April 7, 2016
What do we know about BitCoin? A simple Google search will tell you that it is the future of currencies and you should invest in it, immediately. In fact, you should also start to accept cryptocurrencies in your business; like all other companies. Everybody loves digital currencies and the future seems bright – what can go wrong, right?
Well, a lot of things.
First of all, we know absolutely nothing about its creators. We know that BitCoin was created in 2009, but the developer is still anonymous to this day. There are rumors that his name is Satoshi Nakamoto and he may be an American citizen but, as we mentioned, they are just rumors. We know one thing for sure: the control of the source code repository and network alert key is in hands of one man nowadays: Gavin Andresen.
And he doesn’t trust the BitCoin system.
We will return to this topic later, but first things first: What is BitCoin? To simply put, it is a digital currency. This currency is created on computers by a community of people across the globe – anybody can join this community and take part in creating it. The people in this community are called “miners.” They dedicate their computers to create blocks of this digital currency, and distribute all over the world. BitCoin is completely anonymous. You have a “digital wallet” for your digital funds, but there are no names: each wallet is identified by a series of numbers and letters. Basically, you are nobody in the system and there are no ways to identify the owner of these funds. For this reason, BitCoin is the choice of terrorists and other crime organizations all over the world. But don’t worry – this is not another “doom and gloom” article about BitCoin. Terrorists can perform very well even with “real” money, so there is no need to criticize BitCoin about this. We should also mention that BitCoin is not an “endless” system. The creator of BitCoin limited the currency to 21.000.000 BitCoins, and 13.000.000 are already in the system. Basically, in a couple of years, the BitCoin system will reach its limits. That’s also why we started to see alternative digital currencies — like LiteCoin — that have much bigger limits.
At first look, everything seems perfect: no banks, no fees, and no taxes – a currency created by its users. According to Washington Post, “BitCoin will change the world.” One BitCoin is equal to 434 USD nowadays, but it was 1.216 USD back in 2013. Everything seems good and dandy, even the European Commission will accept BitCoin as an official currency in 2017. There are 1.300.000 BitCoin users all over the world, and this number keeps rising every day. So it is time for your business to accept cryptocurrencies, right?
The first (and obvious) problem is, if you let people create a currency, you also let them control and manipulate it. As we mentioned above, BitCoin is created by communities all over the world and the one with the higher population gains control of the “system.” Can you guess which country has the most crowded communities? Yup, it is China. In fact, mining BitCoin is a “job” in China, there are server farms dedicated to this job. If they decide to stop “production,” everything can go into flames very fast. If you control the creation, you also control the “real world value” of a currency. As we mentioned above, one BitCoin was equal to $1.216 US just 2.5 years ago, but it is $434 US now. Basically, BitCoin owners lost 200 percent of their money very fast – even the Zimbabwe dollar didn’t see this type of depreciation. And nobody knows what will happen when BitCoin hits its limits; all digital currencies can become worthless in mere minutes. Remember; everything is anonymous in the system and you can’t even complain – you took the risks and these are the results.
But this is a simple matter when compared to other problems. Remember the part where we mentioned Gavin Andresen, the man who controls the source code? Well, he is out of the system nowadays. In 2011, he said “BitCoin is like better gold than gold.” In 2015, he said: “Bad things will start to happen.”
“Looking at the transaction volume on the Bitcoin network, we need to address it within the next four or five months,” Andresen said. “As we get closer and closer to the limit, bad things start to happen. Transactions will get unreliable and it’ll get worse and worse over time. My fear is there’ll be no critical event that causes people to react—Bitcoin just kind of has a long slow death. I’m trying to set off alarm bells for ‘You know, guys, if we don’t do this, Bitcoin will be dead in four years’.”
You may wonder what he proposes as a solution. Well, he suggests that everybody should stop using the BitCoin system and switch to “BitCoinXT”, which is another digital currency developed by himself.
Hmmm… A system which the controller of its code doesn’t trust and says “it will fail?”
Let’s hear what Mike Hearn says about the system – he is also a BitCoin developer. Hearn first points out the most basic problem in the system, which we discussed above. He says “Two Chinese miners, which verify BitCoin transactions and add them to the ledger, control over 50 percent of the block chain. Over 95 percent of hashing power is controlled by a handful of guys sitting on a single stage. What was meant to be a new, decentralized form of money that lacked ‘systemically important institutions’ and ‘too big to fail’ has become something even worse: a system completely controlled by just a handful of people.”
But that’s not all.
Hearn also says the system is flawed at its core and asks some questions:
“Would you care about a payments network that:
• Couldn’t move your existing money?
• Had wildly unpredictable fees that were high and rising fast?
• Allowed buyers to take back payments they’d made after walking out of shops, by simply pressing a button? (If you aren’t aware of this “feature” that’s because BitCoin was only just changed to allow it)
• Is suffering large backlogs and flaky payments?
• Which is controlled by China?
• And in which the companies and people building it were in open civil war?”
We think that you should ask these questions too, before starting to accept cryptocurrencies in your business.
Richard Cave is the marketing manager of CasinoAvenue, a website dedicated to free casino games and online casino reviews. He likes to play poker games and is interested in mathematical analysis of card games. His hobby is to answer “what can go wrong?” questions of all sorts.