The dirge of Dogecoin: Cryptocurrency doomed to failure

The dirge of Dogecoin: Cryptocurrency doomed to failure

Summary: ... and yet we still choose novelty over risk. Businesses take note: virtual currency can result in imaginary profit.

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Bitcoin. Considered a digital currency by some, a commodity by others.

Either way, Bitcoin has captured the imagination of investors worldwide -- so much so, that businesses have also taken an interest. Some retail outlets, including second-hand electronics stores, web hosting, bakeries and restaurants, accept the cryptocurrency in place of traditional, hard coin. Once both physical and online stores began accepting Bitcoin as currency, this then led to governmental bodies taking an interest, as due to its birth, the digital commodity has remained unregulated -- and was once used as currency on Silk Road, an online marketplace for less than savory items.

A decade ago, the price of Bitcoin was minimal. However, Bitcoin exploded in value following comments from the Chairman of the Federal Reserve, Ben Bernanke, who said the cryptocurrency may hold "long-term promise." Several months ago the price of Bitcoin topped $900, but at the time of writing, the price of BTC has tanked to $437. 

In the beginning, the general public used computers to "mine" Bitcoin via a computer's GPU. However, it is now nigh on impossible to mine for traditional Bitcoin through personal computers due to the massive amounts of processing power required. It is now likely that you would pay more in running computers mining Bitcoin than what you would earn from the process.

Mining pools are another way to hunt down Bitcoin. In a pool, such as Slush's pool, users band their resources together to increase the capabilties of singular computer systems in to a more powerful unit. If you mine Bitcoin this way, then naturally profits are shared between pool participants. 

As the popularity of Bitcoin rose, so did other forms of the cryptocurrency. Litecoin, Mastercoin, Peercoin and Betacoin are just some types of virtual currency that can be purchased or mined, but the main alternative currently in the media spotlight is Dogecoin.

Dogecoin, which features a Shiba Inu from the popular 'Doge' meme, began circulating at the end of 2013. In comparison to Bitcoin, the currency was in much faster production and millions of Dogecoin were quickly mined. The price fluctuated due to the creation of vast mining pools taking advantage of rapid mining with little computing power, and a cyberattack taking place within weeks of the cryptocurrency's official launch left users pillaged of their coins. 

While a donation fundraiser covered the stolen Dogecoin, the latest cyberattack to hit the popular alternative to Bitcoin has done little but reinforce the proposition that cryptocurrencies are vulnerable to theft and are for risk takers only -- especially if you plan to invest your hard-won cash.

Over the past week, one of the largest Dogecoin vaults, Dogevault, quietly went offline. Users began reporting that hundreds of thousands were vanishing from their accounts, with one user reporting that 950,000 Dogecoin was stolen from their single account alone. Some of the currency was later traced to megawallets containing millions of Dogecoin. At the time of writing, 1,000 Dogecoin are worth $0.46. 

On Tuesday, Dogevault announced that the service was "compromised by attackers" and this resulted "in a service disruption and tampering with wallet funds."

The cryptocurrency vault also said that the moment administration was aware of the security breach, service was stopped -- but cyberattackers had already accessed and destroyed all of the data hosted on virtual machines.

"We are currently in the process of identifying the extent of the attack and potential impact on user's funds," Dogevault states. "This involves salvaging existing wallet data from an off-site backup. We will also closely be investigating potential attack vectors, and determining the security breach which enabled the attacker's to compromise the service."

While the investigation is taking place, the team have asked for no funds to be sent to Doge Vault addresses.

Read this

The Mt. Gox bitcoin debacle: Bankruptcy filed, customer bitcoin lost

The Mt. Gox bitcoin debacle: Bankruptcy filed, customer bitcoin lost

UPDATE: Mt. Gox has closed the bitcoin exchange and filed for bankruptcy in Japan.

Dogevault is simply the latest vault in a string of cyberattacks which have left holders of cryptocurrency confused, angry, and poorer. In February Mt. Gox, the once dominant-Bitcoin exchange, shut its doors without warning and refused to respond to investor inquiries. The exchange also wiped its Twitter feed clean and resigned from the Bitcoin Foundation's board.

