Open source Internet-connected Bitcoin wallets could be rock-solid software in many cases, but a system-level attack threatens to make their application-level precautions irrelevant. The recent Meltdown/Spectre hack targeted the chips inside PCs, highlighting the dangers that anyone using a computer connected to a network can suddenly become vulnerable to. Security of cryptographic assets is of extreme importance; thus having ways of securely archiving wallet data offline is a desirable option.
One way is a traditional paper wallet which at its simplest is a printout of the keys associated with a Bitcoin address. Of course, anyone with physical access to that printout can compromise the account.
I have developed an experimental tool, built with React and server-side-rendered with NextJS, for saving the backup data from online Bitcoin wallets such as Electrum.
Paper Umbrella is a browser-based “paper wallet” that does not need a network connection to save user data locally and can be run in an “air-gapped” context. It allows the saving of an arbitrary number of accounts, with each entry containing fields for the wallet’s name, seed data, public keys and private keys. This data is encrypted using the password provided by the user and then saved in a JSON file. When the user later selects that wallet to view it, they must enter the same password in order to get back the private keys and seed data.
☂️⤵️ The code for Paper Umbrella has been released under the free and open source ISC License and can be checked out from a GitHub repo. It is currently in pre-release and is not yet recommended for use with production cryptocurrency data.
Paper Umbrella's main component is called Tracker. It contains all the core front-end functionality that, when paired with the NodeJS server for persisting data, makes the app work. Also included is Fowlfive, a component that looks up the prices of five major cryptos and then calculates and displays the Fowl Five market aggregate index which is also featured here on the Block Fowl blog. In addition a few components sit at the bottom and provide disclaimers and links.
The readme for Paper Umbrella includes simple instructions for getting the app started using your Mac, Windows or Linux computer's command line terminal.
Cryptocurrency exchanges continue to face actions by regulators including Japan’s Financial Services Agency and America's SEC. What further rules these agencies might make could be part of the reason for the modest dip in Bitcoin price and in the Fowl Five market aggregate index.
The Fowl Five Index of cryptocurrencies has stayed largely between 1250 and 1450 over the last few weeks as the prices of Bitcoin and other major crypto assets have shown an atypical level of price stability. While it tested levels below $9000 and briefly hit a monthly high of just above $11500, Bitcoin has mostly traded in the range between $10000 and and $11000 over this period. In contrast Bitcoin Cash has weighed on the index as it has seen a steady decline from $1500 to around $1185 recently.
After the rout of early February and the beginning of the year in general, crypto prices could be stabilizing after the excesses of late 2017 and the correction of early 2018. But why would the prices find an equilibrium here, other than a possible balance between new speculation coming in and previous speculation going out? Until valuations are better understood in terms of benchmarks and ratios, the proportions between the share of the market that is speculative and the share based on underlying network demand [as I see it, the key problem in crypto valuation] will probably remain unclear.
Berkshire Hathaway executive Charlie Munger launched a bellicose attack on Bitcoin, urging the American government to "step on it hard"--one of the latest of a parade of establishment finance figures who have attacked cryptocurrencies.
Fowl Five Index at 11:09 a.m. PST Feb. 7, 2018
I wanted to create a market aggregate index so I picked five cryptocurrencies that I thought represented a solid basket of relatively high-capitalization items.
First, Bitcoin is the largest and most prominent cryptocurrency, at least at the moment. In a way, it serves as the current market bellwether just by itself. There is no getting around its considerable effect on the Fowl Five Index, since the basket of cryptos is weighted roughly by market capitalization and Bitcoin's market cap is so large. Given its size, it serves as the benchmark against which the other four cryptos are adjusted against when calculating the index. Ethereum is the second cryptocurrency in the index given its clear #2 position in size and prominence. It also has a somewhat different set of features from Bitcoin and will sometimes move in an uncorrelated way so it is a useful signal to include.
The third cryptocurrency is Bitcoin Cash, which has had a rough patch in the last few months in terms of price but which retains a large market cap and continues to seem to undershoot or overshoot overall market trends on many days possibly due to the back-and-forth of mining rewards levels.
The fourth cryptocurrency is Litecoin, which has become a fairly well-known cryptocurrency with a visible founder, Charlie Lee, and has seen some interesting run-ups in the last several months as Coinbase users and others have poured into it. Given its low expenses for sending money and its first party wallet apps, it may well continue to receive attention from a growing audience that has some cross-over from the Bitcoin community but also includes a different segment of users.
