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WHY ATTACKS ON CRYPTOCURRENCY EXCHANGES SHOW NO SIGNS OF SLOWING DOWN

Ray Pompon, Principal Threat Research Evangelist, F5 networks

 

Hackers have a soft spot for targeting cryptocurrencies thanks to a lack of heavy regulation unlike traditional financial services. Cryptocurrency funds have no legal obligation to implement protection measures, so inherently they are not as exhaustive or technical. This makes them prime targets for hackers. Transactions can be extremely difficult to reverse, so although some funds cover customer losses, the reality is that if the exchange stretches into the millions, they have no obligation to help.

 

Bitcoin is now worth $3.5k, despite major fluctuations in value. For perspective in 2011, Bitcoin had parity with the US dollar, so the opportunities for hackers targeting cryptocurrencies have skyrocketed in recent years. Over the last seven years, F5 Labs has noted an almost twelve-thousand-fold increase in crypto theft and identified 73 major cryptocurrency incidents, each costing on average, a crippling $31 million.

 

Ray Pompon

The victims of cryptocurrency thefts

Many technological services in the cryptocurrency industry are targets for cybercriminals, but the most commonly hit technical services, according to F5 Labs research, are cryptocurrency exchanges (63% of incidents). These are the digital equivalent of currency exchanges enabling customers to buy or sell various cryptocurrencies, making them an obvious nexus for high value transactions.

 

Cryptocurrency uses storage mechanisms called wallets, of which there are two kinds. A “hot wallet” is Internet-connected and used to store cryptocurrencies used for day-to-day transactions –  basically the equivalent of your real-life wallet. Hot wallets can run on cryptocurrency exchanges for easy trading, but they can also run as client software on a computer or mobile device. As a result, hot wallets are more likely stolen by cyber-criminals.

 

To reduce the risk, cryptocurrency technology also leverages “cold wallets” that are not connected. The best cold wallets are air-gapped systems, such as a USB stick with a strong password. Within cryptocurrency exchanges, cold wallets exist as separate, strongly-encrypted databases requiring a wallet owner to unlock it with a private key. Of the known attacked technologies, hot wallets within exchanges are ripped off three times as much as cold wallets. Wallet software for clients that is outside of an exchange can also be attacked. These incidents currently represent around one seventh of all cryptocurrency thefts.

 

Mining services are another potentially hackable cryptocurrency technology, although this is a relatively rare occurrence.

 

What does the future hold for protecting cryptocurrency exchanges

Applications are complex conglomerations of interacting services in a variety of environments, glued together with APIs, authentication credentials, and networks. This means they have an extensive attack surface and therefore need extensive security testing and protection.

 

Regulating the cryptocurrency industry is finally becoming a priority for governments around the world, and some have already begun defining cybersecurity measures. For instance, many countries are looking at Korea Regulation 5.5.7 (Regulation on Supervision of Electronic Finance) as one of the leaders in this respect, as it treats cryptocurrency exchange cybersecurity measures in the same way that a financial institution would. This is an example that should be followed and embraced, as one of the most effective ways to protect cryptocurrency exchanges, especially if the cryptocurrency industry continues growing at its current rate.

 

 

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Finance

‘MOVE FAST BUT DON’T BREAK THINGS’ – WHY FINTECHS WILL COME TO LOVE REGULATION

move fast

Alex Johnson, Director of Portfolio Marketing, FICO

 

The guiding ethos of fintech is move fast and break things. It’s the fundamental advantage that disruptors have over the incumbents they’re disrupting — the ability to move quickly and make mistakes, learn from them and deliver innovative services to customers. Generally, this ethos is presented as a virtue. Banking is ‘broken’ so any investments in improving it are both notable and noble – even if there are bumps along the way.

Conversely, anything that stands in the way of this ‘march of progress’ is generally cast as a villain.

The most prominent villain for fintech companies is regulation. From their perspective, it’s a competitive moat, based on rules written for a different century, that protects banks’ ability to make money without needing to innovate and offer more or improved services to their customers.

So, it’s easy to see why a fintech company — believing fully in the virtue of its mission and faced with a litany of illogical and intractable regulations — might just say ‘we’re doing it anyway.’ That’s what Robinhood co-founder Baiju Bhatt reportedly did when his company tried to roll out a checking and savings product that it claimed was insured without confirming that with regulators first.

The problem is that while we may mythologise the ‘move fast and break things’ ethos in the abstract, consumers don’t love it when their stuff breaks in the real world.

And when fintechs and challenger banks aren’t constrained by regulation (as they mostly are in the U.S and Europe) the harm caused by this ‘move fast and break things’ approach can be much more severe than a service outage or a false claim of deposit insurance.

 

Stories from overseas

In China, online P2P lending exploded in popularity, with the number of P2P lenders growing from 50 in 2011 to 3,500 in 2015. Then the whole industry imploded when it was revealed that 40% of P2P lending platforms were Ponzi schemes.

