In the space of an hour, a hacker destroyed Mat Honan’s entire digital life…

The hacker managed to get hold of Honan’s email address. Then used his email address to acquire more personal info. And with that, the hacker gained access to Honan’s accounts.

First, the hacker took over Honan’s Google account and deleted it. Then, he took over his AppleID account and erased all of the data on his iPhone, iPad, and MacBook.

Next, he targeted his Twitter account and used it to broadcast racist and homophobic messages.

Honan is not the only person to suffer a devastating breach of his personal data like this. And just this month, it happened to 533 million others.

The number is mind-boggling. It’s 7% of the entire population of our planet. Or the equivalent of the combined populations of the United States and Brazil.

The target of the hack… Facebook users.

In this case, hackers stole phone numbers, full names, locations, email addresses, and biographical information. Even worse, they posted the information on a hacker forum for free.

As the world’s largest social network, Facebook has an abundance of your personal information… which makes it a honeypot for hackers.

And that’s a huge problem.

With just a little bit of information, hackers can take over your accounts and potentially ruin your digital life and more… just like they did to Honan.

That’s because internet security is ineffective. And it has to do with how the internet is structured today. It has a “thin” protocol and “fat” application design.

In the technology world, a protocol is a set of rules. For the internet, it’s TCP/IP. Nobody owns these protocols. Applications, or apps, are computer programs that run specific tasks.

Apps include simple programs like calculators, clocks, and word processors… to mobile apps like media players, games, instant messengers, and maps. Most internet security is at the app level. But what if we could secure our data and value at the protocol level?

And what if that protocol was one of the most secure networks in the world?

Protocols and Applications

As I mentioned above, a protocol is a set of rules. And apps are computer programs that run specific tasks.

The TCP/IP internet protocol is what’s known as a “thin” protocol. TCP stands for transmission control protocol. And IP stands for internet protocol.

Without getting into the weeds, TCP/IP establishes a connection between two users so that they can send messages back and forth on the internet.

No one owns these protocols.

But according to a Harvard Business Review article, more than half the world’s most valuable public companies have built business models on TCP/IP. That’s $5.4 trillion in value traced right back to a basic internet protocol.

And many of these companies have also built out their own apps. Examples include Google’s YouTube, Facebook’s Messenger, and Microsoft Word.

These companies own their applications. They accrue all the data and value from them. And they’re responsible for their security. As Facebook’s recent hack shows us, that’s not very reassuring.

And the design of these apps is the problem. The way the internet is structured, apps become centralized honeypots of data for hackers. That’s what makes them so insecure.

Think about it like this: Say you had $1 million, and a bank gave you two options to secure it.

The first option is to put the entire $1 million in a single lockbox in a bank vault. And the second option would be to divide your money across 100 secured lockboxes and put them in bank vaults across the world.

If all the bank vaults are the same, then the second option is much more secure. But the first option is how most of today’s apps operate. A single, centralized location containing all the valuable data.

That’s why Facebook’s data breach was so damaging. Once hackers got in, they had access to everything.

But during the internet boom, most of the value came from investing in companies that created these marginally secure apps… not the protocols behind them.

That’s why we call them “fat.” The profit was in the apps, not the “thin” protocols.

But what if we had fat protocols and thin applications? And what if instead of one location holding all the valuable data, it was spread out across multiple locations?

The value would accrue to the protocol. And today, that’s possible with the blockchain.

Turning the Internet Model Upside-Down

A good example is crypto’s No. 1 smart-contract protocol, Ethereum.

No other platform can boast the numbers Ethereum can.

Its market cap of $266 billion is more than double its closest competitor. Its 148 million unique addresses is more than any other platform. And now, it does almost 1.6 million transactions per day – more than any other blockchain, including bitcoin.

On top of that, it’s the leading protocol for decentralized apps (called “dApps”). Nearly 80% of all blockchain dApps are built on Ethereum.

One of the primary reasons projects choose Ethereum is for its robust security.

Whereas traditional apps store their data on centralized servers or networks… most dApps use the Ethereum blockchain for data storage.

That means the data is replicated across all the nodes in the network. And each node verifies all the transactions and data in the network. It’s like dividing your $1 million across 100 lock boxes and stashing them in safes around the world.

So to get to the data, you’d need to take over the entire Ethereum blockchain. And that’s a daunting and practically impossible task.

A hacker would need to take over at least 51% of the network. That means buying billions of ETH on the open market. And then gaining control of thousands of nodes (the computers that keep a record of and/or verify ETH transactions) in the Ethereum blockchain.

The price of ETH would likely rise as the hacker buys. And it wouldn’t go unnoticed by the vibrant Ethereum community, which undoubtedly would try to thwart any takeover attempts.

The cost is simply too high relative to the payoff.

That’s why dApps are the future. They’re way more secure than traditional apps in that the value or data they access is spread out across thousands of locations.

It’s a huge opportunity…

In theory, all traditional apps could migrate to the blockchain. And we could see the value that now goes to companies such as Facebook go to blockchain protocols such as Ethereum.

The world’s largest internet companies are collectively worth over $7.5 trillion today, while the arguably more secure Ethereum is worth $266 billion.

With hacks like Facebook’s becoming ever more prevalent, we don’t think users will be hesitant when better blockchain alternatives arrive.

So if you don’t own any Ethereum today, consider picking some up. At around $2,300, it still has some room to run before it hits our $3,000 recommended buy-up-to price.

Because as more centralized platforms are compromised in the coming months and years – and it will keep happening – the greater the appeal and shift toward Ethereum will become.

Regards,

Greg Wilson
Analyst, Palm Beach Daily