Source: ARK Disrupt Issue 127: June 4, 2018. By @wintonARK

A handful of cryptoassets has been attacked successfully over the past month. Hackers have exploited Verge, a small privacy-focused coin, twice, both times accelerating coin issuance and stealing coins worth millions of dollars. Ironically, Verge had introduced complexity into its protocol to address perceived weaknesses in Bitcoin’s security and decentralization model, but the hackers were able to exploit the new security features, forcing Verge’s team to attempt a patch. Complex systems fail in complex ways, and Verge is a classic example of added complexity increasing the potential for attacks.

While the Verge hack illustrates the hidden cost of complexity, other attackers have focused on blockchain assets that are sub-scale. A well-known hack against cryptoassets is a 51% attack, in which a nefarious actor dominates the network’s mining power and, effectively, spends the same coins twice. Because of its scale, Bitcoin’s blockchain enjoys some measure of protection against this risk, as an attack would require billions of dollars in mining equipment and, if successful, would push the value of both the currency and the mining equipment into a downward spiral. Smaller cryptocurrencies using the same mining algorithms do not enjoy the same measure of protection. An attacker can target smaller networks without putting the value of their mining equipment at risk. Bitcoin Gold, a currency that forked from bitcoin and now is worth almost $800 million, seems to have suffered this fate, experiencing several 51% attacks during the past week.

Unsurprisingly, these attacks are increasing in frequency. Suffering from choppy price action and questions about the underlying value of cryptoassets, attackers seem to be looking for returns on capital in the absence of asset price appreciation. While the networks under attack haven’t paid much of a price thus far, market participants are unlikely to remain tolerant if the scale and frequency of these exploits increases.

View original article and other research here.


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ARK’s statements are not an endorsement of any company or a recommendation to buy, sell or hold any security. For a list of all purchases and sales made by ARK for client accounts during the past year that could be considered by the SEC as recommendations, click here. It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities in this list. For full disclosures, click here.

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Fred Pye

Frederick T. Pye

CHAIRMAN, CHIEF EXECUTIVE OFFICER & DIRECTOR

Frederick T. Pye is the Chairman, Chief Executive Officer and Director of 3iQ Corp. He is also the Chairman and Director of 3iQ Digital Holdings Inc. Mr. Pye is recognized for creating and promoting creative and unique investment products for the investment industry.

Mr. Pye has managed private client portfolios with Landry Investment Management and various other investment dealers. Prior to this Mr. Pye was Founder, President & Chief Executive Officer of Argentum Management and Research Corporation, a company dedicated to managing and distributing quantitative investment portfolios including the first long-short mutual fund in Canada.

He was also Senior Vice-President and National Sales Manager of Fidelity Investments Canada and an integral part of the team that saw assets rise from $80 million to over $7.5 billion in assets under management during his tenure. He also held various positions with Guardian Trust Company, which listed the first Gold, Silver and Platinum Certificates on the Montreal Exchange.

Mr. Pye obtained a Masters in Business Administration from Concordia University.