It was the Òrst recorded “bank robbery” over a computer network.
In 1994, a young Russian scientist working on a laptop in London hacked
Citibank’s online network. The young scientist and his cohorts made o×
with $10.7 million.
Citibank Fraud Case Raises Computer Security Question
When it came to the early online shopping market, that simple New York Times headline fueled
consumers’ fears of doing business on the internet.
What you may not know is in the early days of the internet, consumers were terriÒed to shop
online. After all, if Citibank couldn’t protect itself from hackers… what hope was there for the
average Joe?
Because banks weren’t the only ones getting hacked. Hackers were ripping o× consumers, too.
In the earliest online shopping scams, fraudsters set up dummy online stores that looked
perfectly legitimate. They’d collect orders and payments… then run o× with the money.
The scams led to a complete lack of trust in internet shopping. You had no way to know if the site
you visited was legitimate.
In the mid-1990s, heavyweight opinionmakers like Computer World magazine dismissed online
shopping because of these Óaws.
The magazine called online shopping just another part of the “infohypeway,” a derogatory pun on
“information superhighway.”
However, others looked for a security solution. They realized online shopping would eventually
be the future of commerce.
In 1994, analysts at banking giant UBS told Reuters that someday, consumers could spend as
much as $5 billion per year online.
But those numbers could never be hit without a leap forward in security. It was a big problem
that gave birth to one of the biggest winners of the 1990s… a company called Verisign.
Verisign created digital certiÒcates that proved a website was legitimate. It also provided proof
that a website employed encryption.
When online shoppers visited a website, they’d know it was the real deal if it displayed the
Verisign checkmark. If you use the internet or shop online, you’ve probably seen this seal of
approval:
Verisign eventually became the most trusted name on the internet. And it emerged as the leader
in website security.
The adoption of Verisign’s security solutions helped spur online commerce growth from virtually
zero dollars in 1994 to an expected $653 billion in 2018.
Today, more than 9% of all commerce happens online. This level of online trade was unthinkable
in the 1990s.
It was Verisign that laid the groundwork for widespread consumer adoption of online shopping.
Solve Big Problems = Make Big Money
Verisign made its shareholders rich by solving one of the biggest problems of the 1990s: internet
security.
Verisign’s market value exploded from $100 million in 1998 to almost $27 billion in 2000. That’s a
26,900% increase.
I never owned Verisign in the ’90s.
I didn’t understand just how important its service was. This was a huge mistake. If you missed
Verisign as well, please pay special attention. I’ve found your second chance to own the Verisign
of the crypto space.
It’s a small project that’s solving a similar security problem on the blockchain. It has a market
value of just $150 million. But over the next three to Òve years, it could be worth over $15 billion.
That’s 100 times higher than its current price. That’s enough to turn $400 into $40,000. This is a
classic Palm Beach ConÒdential asymmetric-risk investment.
Asymmetric means your payo× is so large, you only have to risk a tiny amount to make
meaningful money.
I’ve learned that if you want to make big money from small money, you have to Ònd early-stage
projects solving massive problems. One of the largest problems facing the crypto space today is
security.
Every Crypto Investor’s Nightmare
At 2:33 p.m. on Monday, November 6, 2017, 587 lives changed forever.
A hacker blocked access to as much as $740 million worth of cryptocurrency. A small Óaw in a
“smart contract” code allowed the hacker to make the funds inaccessible to anyone (including the
hacker).
[Smart contracts are computer protocols that verify, facilitate, and enforce the negotiation of an
agreement. The protocols allow the execution of agreements without involving a third party, such
as a lawyer or agent.]
On July 20, 2017, a one-word mistake in the code of the Parity crypto wallet led to the draining of
527,000 ether coins. 377,000 coins were later returned by so-called “white hat” hackers (good
guys). But 150,000 coins were lost forever to “black hat” hackers (bad guys).
Based on ether’s peak valuation of $1,415 per coin, hackers stole $212 million. And $740 million
worth of peak-value coins remain unrecoverable.
That’s not all…
On June 17, 2016, a hacker exploited the code of another Ethereum smart contract called the
DAO (decentralized autonomous organization). The hacker would have made o× with $55 million.
What stopped him? The Ethereum network changed its computer code to invalidate the attack.
Essentially, it was a bailout for coin holders.
The code change incensed a large part of the Ethereum community. It was so contentious, it led
to a split in the Ethereum blockchain. That’s why we now have Ethereum (pro-bailout) and
Ethereum Classic (anti-bailout).
That split almost killed Ethereum. The price of ether dropped as much as 85%. The split severely
compromised trust in the project.
Given the upheaval caused by the DAO hack, it’s unlikely we’ll ever see a blockchain change its
codebase to bail out users again.
The Security Problem Is Only Getting Bigger
Today’s security problem arises from programs that govern the use of and access to the crypto
funds held on blockchains like Ethereum: smart contracts.
Smart contracts automatically execute and enforce agreements.
The terms of the deal are written into computer code. When the terms are met, the smart
contract automatically executes.
Just like websites in the early 1990s, smart contracts are full of security holes. One report
suggests as many as 50% of smart contracts have vulnerabilities.