It later emerged that Mt. Gox allegedly had been the alleged victim of systematic cyberattacks which took place over a number of years. According to the company, hackers had breached the network and pilfered Bitcoin, to the point at which Mt. Gox had to file for bankruptcy protection in both the US and Japan. It is estimated that 650,000 BTC belonging to customers were lost due to the security breach. Some claim, however, the missing Bitcoin was the result of fraud conducted by Mt. Gox.

A Tokyo-based judge is overseeing an investigation in to the closure of the exchange, and Mt. Gox CEO Mark Karpeles is wanted in the US for questioning, although no charges have been filed.

This year alone, a number of virtual currency exchanges have closed, including Beijing-based cryptocurrency trading post Vircurex, Flexcoin and Poloniex.

A recent study of the Bitcoin exchange industry conducted by computer scientists Tyler Moore and Nicolas Christin from the Southern Methodist University, Dallas and Carnegie Mellon University found that out of 40 virtual currency exchanges once established on the Web, 18 have gone out of business -- 13 without warning, and five after becoming victims of cyberattacks. In addition, four suffered major security breaches but remain open.

Meanwhile, governmental bodies are looking at ways of regulation, perhaps to capitalize on the popularity of virtual currency and control its development, or at least to help people protect their investments. 

In May, the US Securities and Exchange Commission issued an advisory warning investors to be wary of cryptocurrencies, cautioning that virtual currency is volatile and unregulated -- leaving investors at risk of fraud and theft with no means of gaining compensation if funds are lost. The commission said:

"A new product, technology, or innovation -- such as Bitcoin -- has the potential to give rise to both frauds and high-risk investment opportunities. Potential investors can be easily enticed with the promise of high returns in a new investment space and also may be less skeptical when assessing something novel, new and cutting-edge."

China has taken the matter further and banned activities relating to the trade of Bitcoin. The country's largest bank, the Industrial and Commercial Bank of China (ICBC), said on May 8:

"From this date, any institution or individual must not use accounts set up with our bank for the deposit and withdrawal [..] and transfer of funds for Bitcoin and Litecoin trading."

In addition, the China Guangfa Bank and Shanghai Pudong Development Bank have also stated that accounts belonging to customers trading in virtual currency will also be frozen. This, in turn, has caused virtual currency exchange rates to tumble.

Read this

Singapore broker urges 'light touch' Bitcoin regulation

Singapore broker urges 'light touch' Bitcoin regulation

Governments should adopt a light touch approach in regulating virtual currencies and instead allow technology to help protect consumer interests, says Singapore-based Bitcoin broker, Coin Republic.

What can we learn from all of this? There are few investments without risk, for a start. Many accept this premise every day while dabbling on the stock exchange, and in this manner, cryptocurrency is no different. However, risk is not based on the value of a company, but rather the perceived value of an unregulated cryptocurrency which can rise and fall based on investor popularity and the individual security of trading posts which may -- or may not -- have the capital to provide strong security for stored funds. 

There is often a divide between different virtual currency camps as to whether or not governments should become involved in the development and future of Bitcoin. Regulation could protect investments, but on the other hand, would remove one of the ideals of cryptocurrency -- the desire to remove bank and governmental control. However, the financial ecosystem currently in place for Bitcoin is fragmented, disorganized and divided, which does not herald well for Bitcoin's future.

Business is about profit and loss. While accepting digital currency may cause a sensation and give a company additional advertizing, it shouldn't be done just as the 'thing everyone's talking about.' If you insist on doing so within your firm, it is advisable to research Bitcoin, learn about it, and ask the right questions first, rather than jump on the bandwagon and hope for the best. 

It may be that in the future, cryptocurrency will be properly protected and turn out to be a successful alternative to hard coin. However, investors have to rely on the security of individual exchanges to protect their virtual currency -- but without the security that banks offer should a cyberattack or fraud take place and wipe an account clean.

