‘separation of money and state’.

Central banks worldwide are swiftly progressing with their explorations in creating digital currencies. 

Numerous examples, such as the recent announcement of a successful prototype by the New York Federal Reserve or the Bank of England’s achievement in the subsequent phase of its digital pound trial, indicate that over 130 nations globally are considering the idea of central bank digital currencies (CBDCs).

The reasoning behind this is twofold. 

Firstly, central banks can position themselves as protectors of consumers and innovators in cost-saving technologies by eliminating the role of private banking intermediaries

Secondly, they can acquire an additional mechanism for policymaking.

However, the proposition of excluding these intermediaries raises an important question of who would be responsible for the other end of the financial transactions. 

The inevitable answer is a far-reaching and intrusive government capable of monitoring every single expenditure.

Digital cash? 

Max Raskin, an adjunct professor of law at New York University and a fellow at the school’s Institute for Judicial Administration, and Richard Epstein, a law professor at New York University, a senior fellow at the Hoover Institution, and a senior lecturer at the University of Chicago, are exploring this topic in a paper called “A Wall of Separation Between Money and State: Policy and Philosophy for the Era of Cryptocurrency,“ published in The Brown Journal of World Affairs.

Their argument suggests that a central bank, for instance, the Bank of England, would issue a “digital pound,” which would be a direct claim on the central bank, much like current cash is. 

This process would involve creating the necessary infrastructure for individuals to store digital pounds in digital wallets and facilitate interactions with retailers and other users.

Contrasting current practices where central banks such as the Federal Reserve and the Bank of England do not offer accounts to direct depositors, the proposed model would eliminate the costly private banking system that presently stands between the central bank and the accounts held by businesses and individuals.

At a glance, it seems that CBDCs might cut unnecessary costs

However, these apparent efficiency benefits can be deceptive and hazardous. 

Intermediaries function in thousands of markets, with representatives, aggregators, and monitors in almost every significant business line. These participants can’t be easily deemed obsolete.

Intermediaries often provide value as they are motivated to offer more than the bare minimum to stand out – such as new banking products and services. 

The variety of services banks can offer due to competitive pressures that ultimately benefit consumers. Restricting these forces can hamper the market economy.

CBDC implementation can be risky

The implementation of CBDCs is not without risks. 

The idea of providing extensive power and confidential information to a faceless government entity can be alarming. The system can use that data against you in numerous ways. 

By removing the private banking intermediaries, CBDCs would eliminate a crucial barrier that currently safeguards individuals and firms from government intrusion and overstepping.

The use of cash and bearer instruments is currently untraceable by the central government. 

However, the use of digital cash would be. 

It’s clear that even those who decide to stick with private bankers will still be scrutinised by the state, which holds control over all transactions.

Moreover, these digital funds would empower central banks to direct personal loans and mortgages to specific private parties with minor competition, raising concerns around state industrial policies. It’s not hard to imagine potential nightmare scenarios, yet they are difficult to avert.

The question remains: can we trust thousands of new banker-bureaucrats to perform any better?

Can we trust banks?

The Bank of England, in its digital pound argument, emphasised the British government’s commitment to fighting climate change, stating that the digital pound would be designed with this objective in mind.

Why should a topic as intricate and contentious as climate change be regulated through the financial system?

Similarly, U.S. financial regulators have started to wade into political issues like climate change.

If such explicit political objectives are considered, it is not a stretch to imagine a government-run bank using its powers to favour certain energy producers and punish others through their bank accounts. 

The power to impact credits and debits must be a feature of the central banks’ proposed code, which introduces a covert system of industrial policy.

If CBDCs become a reality, officially favoured energy sources like solar and wind power could witness their bank accounts receiving subsidies without the need to attract private investors or undergo the scrutiny of the private banking system. 

Bank accounts could become vulnerable to political manipulations, bureaucracies, or even disenfranchisement overnight with limited recourse.

