In the last few years, the world of digital currencies has been forging forward at breakneck speed. With more than a thousand cryptocurrencies already in existence, new entities join the crypto marketplace daily in an effort to usurp the digital currency empire. For example, Bitcoin is already pretty fast and cheap, but Universa’s blockchain is 1,000 times faster, and its transactions are 100 times cheaper than those of Bitcoin.
Still, despite the fact that digital currency is already a major player in the fiat economy, predictions that cryptocurrencies are here to stay are difficult to swallow. We’ve seen this type of disbelief before. In the ’90s, the news media mocked Nicholas Negroponte’s prediction that the majority of readers would get their books from the internet. As unlikely as it seems now, this scenario could also play out with cryptocurrencies.
Cryptocurrencies may eventually revolutionize the entire financial sector as we know it. But to ensure its success, the crypto industry must address the following three security issues.
1. Password recovery.
Given that cryptocurrencies are decentralized, losing access to your coins leaves you with no option for redress. This could be devastating to cryptocurrency holders.
I invested in Bitcoin in mid-2017. I decided to manage my wallet on my own. Two weeks later, I was repeatedly denied access to my account. This was due to the complex structure put in place to prevent fraud.
This incident was not isolated. A recent study by Chainalysis found that between 2.7 million and 3.7 million bitcoins have been lost forever. At the current exchange rate at the time of writing, that’s between $24.2 billion and $33.2 billion of lost money.
Moving forward, the cryptocurrency industry needs to address the password recovery issue to make it effective and painless.
If losing access to your account isn’t scary enough for you, how about fraud?
Traditional financial institutions are expected to know their customers and their patterns of transactions. They keep records, warn their customers of unusual activities and report suspicious transactions to the authorities.
Within the cryptocurrency universe, however, anonymity has been its selling point. It has also been its Achilles’ heel. Although traditional banking is susceptible to fraud, decentralization and anonymity expose cryptocurrency holders to higher risk of it. In the first two months of 2018 alone, scammers stole $1.36 billion worth of cryptocurrencies.
Anonymity has also ensured that most small-scale scams are not discovered, making it a safe haven for scammers.
A friend of mine had some of his Ripple stolen from his wallet. He couldn’t call, email or chat with a customer care representative to talk about the problem. It was gone for good. However, what bothered him more was his inability to explain how the hackers got into his wallet. As a tech expert currently working at a blockchain startup, he was certain he wasn’t careless.
Research has shown that after virtual currency fraud, which constitutes 30 percent of all virtual currency scams, hacking attempts are the second most common virtual currency problem, at 22 percent.
Banks still have some of the best security systems in the world. Plus, insurance protects your money in your banking account. Maybe in the future, when banks adopt cryptocurrencies, we may see some sort of crypto safe for storing cryptocurrencies. Although they are virtual currencies, ironically, the best place to store your crypto is in a physical storage wallet.
Will we see a crypto bank soon to address this problem? Probably not, but it’s a wonderful proposition. That’s why the folks behind the AriseBank ICO scam were able to raise such a huge amount in a short time. Many people, including me, hope to see a crypto bank or storage in future, but we might have to wait awhile.
The number of cryptocurrencies is growing, and they are becoming more complicated. Sooner rather than later, we will need regulators to address the present difficulties. The SEC is already stepping in. This could mean that platforms trading digital currencies or exchanges would have to register with the SEC before they can operate. While we’re waiting to see how this plays out in the future, the cryptocurrency industry has to implement new security measures to protect its customers if it’s to stand any chance of competing with the traditional financial institutions and become the currency of the future.