In India, online lending companies raised a record $909 million in venture capital last year (the third-biggest market behind the U.S. and China). And those lenders are now using personal data from borrowers’ mobile phones to make lending decisions – which although illegal, is reportedly ignored by Indian regulators.

In the Philippines (another emerging market where venture capital dollars for online lending are pouring in), the National Privacy Commission is investigating hundreds of complaints from consumers about lending apps leveraging their personal data to shame them into making their payments.

 

A prediction for the decade to come

In the 2020s, I believe fintech companies will come to love – or at least quietly appreciate – regulation for two primary reasons:

 

Brand protection

Fintechs and challenger banks understand that brand recognition and affinity is key to their long-term success. Building their brands will be a challenge. A recent survey of 2,000 Brits found 40% don’t trust challenger banks at all and 67% said they are more likely to do business with banks that have branches on the high street. As Zach Bruhnke, co-founder and CEO of U.S. challenger bank HMBradley recently said, ‘We’re going to have to grow by word-of-mouth and doing the right things for our customers.’

Fintechs and challenger banks focused on the long-term task of building brand affinity and trust will, over the next decade, come to despise bad actors that skirt the rules and dress up get-rich-quick schemes in the same language they use to describe their own firms. Regulations that constrain and/or shut down these bad actors will be increasingly appreciated by legitimate market participants.

 

Disruption-friendly regulations 

In the 2010s, we saw the beginning of a trend that will strengthen in the 2020s — regulations designed to foster competition between incumbents and new market entrants. To date, such regulatory action has run the gamut, from vague (innovation sandboxes and special-use charters) to hyper-specific (U.S. regulators’ cautiously approving the use of alternative data, or the Bank of England considering giving non-banks access to its 500-billion-pound balance sheet). Perhaps, most promising, has been the work done by the Competition and Markets Authority (CMA), which has been proactively driving the adoption of rules and standards around Open Banking for past couple of years. O

ver the next decade, through careful management of public perception and increased investment in lobbying, fintechs and challenger banks will further reshape the regulatory environment from a competitive moat to a more level playing field.

 

Reaching fintech maturity

’As a licensed broker-dealer, we’re highly regulated and take clear communication very seriously. We plan to work closely with regulators as we prepare to launch our cash management program’.

This was the statement issued by the chastened co-founders of Robinhood shortly after they backed away from their plan to launch a checking and savings product without government insurance. And here’s the crazy part — that’s exactly what happened! Less than a year later the company announced a new deposit product, this time insured by the Federal Deposit Insurance Corporation (FDIC).

As fintech companies mature in the 2020s and the focus of their strategic objectives shifts from growth to profitability, regulation will play a vital role in transforming the ethos of those companies into something a bit more sustainable. Call it ‘Move fast, but don’t break things’.

 

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Finance

HOW TO MERGE YOUR FINANCES AS A COUPLE?

Finances

By Nelisiwe Ndlovu, Certified Financial Planner at Alexander Forbes

 

There is never a good time to discuss finances with your partner, married or unmarried, and one key issue that needs to be discussed is whether you should merge your finances.

Joining all your money matters can seem overwhelming at first, so you don’t have to combine every bank account and credit card from the get-go.

 

Start by having an honest discussion with regards to your individual money management and financial commitments before deciding to merge or co-manage your household finances while deciding if you want to fully merge all your finances. Detail all individual income, expenses, and all your financial commitments. The best way to achieve this would be to first take your individual budgets and combine them. This will tell you what you can and cannot afford as a couple. If one partner does not usually budget, this is a chance to start doing so as this will ensure that your household finances are under control.

 

Nelisiwe Ndlovu

Before you think about merging your finances, be open and honest about:

  • How much you earn – what is the income that you will bring home? What is the frequency of your income? Are you permanently employed or a contractor?
  • What are your current individual expenses and financial commitments? List your assets and your current debt.
  • Your individual financial goals and money management techniques – don’t worry if you might have not figured this out at the time of merging your finances – the important thing to do is to be open and honest so that you both build a stronger money foundation
  • Disclose your financial obligations, this becomes very tricky if left until too late and may cause unnecessary tension in the relationship
  • What are your goals as a couple – what is the purpose for merging your finances?

Married couples can formally or informally merge their finances as detailed above where household expenses are split between the couple (the split could be 50/50 or any fair split agreed upon by the couple, which could be based percentage-wise depending on one’s income). Some couples tackle finances by adopting the ‘pick a bill’ approach, where one couple pays the water and electricity while the other covers the food.

Being married does not mean necessarily that you need to have one joint account. You may also just want to open one joint account where you each deposit money to pay just your monthly household expenses.

 

The top five things to remember when merging finances as a couple:

 

  • Have the ability to manage your own finances before expecting another person to merge their finances with you.
  • Be mindful of your potential spouse/life partner’s money management behaviour and skills so that there are certain things you can address together before considering merging your finances
  • Always keep an open line of communication – honesty is the best policy
  • Set a money limit which you can each spend without having to consult each other
  • Don’t forget to change your wills and beneficiaries on pension or provident funds as required.

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