Furthermore, these CBDC initiatives in the U.S. were originally proposed in the context of directly providing pandemic stimulus to the economy. However, the evidence is overwhelming that this hasty system of government payments was incredibly wasteful.

Moreover, central banks could implement countercyclical monetary policies, such as providing cash boosts to individuals in specific regions or sectors, which again becomes a political football.

Money and new technologies

We should undoubtedly strive to leverage new technologies, but only when implemented correctly. According to the paper in the Brown Journal of World Affairs, “Money should be a neutral unit of measurement, like inches or kilograms.”

This concept, referred to as the “separation of money and state,” aims to stabilise all currencies over time, minimising the need for private parties to design complex and costly mechanisms like adjustable-rate mortgages to handle financial instability.

For instance, Bitcoin has a predetermined supply of no more than 21 million units, not governed by any individual institution but rather by the network’s consensus mechanism. 

This feature provides a robust defence against value dilution that no government-centric system could hope to match.

This fixed system could offer additional institutional support for developing countries seeking modernisation. 

Countries with a history of mismanaging their monetary systems could benefit from the discipline that comes with certain forms of digital currency. 

For instance, a central bank like Zimbabwe‘s or Argentina’s, plagued with mismanagement, could adopt an innovative form of dollarisation using Bitcoin or another form of programmed cryptocurrency.

How Blockchain and AI are Changing the Game

How Blockchain and AI are Changing the Game

As the dawn of the new digital age ushers in, the synergy of blockchain and artificial intelligence (AI) is transforming multiple industries. These cutting-edge technologies are not just trending buzzwords, but robust tools that promise to revolutionize business operations, data security, and decision-making processes. 

Blockchain and AI in financial services

Blockchain and Artificial Intelligence (AI) are combining to revolutionize the financial industry. Financial institutions handle massive amounts of data, and AI and blockchain can manage this data more efficiently.

By automating processes and examining data on the blockchain, these institutions can improve risk management and compliance. For example, AI algorithms can sift through financial data on the blockchain to detect potential fraud and money laundering. Here, blockchain technology guarantees that the data is safe and unalterable.

Take FactSet, a global provider of financial data and analysis software, for instance. They’re using AI and blockchain to enhance their risk management and compliance processes. AI algorithms are used to scrutinize the company’s financial data housed on a blockchain to identify potential fraud and other irregularities. At the same time, the company’s blockchain technology safeguards the algorithms and data.

Blockchain and AI in supply chains

Beyond finance, AI and blockchain have other valuable uses. In the transport sector and other industries, AI can boost the efficiency and transparency of supply chains.

AI algorithms can analyze data on the blockchain to identify supply chain inefficiencies, helping companies optimize their operations. Simultaneously, blockchain technology ensures the transparency and traceability of products in the supply chain by maintaining records of logistics documents and ensuring visibility of goods’ locations.

Blockchain and AI in healthcare

In healthcare, AI and blockchain can bring significant improvements. AI, by analyzing medical data on the blockchain, can help identify patterns in patient data, aiding doctors in making accurate diagnoses and treatments. The blockchain technology can be used to safeguard patient data, an essential requirement in healthcare.

Blockchain and AI in life sciences

Blockchain and AI are joining forces in the life sciences field, particularly in the pharmaceutical industry, to significantly enhance operations. They offer much-needed transparency and tracking abilities for the drug supply chain while significantly boosting the success rate of clinical trials.

By combining AI’s advanced data analysis capabilities with blockchain’s decentralized structure, these technologies bring about increased integrity and transparency to clinical trial data. They facilitate better patient tracking and consent management, along with automating the process of trial participation and data collection. In simple terms, AI digs deep into data to uncover valuable insights, while blockchain ensures that this data is securely stored and transparently managed, boosting the overall effectiveness of clinical trials.

