Science & Tech Computer Expert Raises New Concerns for Bitcoin Users E-Currency System May Not Be as Safe as It Appears

UCSB welcomed world-renowned computer engineer, Dr. Emin Gün Sirer, for a free lecture on electronic currencies this week at the SAGE Center for the Study of the Mind. The best known of these systems, Bitcoin, already has a pretty controversial reputation.

You’ve probably heard it mentioned in cases related to online drug markets like Silk Road and Agora. That’s where these e-currencies got their initial popularity; anyone was able to purchase coins from a store with cash. The coins can be kept in a secure online “wallet,” like Coinbase, only the user may access. With a simple exchange, users can trade coins for almost anything online, with very few ways to track the buyers and sellers.

Bitcoins can be used for innocent purchases, but they can also be used to buy things like drugs and weapons from the darknet, a list of websites unregistered with Google and regular Internet domains. As currencies similar to Bitcoin become more common, big companies like Microsoft, Dell, and PayPal have started accepting them.

Sirer, who got his Ph.D in Computer and Information Science from the University of Washington, currently teaches at Cornell University, where he works on peer-to-peer systems. His claim to fame was showing the computer science community how Bitcoin and other e-currencies can be exploited.

Basically, peer-to-peer is a way for computers to network with each other without a central system of control. Crucial to how electronic money systems work, peer-to-peer allows individuals to share computing power and information without being in the same room. As Sirer puts it, “It’s not a coin-based system, it’s a ledger-based system.”

In order to keep a record of all transactions, the community has a massive public “ledger” system with every exchange done through Bitcoin being recorded. As long as 51 percent of users agree with the current ledger, nothing will change. However, if the community decides a certain transaction wasn’t legal, they can simply roll back to a previous ledger.

These ledgers are called “blockchains,” which the community is constantly creating and updating. When someone creates a new successful block, they are rewarded for their hard work. Users can make up to $12,000 for each successful blockchain. But some nefarious users have come up with a way to work on the next chain in secret, stealing the reward at the last minute from the honest users.

At any time, all users should be working off the same block to create a new one. This process wastes an incredible amount of human energy, and it’s where the “selfish miners,” as Sirer calls them, take advantage of the system. By hiding that they’ve already finished the block, they can work on the next one while everyone else is still working on a useless old one. As long as 51 percent of the Bitcoin community follows that block, the selfish miner will receive the reward others should have.

“It’s interesting to watch the libertarian mindset behind Bitcoin clash with reality,” Sirer quipped. He went on to warn that while Bitcoin isn’t inherently bad, users should be cautious when using online systems for money. These concerns keep most people away from them, including UCSB Computer Science grad student Cetin Sahin. “It’s just not trustworthy right now.”

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