Until there is a sure-fire way to protect such investments and currency fluctuations stabilize, it is simply not worth it for companies to support cryptocurrency. Accepting it instead of standard money is a risk, as exchange rates may be good this week, but tank in the next due to the latest closure of an exchange or a bank's declaration that they will not support accounts belonging to those who trade in it. We simply don't know until it hits. 

There are many who enjoyed the profits of Bitcoin's sudden rise to fame and exchanged the contents of their virtual wallets for traditional cash -- setting themselves up for life. However, the cryptocurrency scene has changed and hackers are taking advantage of often poor security to pilfer the funds of unwitting investors. It is no longer lucky speculation which resulted in heavy winnings, but a risky prospect that only the brave should undertake -- and businesses should have no part of it until security catches up. 

Topics: Security, Tech Industry

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  • money to be made

    There's probably some money to be made in launching new cryptocurrencies, mining millions of the early, easy coins, them dumping as much as you can before the floor falls out from under it. After, all, it costs you almost nothing. The most difficult part is gettingthe word out to enough gullible parties that there's a "new Bitcoin you can get in on at theground floor." But since there's a sucker born every minute, that should be eminently doable. I once got tricked into attending an Amway presentation, so I've seen how it's done. You show people graphs of Bitcoin's growth, explain that if they'd invested $10.00 in the beginning they'd be millionaires now, explain that it costs more in electricity to mine new Bitcoin than they're worth, and so an "investors" only option now is to get in early on the "next Bitcoin." Then you tell them that you're giving them a once in a lifetime opportunity, that they'd be fools to pass up. And just to be sure that you're making money even if the new crypto currency is never worth a single, red, cent, you sell conference attendees mining software for $100.00 a pop.

    In fact, if there aren't people out and about doing exactly this right now, I'lol eat my shoe.
    dsf3g
  • Who sets the ideals, though?

    "Regulation could protect investments, but on the other hand, would remove one of the ideals of cryptocurrency -- the desire to remove bank and governmental control."

    Who sets the ideals, though? Who is to say this is the ideal and should be the ideal?

    There are some anti-establishment people out there, but why should they set the ideal?


    In the meantime - the largest digital currency is probably the dollar itself. Last I checked, a large portion of USD transactions actually take place digitally. I pay all of my bills online. I often use services like PayPal. I buy practically everything using a credit card online.

    Sure, the paper and coin are still around - but they don't make the bulk of my transactions anymore.

    Bitcoin's and dogecoin's largest competitor is probably the digitization of modern currencies like the dollar.
    CobraA1
    • Everyone sets his own ideals, of course

      I don't find the Randian ideal of complete separation of government from money and economics to be either feasible or desirable, but others do and they're welcome to try to make it happen; as long as they obey the laws and allow those of us who don't share that ideal to go about our business in peace.

      But nobody has the right or even the ability to dictate other people's ideals.
      John L. Ries
  • hehe

    There is one simple explanation for the rise of these alt-coins: spoiled teens with a fancy gpu freeloading on daddy's electric bill. The parents are too busy/ignorant to even know what is going on. Although if electricity prices were higher and in turn forced consumers to watch their usage patterns closely like they watch their sons' cell minutes, I don't think daddy or mommy would be so oblivious.

    However, btc is the real deal, not withstanding the much publicized bankruptcy of MtGOx. Each time btc is hacked the security is hardened. Mining is for professionals only. The Board is very competent. There are easy protocols users can implement to protect themselves. Etc.

    But with all that said, btc is not for the faint of heart or non tech savvy. Unfortunately if you can't diy you open urself up to hackers.
    CornheadsBack
    • Not necessarily true

      It appears that plenty of growups, especially those with libertarian, anarchist, or hard money sympathies are involved as well.

      But there's no need to insult anyone. If they're wrong, they're wrong, no matter who they are.
      John L. Ries
  • Cryptocurrency isn't going anywhere - pick a

    Your article is about the security of keeping cryptocurrency in online wallets and exchanges, however the vast majority of cryptocurrency users keep their money in PC based wallets or cold storage, where it is significantly safer.