Blockchain and AI in security and verification

Blockchain acts as a robust protective layer for AI systems with its encryption-backed, decentralized structure. This allows AI developers to set specific access parameters for AI, enforced by private keys and tamper-proof infrastructure like blockchains and smart contracts. Unlike centralized systems vulnerable to a single point of failure, a decentralized blockchain system is spread across multiple nodes and keys, making it harder for a single attacker to compromise the system.

This synergy between AI’s utility and blockchain’s security reduces attack possibilities, enhancing the safety of AI applications. It empowers organizations to harness AI’s full potential while maintaining high security standards supported by cryptographic assurances.

Blockchain also plays a vital role in verifying the authenticity of different media types, an aspect particularly crucial with the rise of deep learning models that can generate images and media from text prompts. These models, while promoting productivity and creativity, could be misused to spread misinformation or create deceptive synthetic media.

Blockchain technology, backed by cryptography and encryption, can validate the authenticity of a piece of content by verifying its origin and any alterations. Cryptographic watermarking, for example, can ensure tamper-proof timestamping.

In a future where distinguishing between AI- and human-generated content is crucial for societal stability, blockchain could facilitate the creation of decentralized platforms for content verification and distribution. It ensures that the spread media is unaltered, authentic, and has a transparent, verifiable history.

Non-fungible tokens (NFTs), unique digital assets on the blockchain, can also help verify the authenticity and provenance of digital content. NFTs can represent ownership and verify the origins of various media forms. When content is minted as an NFT, its origin, ownership history, and modifications become transparent and easily verifiable. This adoption can enhance online content accountability, helping differentiate between genuine and tampered content.

AI in cryptocurrency

AI (artificial intelligence) plays a significant role in the world of cryptocurrencies by aiding in market analysis, enhancing monetization insights, automating trading strategies, and predicting market trends.

Firstly, AI uses sentiment analysis to gauge public feelings towards specific cryptocurrencies. Using natural language processing, AI can sift through large volumes of data from the internet and blockchain, and analyze the sentiment—negative, neutral, or positive—quickly. This can help predict potential price changes, offering valuable insights for investors.

Secondly, AI can provide more profound insights into cryptocurrency monetization. Given the vast amount of unstructured data online, AI assists data scientists in producing clean, relevant data for traders, making it easier to spot valuable investment opportunities.

AI also plays a role in fully automated trading strategies for cryptocurrencies. High-frequency trading, in which a computer executes numerous orders in fractions of a second, often relies on AI to mimic human intelligence. This speedier trade execution gives investors an edge over slower competitors.

Lastly, AI aids in accurately predicting cryptocurrency market trends. With the increasing number of investment options, AI is becoming an essential tool in the financial industry.

Large financial firms already use AI in their workflows to discover new investment opportunities and buy/sell signals, with smaller businesses following suit. Combined with blockchain, AI becomes an even more powerful tool for predicting market trends.

How can blockchain improve AI?

Blockchain technology can significantly enhance AI in several ways. Firstly, by boosting trust. Blockchain’s permanent, transparent records can help explain how AI algorithms work and reveal the source of their data, enhancing people’s confidence in AI’s data integrity and recommendations.

Secondly, blockchain’s decentralized data storage can increase data security and integrity. It acts as an audit trail, allowing users to understand how their data is used. If AI models are stored on blockchains, their decisions become more accountable and transparent.

Thirdly, blockchain can help AI expand by providing access to both internal and external data. This enables more actionable insights, better data management, and shared models, potentially creating a more trustworthy and transparent data market.

Fourthly, the fusion of AI and blockchain can automate multiparty business processes, reducing the need for human intervention. Blockchain technology can eliminate unnecessary third parties from transactions, accelerating their speed and efficiency. This reduces transaction friction and enables individuals to own their data, while blockchain secures the transaction process.

