In this week’s edition, we recap bitcoin’s (non) price movements for the week, investigate the biggest digital currency theft of all-time (its perhaps the greatest theft of all-time), and review how the disparity in world energy costs is driving a massive migration of bitcoin mining operations.

Bitcoin Flat for the Week

Bitcoin had another relatively stable week, with prices hovering in the $11,000 range. The price of BTC remains down 16% in 2018, after experiencing a tremendous explosion in popularity and a 15-fold gain across 2017. While bitcoin has been faltering in 2018, struggling to remain above the $10k mark, the net market cap of all coins continues to increase, signaling not only that the market is still growing but that net money is still moving into the cryptocurrency space – just not into bitcoin.

The ever-increasing pool of competitors likely spells the end of bitcoin’s dominance of the total crypto market cap, putting an end to its 7+ year reign of comprising 50% or more of the combined value of all cryptocurrencies. Though bitcoin may continue to be the most popular and widely used cryptocurrency for some time to come, impressive new developments in blockchain technology have rendered it largely outdated and inefficient as a payment processing system, putting investors on the search for the “next big thing.”

World’s Largest Theft, Ever (?)

In what is likely to be the biggest theft of anything, anywhere, hackers made off with 526 million NEM (XEM) coins – worth approximately $420 million – stolen from Japanese cryptocurrency exchange Coincheck. This caused the price to decline roughly 10%, dragging a number of other coins down with it (including bitcoin), but after a period of about 8 hours prices were back to their pre-hack levels. Poor security measures and Coincheck’s non-use of the NEM multisignature function are being blamed for allowing hackers to compromise exchange wallets.

The size of the theft surpasses the old record set by MtGOX, the infamous bitcoin exchange that closed its doors to customers after losing some $350 million in user funds. While also located in Tokyo, Japan, the similarities between MtGOX and Coincheck end there. MtGOX quickly closed its doors to customers after its losses and ex-CEO Mark Karpeles is still facing lawsuits and court battles over what happened to the missing funds. Coincheck, on the other hand, is keeping its doors open and has plans to reimburse customers with up to 90% of the value in Japanese yen of their lost NEM.

Though the dollar amount is greater than that lost by MtGOX, neither NEM or Coincheck are as important to the cryptocurrency landscape as MtGox was to bitcoin back in 2013. A comparison of figures shows that about 5% of all digital currency assets at the time were lost in MtGOX hack, whereas the NEM lost in the Coincheck hack only represents about 0.25% of today’s total asset value. Despite Coincheck’s apparent ability to shake off the losses and continue about business as usual, a push for self-governing regulatory bodies for exchanges has been reinvigorated in Japan, as the memories of MtGOX still linger in the minds of many cryptocurrency traders.

Bitcoin Miners Migrate

A report released last week provided the average dollar cost per bitcoin mined in 115 countries, with the lowest of Venezuela at $531 and the highest of South Korea at $26,170. Because bitcoin’s mining difficulty is extraordinarily high, it takes massive amounts of electricity to add new blocks to the bitcoin blockchain. Today, the generation of every bitcoin added to the supply requires the equivalent of 2 years worth of electricity used by a single American household. Therefore, large-scale bitcoin mining operations tend to thrive in countries where the cost of electricity is cheap, like Venezuela. Out of the list, the United States was ranked 40th cheapest, with electricity costs rendering bitcoin mining moderately profitable.

China’s relatively cheap power supply and snow-laden countryside make it the perfect place to build vast bitcoin mining farms, which are warehouses filled with interconnected servers and mining rigs. China has dominated the bitcoin mining industry for over a year, hosting 3 of the world’s largest mining pools, but this may soon change as government officials are requesting an “orderly exit” for the country from bitcoin mining. Their main objective is two-fold: 1) reduce the “wasteful” spending of energy practiced by mining farms in the country, and 2) curb the power and influence of cryptocurrencies over the general economy.

The crypto crackdown in China is spurring many mining farm operators to relocate internationally – one such destination is Québec, Canada. With its cold climate and relatively inexpensive electricity costs, Canada is a suitable place to absorb the enormous amounts of heat generated by bitcoin mining servers and equipment. Several small towns in Québec are seeing an influx of mining operations as “energy hunters” flock to its vast, renewable (hydroelectric) power supply. Even some of the northern-most areas of the United States that have an abundance of cheap energy are seeing a sudden growth of bitcoin mining farms, which has the positive benefit of contributing economically to local, otherwise largely agrarian communities.

Also in the News

  • In another “first” of notoriety in the history of bitcoin, four men attacked a stockbroker and his partner in a rural part of England, demanding that he transfer $1 million worth of bitcoin to them at gunpoint. The robbery is being dubbed England’s first “bitcoin heist,” and will likely serve to fuel the regulatory goals of politicians there who have recently been stressing bitcoin’s rising role in criminal activity.
  • Cryptocurrency mining malware doesn’t have to come in the form of a download anymore. Last week it was reported that YouTube unknowingly ran video advertisements containing malicious JavaScript code. The ads download and execute the code on visitors’ computers. It then instructs the computer to download mining software called Coinhive, which is used to secretly mine for cryptocurrencies, using up to 80% of the CPU of the infected computer. Up to 55% of businesses worldwide are thought to be affected by stealth mining programs launched via malware.
  • The first cryptocurrency pegged to the US dollar, Tether (USDT), is accused of generating several million dollars of its coin off-the-books in what is being called a conspiracy to artificially raise the price of BTC. Tether, and one of its major backers (long-time bitcoin exchange Bitfinex) are accused of working in tandem to increase the price of bitcoin, as Tether is often used for bitcoin purchases in place of fiat currency or other coins. Though Tether did confirm they have an amount of cash on hand equivalent to the amount of USDT issued, their recent falling out with auditors has some speculating that their books are unbalanceable due to the influx of “un-backed” coins.