Headline:  What is Wormhole in the world of cryptocurrency?

Body:  OK I will admit, I used to be a fan of Star Trek Deep Space 9.  There, I said it.  Most memorable is the beginning of the show where they would illustrate 2 black holes in space, connected by some kind of tunnel.  This kind of arrangement would ostensibly allow a space ship to flay faster than light, and go from one area of space to one VERY much further than could be reached under normal circumstances.  (This is assuming that one’s ship could withstand the immense gravitational fields and other phenomena related to a black hole.)  All of that aside, the idea is of linking one area of space directly to a VERY distant one is attractive.  The Wormhole is one of the world’s best-known bridges.

This was the idea behind Wormhole.   In this process, normal BTC is tokenized, and these tokens are transferred to other appropriate blockchains.  The large difference will be that the cryptocurrency is based on currency native to that blockchain, not a wrapped version of BTC.  This is considered a canonical token. In effect, ETH is held as collateral to back the purchase of Solana or other cryptocurrency.  This is supposed to make cryptocurrency much more interoperable. 

Recently, there was an exploit, using the Wormhole functionality.  As a result of this security flaw, hackers made off with $325 Million.  This bug seems to have started because of an update of the GitHub repository.  (This appears to be a conduit for distributing code updates to participants.)  This is interesting to me because the hacker who did this was offered an honest $10 Million bounty to reveal to developers where the bug was.  For now, it remains unclear where they will obtain the needed $325 Million to reimburse users.  Interestingly, the stolen cryptocurrency went to one central wallet, and regulators and other “net good citizens” are watching carefully for any action within these wallets.  (The authors helpfully supply the public keys for 2 of the main wallets affected.)

The Verdict

The point that keeps being made is that there is always a tradeoff between usability and security of cryptocurrency.   This is to some extent true, but, I think it is overblown within the cryptocurrency space.  I do not know anything about coding, but it seems that if the developers test their software more extensively, they  might be able to minimize the impact of these exploits in the future.





Editor’s Note: Please note that the information contained herein is meant only for general education: This should not be construed as Tax Advice.   Personal attributes could make a material difference in the advice given, so, before taking action, please consult your tax advisor or CPA.


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