Lastly, blockchain can assist with AI’s high computational power demands. As a distributed ledger technology, it can utilize the computing power of multiple machines, an asset that centralized data servers may struggle to provide. In essence, integrating blockchain with AI can lead to more trustworthy, transparent, efficient, and powerful AI systems.

According to this report from Fortune Business Insights, the blockchain and AI market is expected to grow to over $973.6 million in 2027, “at a CAGR of 23.6% in the 2020-2027 period.”

Companies using AI and blockchain

  • CertiK. Provides tools powered by AI and formal verification to secure blockchain, smart contracts, and Web3 applications. With its product suite, CertiK technology helps identify security risks, monitor data insights, and visualize where crypto funds are going.
  • Core Scientific. Integrates personalized blockchain and AI infrastructure with current business networks, upgrading a business’ physical infrastructure, servers, and software in the process. The facilities are designed for long-term digital asset mining and to maximize hashrate, always running at optimal efficiency to reduce energy and time consumption.
  • Token Metrics. A tool that uses AI to analyze cryptocurrency trends for personal investment purposes. The technology scans the data of over 6,000 crypto and NFT projects and extracts market insights to help users make investment decisions.
  • AI BlockChain. Hosts a digital asset cloud platform built on blockchain and AI. The company applies artificially intelligent agents to its blockchain to detect changes and ensure platforms are secure.
  • Bext360. Uses AI and blockchain to boost supply chain transparency and efficiency in the coffee, timber, seafood, and mineral industries. The AI analyzes crops and predicts growing patterns, while blockchain ensures the recording of a product’s supply chain from seed to finished product.
  • Blackbird.AI. Uses its blockchain and artificial intelligence to gauge the credibility of news content in the communications and information industries.
  • BurstIQ. The LifeGraph platform combines AI and blockchain technology to provide enhanced ownership and management over patient data.
  • Chainhaus. A blockchain and AI advisory, education, and software development firm. The company provides a variety of end-to-end solutions for everything from teaching and app development to research and capital raising.
  • Cyware. Incorporates AI and blockchain-based tools into its cybersecurity and threat intelligence solutions.
  • Dobby. A home services platform for homeowners seeking assistance with maintenance or repair projects. The AI-based application operates on blockchain technology to exchange data quickly and reduce any financial loss.
  • Figure. Uses blockchain and artificial intelligence to streamline the home loan process. The platform offers home equity line of credit loan options, investment marketplaces and its own digital money app called Figure Pay.
  • Gainfy. A healthcare platform that employs blockchain, AI and IoT devices to improve the industry experience.
  • Hannah Systems. Brings AI and blockchain to autonomous vehicles with its portfolio, including an AI-powered data exchange platform, a real-time mapping tool, an insights dashboard, and blockchain.
  • Hashed Health. A venture studio based on blockchain that elevates startups in the healthcare industry.
  • Home Lending Pal. An application for home mortgage advising, comparison, and more. The AI-based platform allows users to view local homes, calculate personal budgeting, and choose their preferred home lender based on related mortgage rates.
  • Imaginovation. Builds and hosts customer-centric applications for clients in need. Utilizing solutions from blockchain, AI, IoT, AR, and VR, applications can be created for purposes ranging from manufacturing to entertainment.
  • LeewayHertz. Helps businesses create Web3-focused software platforms.
  • MOBS. A blockchain-based video marketplace for the selling and buying of smartphone videos. The blockchain creates a smart contract that directly allocates money to the content creator based on engagement rates and views.
  • NetObjex. Merges blockchain and AI to host its NFT marketplace platform, where users can create their own marketplaces and digital wallets as well as host metaverse events.
  • Neureal. A prediction engine that combines AI, blockchain, and cloud technologies to predict everything from the stock market to Google searches.
  • Numerai. A decentralized hedge fund at which data scientists from all over the world are constantly working on AI problems.
  • Stowk. A blockchain-based platform that features AI tools for almost every part of a business’s operations, streamlining everything in supply chain management from data access and IT governance to procurement.
  • Verisart. Uses artificial intelligence and blockchain to help create and certify NFT work in real-time.
  • Vytalyx. A healthtech company using AI to give healthcare professionals blockchain-based access to medical intelligence and insights.
  • WealthBlock. An automated marketing and messaging SaaS platform for businesses raising capital. Blockchain powers the company’s investor referral and suitability checking process.
  • WorkDone. Helps businesses automate daily processes and discover insights to retain employees. The company specializes in machine learning and blockchain to seek out resource bottlenecks, analyze best management practices, and continually maintain service compliance.
Securing the Future: Addressing the Rise of Crypto Scams

