The Curious Consequences of the Crypto Collapse

Let me state from the start that I am crypto agnostic. I have no strong feelings about whether crypto should or will succeed, fail, or take some third track. What I do feel strongly about is that crypto and the technologies behind it are fascinating, whether as tomorrow’s emerging breakthroughs or today’s false promises (or both).

So it has been interesting to observe the continuing crypto collapse, which has seen coin prices plummet for months amid more than a few high-profile failures. Crypto evangelists are circling the wagons (while secretly sweating). The naysayers, meanwhile, are celebrating the situation as proof they were right all along (while doubting this is actually the end of crypto). No matter which side you fall on, right now looks like a big moment in crypto history – and what happens next is anyone’s guess.

My powers of prognostication are no better than anyone else’s. But as a close crypto observer, I have noticed some odd effects during the recent downturn that, in one way or another, will undoubtedly impact the future of crypto. I want to use this blog to highlight a few of those, then turn it over to the community to unpack what exactly they mean.

Cyber Criminals Take Downturn in Stride

The value of Bitcoin has dropped more than 60% so far in 2022 and plunged 32% in just June. Since Bitcoin is the preferred way to pay ransomware demands, you might expect the huge price drop to impact the criminals behind these attacks. And you would be right – but the results hardly inspire optimism.

Cheaper Bitcoin simply leads attackers to demand more of it – no surprise there. Price drops are bad for people who treat Bitcoin as an investment. But for those who treat it as a fiat currency, the exchange rate hardly matters at all. Ransomware remains as lucrative as ever.

So how to explain the 20% drop in ransomware recorded between Q1 and Q2 2022 (basically in parallel with the crypto collapse)? The disruption of the Russian ransomware gang Conti accounts for a lot. There has also been a recent rise in business email compromise (BEC) schemes, which forgo cryptocurrency but, more importantly, yield higher profits historically.

Crypto volatility creates some extra challenges for hackers, certainly. But recent history proves that swings (or collapses) in crypto will not lead to fewer attacks or lesser losses. As often happens in cybersecurity, the risk changes, but it does not go down.

Crypto Technology Comes Under Scrutiny

Crypto has always had its skeptics, of course, but they are suddenly getting a lot more attention, credibility, and funding than they did before. Just one example is research highlighting numerous flaws in blockchain technology and the philosophy behind it. The research proposes several ways that blockchains are neither decentralized nor immutable, as their proponents claim. The research also shows that 21% of blockchain nodes (the infrastructure of the blockchain) are running an old, vulnerable client, creating a target so obvious it begs to be attacked.

People have criticized crypto in the past – since its inception. But those criticisms were often economic or ethical in nature, not technological, and they were rarely given a platform on NPR (or other major outlets) like the research above. People debate the value of investments all the time. But if the crypto conversation starts to focus on the strengths and weaknesses of the underlying technology instead, as appears to be the case, it could change the trajectory dramatically.

The Resistance Gets Organized and Aggressive

A group of 1500+ computer scientists, engineers, and technologists sent a letter to Congress in early June questioning the value of blockchain technology and calling for stricter crypto regulation. They don’t mince words; the letter paints a bleak picture of the crypto ecosystem and suggests that things will only get worse.

What effect, if any, this will have on Congress is unknown. Still, the size of the group behind the letter along with the strength of their language suggests that opposition to crypto is getting larger and more organized. And coming from some interesting sources; the blockchain research highlighted above was sponsored by DARPA. It’s too conspiratorial to call this “the establishment” fighting back against the crypto insurgents, but it’s nonetheless interesting to consider how the Defense Department and the government more broadly might think about blockchain moving forward. If they’re not on board, will anyone else be?

It’s too early to tell. And the same goes for crypto as a whole, which could conceivably bounce back from this dip to reach new highs...or crash and burn completely. Either way, crypto will face stronger opposition and possibly more regulation from here out.

As a crypto agnostic, I think that’s the best possible consequence of the crypto collapse. Good ideas will survive scrutiny and skepticism, while bad ideas will get exposed and eliminated. Whatever remains of crypto and blockchain after that is, hopefully, the best it has to offer. I, for one, can’t wait to see what that looks like.

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