    Every online service is susceptible to attack. PayPal is susceptible to brute force attack on account passwords, maybe you could write something about that next time.
    johnzcharles
  • Such lack of facts

    There's a lot of bad information in this article. Bitcoin was worth more a decade ago? That's weird. It wasn't around 6 years ago. Dogevault the biggest "vault"? It's one of two online wallets that no one who knows what they are doing uses. I would suggest being more knowledgeable about a subject before such a wall of text like this is written with so many inaccuracies.
    verkaholic
    • Looks like...

      1. One should avoid using online wallets if one doesn't want his Bitcoins stolen.
      2. One should choose his Bitcoin exchange with care, as it's not regulated or even supervised by anyone.

      Both make perfect sense to me. If government-free money appeals to you, then you'll do what you're going to do, but at least understand the downside of that (you're on your own), and act accordingly. And you're probably better off using it as a medium of exchange than as an investment (you're probably not going to get rich trading it, and you're likely to get poorer if you try).
      John L. Ries
  • Charlie - You're wrong.

    Charlie,

    Please do some more research before considering something doomed. The security of these coins resides in controlling access to one's wallet. If you keep your coins on your own wallet, backed up, at home, no one can get to them. It is VERY secure this way!! If someone does not have the information stored in your wallet, they can not take your coins, period!

    If, on the other hand, you decide to let a 3rd party take custody of your wallet (Online wallet), you're trusting that 3rd party with full protection of your assets. What happens when you let someone else keep the money? THE MONEY GETS STOLEN! Every time. This is what happened with Mt. Gox, it's happened here, and it will happen again to another exchange. Giving someone else the keys to your money is just inviting problems, and defeats one of the major security features of cryptocurrencies.

    We should not blame the currency, we should blame the exchange. For example, when Ameritrade gets hacked, we don't call the dollar doomed, we say Ameritrade had bad security. Until some major banks start offering FDIC insurance on bitcoin deposits, people should not store their coins in any kind of online wallet, and they will be safe. Please don't go making such public smears until you understand it fully.

    Cryptocurrencies will change the way finance works, just please keep the coins in your own wallet and you're safe.
    Snow45
    • But we know how good people are at making backups

      "If you keep your coins on your own wallet, backed up, at home, no one can get to them. "

      But we know how good people are at making backups - and the answer is not very good at all.

      Despite the fact that we know how to do it, and there are ways to make it very reliable, the vast majority of people simply don't make the effort.

      The future of digital currency can't be relying on something we know people generally don't do, even when they know full well they should.
      CobraA1
  • Dad-burned new-fangled stuff :-)

    You see, there's this new-fangled stuff called "Alternating Current" that my rival Tesla came up with, and they use it to execute criminals, so it must be inherently unsafe. Nobody will ever invest in alternating current. I predict by the 20th century it will cease to exist and nobody will have even hear of Tesla, Westinghouse, or AC by the year 2014.
    Tom Edison ;-P
    beyemvey
  • bad artcile

    You miss the point, completely, that most crypto currencies are kept off-line and aren't susceptible to hacking.

    Also, there are credit swaps no happening on BTC so that large transactions can take place with multi-national companies and the price remain stable once the terms agreed to.

    Just another "winner" jumping on the crypto currency bandwagon of crappy articles that add nothing to the debate.

    Well done!
    BHC223
  • Seriously??

    "Such lack of facts

    There's a lot of bad information in this article. Bitcoin was worth more a decade ago? That's weird. It wasn't around 6 years ago. Dogevault the biggest "vault"? It's one of two online wallets that no one who knows what they are doing uses. I would suggest being more knowledgeable about a subject before such a wall of text like this is written with so many inaccuracies."

    OBVIOUS EITHER THE AUTHOR KNOWS SHIT ALL ON THE SUBJECT OR JUST STAMPED THEIR NAME ON SOMETHING SOME 18YR OLD INTERN WROTE. OF COURSE THE INTERN WOULD PROBABLY BE A LOT MORE TECH SAVY....
    BHC223
  • Exchange stated down, but has been up and running for months

    I am unsure why you stated that Poloinex is down, I have been trading daily for the past 6 months without a hitch. Give it a try, site is and has been online and operational.
    tageeboy