The fifth cryptocurrency is Dash, which is a more privacy-focused example than the others. While it is the smallest in the index, it represents a type of crypto not otherwise found in it.
When calculating the Fowl Five Index, the latest prices and market capitalizations of these cryptocurrencies are looked up from the web and then fed into the formula which rebases their prices against their weighted market capitalization and feeds those values into an aggregate total. Roughly speaking, the Fowl Five Index should show a positive correlation with the relative level of total growth in the prices of the cryptos.
Bitcoin's special place in the index is assured in the short term, but what about further out? The formula would no longer work as intended if it were no longer the highest-cap crypto in the basket. In the plausible but not-guaranteed scenario that Ethereum were to pass Bitcoin (it is now more than halfway there), I would probably swap the order in which they were fed into the function and make Ethereum the new standard.
During the crypto market panic of a few days ago the Fowl Five Index dipped below 1000, while today it is hovering around 1134.
For creating future indices, it is easy to conceive of the value of a broad-based aggregate that took in data from dozens of cryptocurrencies. For now, given the top-heavy nature of the market, the Fowl Five Index provides a good indicator of overall crypto price trends. If you want a Fowl Five widget like the one on this blog for your app or blog sidebar, you can get the code here.
They really showed up in force when Bitcoin's price saw a drop at the beginning of 2018. "The bubble is bursting," they cried. And as long as your investment time horizon is less than three months, there was every reason to panic. And panic many of those people did: as talk of cryptocurrencies swept into the mainstream, all sorts of people decided to jump in to the fray only to see quick losses--again, on a very short time line. And just as a certain segment of people started getting enthusiastic, they started getting burned. What was going on? It is easy to be confused. But then, what principles explain the movement of cryptocurrencies (beyond the basic graph of supply and demand)? These are early days for the subject, as stock-market-influenced "technical trading" concepts sit alongside new methods of analysis for a new class of assets.
The rise of blockchain technology is the story of cryptographic technologies becoming sufficiently powerful as to become a rival to centralized authority. This will have revolutionary consequences in society. Increasingly the forces of entropy and greed have undermined the legitimacy of the political elites in every country. These elites have traditionally expected to hold unchallenged sway over the national financial system, issuing fiat currency and levying taxes to be collected in that same currency. Corporations have been undermining this system by hoarding cash overseas in an attempt to avoid paying---a workaround that has proven largely effective. Now, whether or not individuals are able to design strategies of evasion like this with crypto and solve their taxes problem (further weakening the nation-state as an institution), the decentralized currency half of the problem has already been largely solved with blockchain technologies. The value of authority is about to go down and the value of brainpower is about to go up. The gathering power of scale will be checked, and a new competitiveness will be unleashed in markets around the world.
Old assumptions about the need for authority to overcome collective action problems will be challenged.
Much of the American tech sector (and many investors overseas as well) have rushed into the space, gobbling up initial coin offerings (ICOs) for a wide variety of crypto offerings. Inevitably some of these will prove to have more value that others. Areas that new entrants compete on include technological design, the name of the creators or backers, financial considerations like how much of the crypto is held by issuers, potential business viability, how well-integrated the token is into the business plan, and regulatory considerations. A list of the most valuable cryptocurrencies already issued is available on Coinmarketcap and Yahoo Finance.
So you can hear a lot of different reasons in blogs and the press for why cryptocurrencies and blockchain might have revolutionary consequences. Some of the reasons given include:
a decentralized but provable (speculative) store of value
a means of value exchange to facilitate transactions
a technological design pattern for storing consensus-driven data
an app development platform with payments as a first class platform feature
But then you also hear big talkers like Warren Buffett (fresh from admitting that he should have bought Google instead of IBM) seeking to undermine confidence in the sector by claiming that the cryptocurrencies will all be gone in five years. Chase CEO Jamie Dimon falsely claimed that Bitcoin is a "fraud." World "leaders" at Davos 2018 sought to undermine confidence in the sector. And while many valid criticisms can be made of the specific cryptocurrencies, these attacks appear to be driven by the powerful position that the attackers occupy and a concern that new systems could underpin a more competitive financial services landscape.
The doubters have been heard, and yet relentless technological progress doesn't wait for permission to disrupt traditional markets when the value proposition becomes sufficiently compelling. While much of the last year's run-up in crypto prices has been based on hype and speculation, the search for a safe store of value around the world was the other, probably more enduring force driving the numbers.
But now for the more myopic question: will the medium term trend of steady growth in valuation continue for the cryptocurrency sector? We will all be watching.