There’s a new wrinkle in the story of one of the largest data breaches in history. The hack of Equifax may have compromised the personal data of one in five Americans. The hackers have now demanded a ransom with the threat of releasing that information to the commercial marketplace (“monetizing the information”).
They are demanding 600 Bitcoins, which is worth about $2.4 million.
“We are two people trying to solve our lives and those of our families. We did not expect to get as much information as we did, nor do we want to affect any citizen. But we need to monetize the information as soon as possible.”
All told that is not a high price for this company, given the stakes. If it is paid, it will happen quietly. And at that point, presumably, the newly minted millionaires will have sold the data back to its rightful owners and will move on with their lives.
Keep Your Dollars
But note that the hackers did not demand dollars. They did not demand euros. They did not demand gold, silver, or diamonds. They demanded a digital currency that didn’t even exist 10 years ago. They demanded what is now correctly described as the most valuable currency in the world.
One response might be: of course they demand bitcoins, because this is the preferred money of the criminal class. If that is true, we might reflect for a moment on why that might be so. Cryptocurrency is not anonymous, contrary to what people think. All transactions exist on a public ledger, so you can actually follow transactions around, even if you can’t easily discover the identity behind the movement.
So what’s the appeal? It is a global currency that works in every nation, thus removing the costs of converting one national money to another. It is lightweight and portable in a way that cash or gold are not. It can be moved quickly at very low cost.
But can’t you do this with dollars using electronic payment systems? Contrary to what you see in Hollywood movies, consumers can’t move millions or even hundreds of thousands of dollars using any existing technology. And you can’t even move a few thousands of dollars without using a financial intermediary based on some trusted relationship. Forget PayPal or Venmo. Not even Google Cash can do this.
Like Real Property
Bitcoin is completely different. Its built-in payment system works peer-to-peer. You get settlement of the transaction without being permissioned in by some centralized force. Once the transaction is confirmed, it is done, as if physical property were handed from one person to another. And it can take place without regard to geographic proximity.
The trouble with centralized networks is highlighted by the Equifax compromise itself. Is it any surprise that the criminal class prefers it as the best way to extract ransom? That fact should tell us something about the future of this currency. That people who specialize in moving large amounts of cash around the world quickly prefer it to every existing national money points to what the future of money looks like.
Why Bitcoin and not one of the thousands of other cryptoassets that are out there? Bitcoin has become the base money of the crypto world, the standard by which all the others are measured and into which everything else is converted. That may not be a permanent condition, but it is where we are today.
Consider all the features of money (fungibility, divisibility, portability, durability), and add to them being weightless and spaceless, and you already have the highest quality currency in the world today. But there’s another factor that works in favor of cryptocurrency: it lives on a decentralized network. And this network is capable of doing much more than enlivening a new type of money.
The trouble with centralized networks is highlighted by the Equifax compromise itself. Once a hacker gets in, there is no end to the mischief he can cause. This is because there is a central point of failure. This is also true for all financial intermediaries. We just have to trust that their security systems are solid, and, if they are not, we have no real recourse.
In decentralized networks, there is no single custodian of the data. It is observed in operation by anyone and everyone, and it cannot be compromised in whole just because one code slinger made a mistake. A decentralized network provides the maximum in security for this reason.
Might there be some blockchain-style solution to the problem that our financial data is being held by these highly centralized corporate entities? If such a solution does exist, it will be found within the frameworks being developed today. The Equifax hacking illustrates the need for change.
And it also illustrates the value of the leading currency unit. Pay attention to the preferred denomination of ransom money, and you see the future of money and payment systems.