Why cryptocurrencies are safer than you might think
Cryptocurrencies are all-too-often tagged as being too physically vulnerable to have a long-term future, but here is why that is not really the case.
Whether cryptocurrencies pose a long-term threat to normal currencies is arguably one of the most important contemporary economic questions. One of the most frequent critiques aimed at its future is that it is too vulnerable to theft and hacks, and so could never become a global currency on the level of the U.S. dollar or the British pound sterling. Inspired by an assignment during the first year of my economics studies, I attempt to show why, at least in terms of pure vulnerability as a digital technology, cryptocurrencies are by no means any worse than the normal currencies you and I use every day.
Just another digital asset
There is certainly no sense in denying that cryptocurrency exchanges may be unsafe. Although, the same can be said for any typical bank account transfer, or any digital technology. As Sarah Meiklejohn, an Associate Professor in Cryptography and Security at University College London and a member of the Initiative for Cryptocurrencies and Contracts, states: “There are some risks that are just derived from the fact that this is a digital asset … And like any digital asset you might accidentally delete it - you might throw away that hard drive with that really important word document on it, or you might forget the password to a really important account.” The key point to understand here is that in isolated incidents, such as the Mt. Gox (US$450 million stolen) and Bitfinex (US$72 million stolen) cryptocurrency thefts, the blockchain technology and the Bitcoin protocol themselves were not compromised in the long run. In fact, Bitcoin continues to thrive to this day, even after these events, so the technology certainly has the development and integrity to withstand such hacks and could so prove to be a viable long-term currency option.
Hacks aren’t exclusive to cryptocurrencies
A second point to the defence of the safety and security of cryptocurrencies is that hacks and large robberies, such as Mt. Gox and Bitfinex, are just as significant a threat with standard currencies. A case in point is the Bangladesh Bank robbery in February 2016, where 35 hackers issued false instructions to transfer nearly US$1 billion from the Bangladesh Bank’s account at the Federal Reserve Bank of New York. Only 5 out of the 35 instructions eventually succeeded, yet US$101 million was still successfully stolen, of which $20 million was traced to Sri Lanka and US$81 million was traced to the Philippines. The entirety of the money traced to Sri Lanka was recovered, but $63 million of the money traced to the Philippines still remains unrecovered. The key argument here is that hacks and robberies on the scale of Mt. Gox and Bitfinex are not exclusive to cryptocurrencies and are also happening with standard currencies.
Standard currencies are equally vulnerable
A final point revolves around the idea that certain security risks of cryptocurrencies are of equal proportion with normal currencies. A 2018 Tripwire article highlights the vulnerability of digital Bitcoin wallets to theft, which may well be true, yet the vast majority of people carry real, physical wallets around every day, which are just as easily viable to theft. The very same article also points out the threat of hacks and cyber-attacks to which Bitcoin is also susceptible, yet, as has been discussed above, this is just as much of a risk for normal currencies as well. The main point to understand here is that a number of security and safety risks of cryptocurrencies are also risks to which standard currencies are equally susceptible.
The idea behind of this article has not been to say that there are no security risks associated with cryptocurrencies – indeed, to claim as much would be an outright lie. Rather, it has been to point that much of the criticism aimed at cryptocurrencies when it comes to physical safety and security can also be aimed at normal currencies, and this has not stopped anyone from using them. Furthermore, cryptocurrency as a technology has shown its strength and resistance to obstacles it has faced, such as the Bitfinex and Mt. Gox hacks, and looks poised for a positive future. With our world becoming ever more digitalised, you certainly should not be afraid of embracing cryptocurrencies.