Data Sheet—Saturday, June 3, 2017

I barely made it past the turnstiles at last week’s NYU Token Summit, a day devoted to those weird new digital assets that are all the rage in financial tech right now. (I know; I’ve been covering a number of similarly themed events lately.)

It struck me, as I watched dozens of ticket holders get turned away from the oversubscribed event, that there was perhaps no better symbol of the speculative mania we’ve been witnessing in recent weeks than the sight of 70 would-be attendees sadly zip up their rain jackets, reverse course, and trudge home from an event that, not so long ago, would have been attended by few people. (William Mougayar, the summit’s organizer and a partner at the Toronto-based investment firm Virtual Capital Ventures, told me he would be forced to refund around $20,000.)

In case you’re just tuning in, tokens are a kind of digital currency built on blockchains, the innovative accounting technology that first made Bitcoin possible. Nowadays, most tokens are minted on Ethereum, a rival network that aims to create a virtual computer distributed across a swarm of volunteer machines. Lately entrepreneurs have been using Ethereum to coin their own digital currencies and sell them directly to the public. So far the tactic has been working: The market capitalization for all cryptocurrencies exceeds $90 billion today. Bitcoin accounts for less than half of that sum.

Depending on your perspective, tokens either herald the next wave of the Internet, or conceal a scam-riddled tulip garden. Advocates like Chris Dixon, the investor at Andreessen Horowitz, have described the technology behind tokens as “a breakthrough in open network design.” Critics, like Izabella Kaminska, a writer at the Financial Times, have disparaged it as a “Ponzi machine.” Probably both are right.

One thing both sides can agree on: We’re in the midst of a cryptobubble. Speculation, not utility, is driving an outrageous purchasing frenzy. This was made clear when Mougayar, one of the Token Summit’s hosts, polled the crowd on how many people own tokens. Essentially everyone—more than 500 people—raised a hand. How many people actually use them for something other than trading? About 10 hands went up.

Nevertheless, the most ardent believers take a longer term view. As Olaf Carlson-Wee, founder of the hedge fund Polychain Capital and a bull in the market, told me during a cocktail hour after the event, “It’s only a bubble if it crashes.”

Robert Hackett

@rhhackett

robert.hackett@fortune.com

Welcome to the Cyber Saturday edition of Data Sheet, Fortune’s daily tech newsletter. Fortune reporter Robert Hackett here. You may reach me via Twitter, Cryptocat, Jabber (see OTR fingerprint on my about.me), PGP encrypted email (see public key on my Keybase.io), Wickr, Signal, or however you (securely) prefer. Feedback welcome.

THREATS

Google fishes for phishers. The search giant has been adding a slew of anti-phishing protections to protect customers from booby-trapped emails designed to dupe people into revealing passwords or load malicious software onto their computers. One such technique involves delaying the receipt of some messages so that the company can apply extra scrutiny. Google said that machine learning technology allows it to detect spam and phishing emails with 99.9% accuracy. It's that last 0.1% that's the problem. (Wired, TechCrunch)

Shadow Brokers: Click here to unsubscribe. A group of security researchers spun up a crowdfunding campaign on Patreon to raise the $22,000 ostensibly needed to subscribe to a monthly exploit dump service by the mysterious (albeit widely believed to be Russian) hacking group called Shadow Brokers. The researchers abruptly canceled the controversial campaign and promised to return contributors' money after a lawyer advised them against proceeding. Many security experts have questioned whether the Shadow Brokers' claims of an upcoming subscription service are legitimate, given that the group's earlier commercial endeavors, including a Bitcoin auction for hacking tools, seemed more like a PR stunt than anything else. (Reuters, Vice Motherboard, Ars Technica)

Shackled in the brig, forever. Ross Ulbricht (known by the alias "Dread Pirate Roberts"), creator and operator of Silk Road, an underground drug marketplace associated with the rise of Bitcoin, lost the appeal of his life sentence on Wednesday. The court dismissed Ulbricht's arguments, which included a contention that law enforcement surveillance of his online accounts, as well as the confiscation and search of his personal laptop, were unconstitutional. He will remain locked up without parole. (Reuters, Wired)

Data breach roundup. An attacker stole customer data from OneLogin, a password manager, that can be decrypted. Some of Kmart's payment systems are infected with malware. An employee at Booz Allen Hamilton accidentally left 60,000 files (including passwords to a government system containing sensitive material) on a publicly accessible Amazon server. And a Vietnamese hacker group left foreign intelligence out in the open, including a transcript of call between Philippines President Rodrigo Duterte and President Trump.

In other news, if you would like to be a spy, take up knitting.

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A contributor piece to highlight this week: Jerry Brito, executive director of Coin Center, a non-profit digital currency think tank, proposes a few simple policy fixes United States regulators should undertake to keep the country on the cutting edge of cryptofinance.

Many applications of digital currencies like Bitcoin don’t fit into traditional legal buckets and some legal concepts may need to be rethought. If a regulator tries to apply old legal concepts to this new technology, companies that were never intended to be covered by existing laws could find themselves in a costly grey area. Fortunately, there are concrete steps that the U.S. government can take to ensure the country’s competitiveness in this booming sector. Read his three proposals on Fortune.com.