Friend or Foe: Should I have security concerns with Cryptocurrency?
In the movie Goldfinger, the main villain, Auric Goldfinger, devises a plan to create a worldwide economic crisis by robbing Fort Knox, the most secure vault in the world. The vault houses the United States’ entire gold reserve (or what’s left of it). His plan, while difficult to execute, is pretty straightforward – the world’s financial systems were so centralized at the time, you could essentially trace them back to a single building, and bring the financial system to it’s knees simply by raiding one vault.
You could say this over centralization is what inspired Satoshi Nakamura to create Bitcoin, the world’s first ever cryptocurrency. In general, centralized money is not safe, and the people who get the short end of the stick (like in an economic crises) are the people at the bottom of the financial food chain.
These distributed decentralized currencies are held and maintained by the people, thus making them safer. But, are they really safer? Is distribution more secure than centralization, or are the concerns more fitting to a pulp spy movie from the 1960s than 2017s technologically advanced age?
Let’s take a step back and ask ourselves – what is cryptocurrency? In the simplest of terms, cryptocurrency is a digital currency that’s regulated through encryption and transfer verification, rather than a central bank or government. In some cases, like Bitcoin, there’s also a finite amount of the tokens that can ever be created. These two things give cryptocurrency something no previous digital currency has ever had – an inherent value, and absolutely no governing body.
The encryption and verification of transfers (or other actions) happen across multiple computers around the world at the same time, meaning no one person controls it, and the process is completely democratic. The process of doing this creates the coins themselves and is called “mining.” Basically, if someone is mining Bitcoin, they’re in fact helping verify Bitcoin transactions.
Mining for Bitcoin has become a very profitable business. Because Bitcoin is related to encryption, the more Bitcoin is mined, the harder it is to mine Bitcoin since the encryptions become harder and harder. So, while in the beginning, all you needed to mine Bitcoin was a run of the mill laptop, now, to do it effectively, you need a dedicated server, otherwise known as a Bitcoin mining machine.
This brings us to the first problem with Bitcoin. Big power players and Bitcoin mining farms can affect the market in volatile ways, making it susceptible to safety issues in regards to the actual value of money. No regulation can sometimes lead to anarchy, and that is something we can somewhat see already with today’s current nature of Bitcoin’s value.
The lack of oversight, basically means this is money that can never be tracked or confiscated, making it the perfect tool for amassing personal wealth when performing illegal acts. Bitcoin is commonly used as the currency of choice for online drug dealers, weapon traffickers, and even terrorists. Whenever you have shady characters such as these so heavily involved in a business, this could affect the currency itself. Meaning, if drug dealers have a majority stake in Bitcoin, and suddenly the price of heroin drops due to government intervention and the war on drugs, the value of Bitcoin itself can be affected.
Another major danger of Bitcoin is the way you interface with it. You use apps called “wallets” to access whatever Bitcoin you may have, purchase new Bitcoin, or transfer Bitcoin around to your contacts.
These apps, unlike, for example, mainstream financial apps, have no safety regulations whatsoever, and some of them are easily hackable. If someone hacks your wallet app because the system is decentralized, there are no laws, and there is no enforcement or even insurance. You will simply have to rely on the kindness of those the funds were transferred to in order to regain your stolen Bitcoin.
Every Bitcoin account has an identifying password – and that’s that. It’s a random collection of words or letters or numbers – you can never change it, and you can never recover it. If someone else gets ahold of it, they have full access to your Bitcoin account and there’s not a thing you can do about it.
Bitcoin lives outside of the law, and as such, it does not enjoy the protection of it, making this decentralized financial system a Wild West when it comes to theft, bad faith, and unlawful financial transactions. Bitcoin is the top currency used in the Dark Web with millions of dollars exchanging hands each day.
Cryptocurrency in general, and Bitcoin specifically, is a double-edged sword. It’s appeal as a decentralized currency also signifies its greatest failings, and when it’s up to the public to regulate itself, history has shown, they do a pretty bad job at it. There could be a solution, however. Maybe the next Cryptocurrency will have an AI-based enforcement mechanism, and safer regulations on wallets and uses of the currency. Currently, it may just be safer to put your money beneath your mattress, than in your Bitcoin wallet.