Securing the Future: Addressing the Rise of Crypto Scams

Navigating the dynamic landscape of the crypto industry, we explore the crucial role of security, education, and regulation in mitigating escalating crypto scams. How can these new-age digital assets, despite their rapid evolution and growth, can be protected from the increasing threats posed by bad actors?

The amount of money stolen by criminals in the cryptocurrency world has gone up a lot in the past two years. Even so, people who specialize in online security aren’t worried. They say that new technology often gets taken advantage of when it’s first introduced.

CertiK, the blockchain security company, published a report about online security in 2022. According to the report, wrongdoers stole more than $3.7 billion from Web3 technologies last year. This was a huge jump – 189% more than the $1.8 billion stolen in 2021.

In another report about the first three months of 2023, CertiK said that hackers got their hands on over $320 million.

You can also watch the key findings in the 2022 Certik report on their YouTube channel: 

While this is worrying tech developers and investors, it’s also a normal phenomenon. The more projects and technologies are launched, the more there will be people who will search for ways to misuse that technology. This is because new stuff often has weaknesses and opportunities for misuse.

We’ve seen this pattern before, from the beginning of the internet to the spread of email and, most recently, with the introduction of blockchain and digital money.

At the same time, we need to remember that the crypto industry is still new. Some people in the industry are more interested in growing and creating new things than they are in making sure everything is secure. This could be why we’re seeing so many thefts.

Statista, a company that collects data, offers data that may anticipate more growth in the crypto industry. According to their report, the cryptocurrency market is projected to reach US$37.87 bn in 2023. The number of cryptocurrency users is expected to reach 994.30 million by 2027.

crypto security scams

Why are there so many scams in crypto?

The fast growth in the number of users and earnings in the crypto industry, along with its new ideas, may lead to more misuse. In the end, we must remember that blockchain technology and smart contracts, which is the infrastructure for digital currencies, are very complicated. 

This complexity can lead to weak security spots that talented hackers can misuse. Because digital currencies have real value and can be exchanged for fiat money in many parts of the world, they’re tempting for hackers who can quickly take and possibly cash in the stolen digital money.

Here are just of the 2022 crypto thefts:

In the future, the crypto world will become more secure, and as Web3 gets more mature, there will be fewer successful hacks, misuses, and scams.

However, there will always be a never-ending fight between the wrongdoers and the blockchain security experts, as they both work towards their goals in this constantly changing industry.

But industry leaders see it as a wake-up call for us to double our efforts to secure our funds. And for the financial authorities to oversee these game-changing technologies and make it possible for everyday users to access them safely and responsibly.

Artificial Intelligence – is it secure?

Artificial intelligence (AI) has been a hot topic recently. Some people are talking about how it might change the way we work, while others, like tech entrepreneur Elon Musk, are saying we should be careful about how it’s developed.

We will probably see AI gets used more and more, and it’ll probably face its own security problems, just like Web3 and other new types of technology.

As AI becomes a bigger part of our everyday lives, especially in areas where security is important, like self-driving cars or financial systems, the chance for hacks, misuse, and scams will likely go up.

AI systems can be taken advantage of in several ways, from messing with machine learning algorithms to data tampering and hostile attacks.

