Bitcoin Is not Ideal: Inherent Risks of Bitcoin
Three years ago or two years ago, if you asked me what Bitcoin is, I’d tell you it is the future of money. It is managed by the network, not by the government. Plus, it is private, anonymous and fast. It’s just perfect!
Bitcoin is proved very successful. Since its inception in 2009, Bitcoin has attracted increasing media attention, articles in The Economist, TED talks, BBC news. With surging popularity and increasing price, more currency speculators and even ordinary customers who have no idea what bitcoin is are investing in it, hoping to be part of a so-called revolution. Countries like Canada, Philippines and Japan have legitimized Bitcoin as payment method. Central banks worldwide are exploring the potential of Bitcoin and its underlying technologies like Blockchain.
It seems that we have every reason to be optimistic about the future of Bitcoin. But is Bitcoin ready to rock the world? Or is Bitcoin as perfect as you have imagined?
I believe that the very mentioning of bitcoin will remind people of anonymity, but the truth is that bitcoin’s privacy is widely misunderstood.
“While the Bitcoin technology can support strong anonymity, the current implementation is usually not very anonymous.”
The crux of the problem is that every transaction is recorded in the public ledger network and data recorded on it is available to all. Recently, a group called the Large Bitcoin Collider(LBC) claims that it is using its computing power to smash open bitcoin wallets owned by other people and potentially taking the coins inside. How can they accomplish this?
“Bitcoin addresses containing funds can be accessed by private keys, which are generated at the same time as the address. Technically, a number of private keys could work with any given address, but you’d need a huge amount of computing power to brute force your way through enough possibilities to find any of them.”
Maybe just like what Brunstein said:
The unique digital nature of Bitcoin has made it susceptible to be hacked.
The first Mt Gox hack occurred in June,2011. An attacker with a Hong Kong IP address compromised an account on the site, and then made a massive sale of bitcoins, causing the price of the currency to drop from $32.00 per coin to mere pennies.
On February 24, 2014, MtGox announced that it had been hacked, again. This time, it had lost everything: the sum total of its bitcoin holdings were just 2000BTC, according to a leaked crisis document.
Bitfinex, Bitcoinica, Bitfloor and other exchanges are also included in the list of exchanges being hacked. Unfortunately, it looks like hacking has become a commonplace in the bitcoin world.
A 51% attack is the Sword of Damocles hanging over the head of Bitcoin. In Bitcoin, miners are literally controlling the network. If a pool operator had 51% of the network, he could always have the “longest blockchain” and decide where all new bitcoins belong.
In his Bitcoin paper, Satoshi identified several issues, with the 51% attack being the greatest.
“So what is the 51% attack? To understand that you have to understand how Bitcoin works. Essentially Bitcoin is a collection of nodes performing “virtual work”, the more work you do the higher your rating on the network. So what happens when malicious users get together and manage to do more “virtual work” than the “good people” ? Well that is the 51% attack, and it basically means you can wake up tomorrow with zero Bitcoins in your wallet. It means any business that accepts Bitcoins can get robbed and have all their goods taken with fake Bitcoins. It also means if they wanted, governments, large corporations or hackers can “shut down the network” by refusing to accept any new transactions. Complete network shutdown. Can’t do anything with your Bitcoins, neither can anyone else.”
Now if you ask me what Bitcoin reminds me of, I’d say possibilities, possibilities of expression of value. Before, I’ve been taken it for granted that the government should control currencies. But now I’d like to take a moment to think of the question:
“What is the nature and origin of money?”