Sensitive data can also be accidentally shared from large language models as people interact and share info with AI chat platforms like ChatGPT.

However, as long as there is no immediate money-making opportunity with AI, scammers will probably not start using AI just yet. 

But AI can certainly aid any researcher in doing their job, whatever that may be. For instance, AI capabilities may allow for a more advanced set of attack methods. Machine learning can be used by security researchers to check smart contracts to find weak spots more efficiently,

The pain points of the crypto industry

The cryptocurrency industry, being relatively new, is experiencing a number of pain points. 

These include:

  1. Rapid Evolution. The speed at which the industry evolves makes it challenging for security measures and best practices to keep up, leading to vulnerabilities.
  2. User Knowledge. Users are still learning how to use crypto technologies safely, making them easy targets for exploitation.
  3. Smart Contracts. Their open and visible nature means that if a contract has a flaw, it can be exploited by anyone, at any time.
  4. Decentralization. Unlike traditional systems that can add extra layers of security through centralized servers, the decentralized nature of blockchain technologies can expose them to more threats.

However, the industry is continually improving its security practices, with some decentralized finance (DeFi) platforms implementing additional measures such as multi-signature wallets and time locks. 

In addition, there’s an increased focus on regulatory scrutiny and user education to reduce future scams and hacks.

Crypto scams get more attention than traditional thefts 

But crypto scams represent only a fraction of the total financial scams. The traditional money system continues to set records for losses through malicious actions each year.

Crypto is often highlighted in the news for theft and fraud, but the total losses are actually much less than fraud involving credit cards, automated clearing house transactions, and wire transfers worldwide.

Source: Global Anti-Scam Alliance

According to the Global Anti Scam Alliance, a nonprofit group dedicated to protecting consumers from financial crime and scams, traditional money lost to scams has been increasing, with $47.8 billion lost in 2020 and $55.3 billion in 2021

The United Nations estimates that globally, the amount of money laundered around the world in a year is guessed to be 2 – 5% of global GDP, which is about $800 billion – $2 trillion in today’s US dollars. However, since money laundering is done in secret, it’s hard to figure out the total amount of money that’s actually laundered.

What draws so much attention to crypto scams is the very thing that attracted investors in the first place – its transparency. 

Crypto transactions happen on the blockchain and are visible to everyone. This transparency can help track stolen funds and may explain why losses in crypto get more attention. 

When a major theft occurs, everyone around the world can help track the funds to see exactly where they go. This isn’t possible in traditional financial systems where fund movements happen behind closed doors on private networks.

As more people around the world start using crypto, total losses will probably increase accordingly. However, better education and understanding of cryptocurrencies will ensure this increase isn’t disproportionate to other payment methods.

Account Abstraction: Ethereum Upgrade Makes Crypto Safer To Use

Account Abstraction: Ethereum Upgrade Makes Crypto Safer To Use

The adoption of the concept of “account abstraction” by Visa has the potential to greatly improve the user experience of Ethereum wallets.

One of the drawbacks of cryptocurrency is the high cost of mistakes. 

For example, if a user loses their account keys, they may permanently lose access to their funds. This and other potential problems make it easier to lose money in cryptocurrency than in traditional banking. To address this, blockchain developers are working on solutions such as “Account Abstraction” to make it safer and easier to use crypto.

Account Abstraction (AA) uses smart contracts to execute transactions by implementing certain validation rules. With AA, users won’t need to sign each transaction with their private keys. The goal of AA is to make using Ethereum as easy as using a traditional bank account, allowing for easy transactions, automatic bill payments, and more.

It is important to note that AA can change the way people use crypto. That’s why it is important to understand how Ethereum transactions work today.

Types of accounts on Ethereum

On Ethereum, there are two types of accounts. These are the External Owned Accounts (EOA) and Contract Accounts (CA). EOAs, commonly used by Ethereum users, are accessed through wallet providers such as MetaMask and Coinbase Wallet. They have a pair of keys: a public key, through which anyone can send funds, and a private key, used to initiate transactions by the account owner. CAs, also known as “smart contracts,” are code-controlled accounts that live on the Ethereum network. These accounts cannot initiate transactions on their own, they need an EOA to send a transaction to them.

Losing access to an EOA (Externally Owned Account) on the Ethereum blockchain can be a serious problem as it is linked to a private key that has complete control over the account. If the private key is lost, then there is no way to regain access to the funds, as there is no key recovery process or help desk to assist. 

This vulnerability is primarily caused by human error, which can be the biggest security flaw in Ethereum account management. According to a report by Chainalysis, it is estimated that up to 23% of all bitcoins in circulation (around 3.79 million BTC), could be lost forever due to forgotten keys. 

Additionally, if a private key falls into the hands of hackers, they would have complete control over the corresponding funds.

How does Account Abstraction work?

Account Abstraction (AA) considers the limitations of Externally Owned Accounts (EOAs) by combining them with Contract Accounts (CAs). This allows for the creation of user accounts with built-in fail-safe mechanisms. Accounts could also have some other special features for verifying transactions. Ethereum co-founder Vitalik Buterin explains in a 2021 blog post that under AA, smart contract code would not only be used to implement the logic of applications but also the verification logic (nonces or signatures) of individual user wallets.

By utilizing AA, user accounts could be programmed to include social recovery systems where multiple individuals with their own keys have the ability to return an account to its owner if the owner loses access to the private key. It also allows for the creation of “multisig wallets” that transfer account ownership to a group. These wallets require multiple different parties to sign off on transactions as an additional security measure.

Moreover, accounts under AA could avoid hard-coded limitations of EOAs, such as gas fee payment in a single cryptocurrency like Ether (ETH). They could choose to use a different cryptocurrency (like DOGE) or assign someone else (like a friend) to pay gas fees.

Currently, it is possible to implement these systems using CAs, but it would require a significant degree of complexity and high gas costs as all transactions need to be initiated by an EOA.

Can Account Abstraction be implemented on Ethereum?

There are several proposals for adding Account Abstraction (AA) to Ethereum, with the most notable being EIP-4337. According to Gazso, the co-author of the EIP, this proposal is the first one that can achieve AA without requiring a hard fork.

The main advantage of EIP-4337 is that it does not necessitate any modifications to Ethereum’s core protocol. Instead, it would introduce a new account abstraction layer on top of the core protocol, allowing wallet providers to create user-owned accounts that utilize smart contracts to establish the rules for initiating transactions.

Despite the availability of these tools, AA is not yet widely adopted. The main reason is the lack of momentum in creating and distributing new wallets. Convincing users to try new technology and wallets is a difficult task, said Gazso. 

As a result, many users opt for more established and well-tested options such as MetaMask. However, it seems that this trend is changing, and there is an increasing interest in implementing these new technologies.

Is Account Abstraction happening already?

Some layer-2 solutions on Ethereum are exploring the integration of Account Abstraction (AA) as a feature. StarkWare, the company behind the StarkNet blockchain, has already implemented AA. 

The Co-founder and president of StarkWare, Eli Ben-Sasson, has stated that AA could be used in the future to authorize payments using facial recognition or biometrics, similar to how FaceID is used to authorize credit card payments for iPhone users. He also said that infrastructure for this is already present on StarkNet.

In recent times, Visa also announced its proposal to utilize Account Abstraction to deploy automatic payments using StarkNet infrastructure, which would be similar to automatic payments in a bank account, but on the blockchain.

Other companies, such as Gnosis Chain, are also exploring the integration of AA in their infrastructure. Gnosis Chain co-founder Stefan George stated that interest in AA is increasing as more developers and users become aware of its potential. Gazso also stated that 2023 would be the “year of Account Abstraction” and the topic widely discussed s in the crypto and blockchain space.