In November 2011, Wired magazine ran an article titled “The Rise and Fall of Bitcoin.” The article delivered a narrative account of the digital currency and its pseudonymous founder Satoshi Nakamoto. The story was written as if it encapsulated the full story of Bitcoin, from its 2008 rise to its probable 2011 demise. Four years later, the suggestion that Bitcoin had run its full course by 2011 sounds comical.
Although Bitcoin supposedly fell five years ago, the media seems not to have noticed. Since its release, Bitcoin has “died” a total of 78 times, with major news outlets continuing to announce the death of Bitcoin all the way through 2013, 2014, and 2015. Bitcoin did not die in 2011, and it is not dead today. Nevertheless, the fledgling currency has failed to thrive to the degree that many had hoped it would. Most Americans remained unfamiliar with Bitcoin in 2015, and Bitcoin adoption rates remain slow among merchants and consumers.
There are numerous obstacles to Bitcoin’s adoption as a legitimate currency—from security issues and low incentives for use to high volatility and a reputation as the currency of criminality—but a number of startups have emerged to combat these obstacles through the development of much-needed infrastructure.
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A Decentralized Virtual Currency
A virtual currency does not exist in any physical form. While the U.S. dollar is represented by physical coins and paper, bitcoins are represented virtually by unique strings of characters. Every fraction of a bitcoin has an identifier that, like funds on a credit card, can be sent and received over the Internet to make transactions. Microsoft Points, Amazon Points, and World of Warcraft Gold are all familiar examples of virtual currency.
Although virtual currencies are nothing new, Bitcoin is unique because it is a decentralized virtual currency that uses cryptography and a distributed ledger called a blockchain “to control its creation, administration and security.” Unlike traditional, fiat currencies, Bitcoin is not tied to any specific government or entity. As a result, transactions can be difficult to trace, occur faster than transactions that need to be processed by banks, and cannot be blocked. Bitcoin is not the only currency of it’s kind–similar alternatives include Dogecoin and Litecoin–but it is by far the most popular.
The Security Challenge
The first barrier to widespread Bitcoin adoption is security. Although the difficulty to trace bitcoins forms part of the currency’s popularity among current users, critics see this as a security concern, since pseudo-anonymity makes it hard to identify fraudsters. Furthermore, Bitcoin relies on the adoption of digital “wallets” for storing bitcoins and making transactions, but these wallets must be secure in order for people to start using them. Although reputable companies like Apple, Samsung, and Google have all released digital wallets for making transactions with traditional currencies, a July 2015 Gallup survey suggests only 2% of smartphone users actually use these products, with a majority (55%) of non-users citing security concerns as their primary deterrent.
The lack of oversight by a central party means that trustworthy infrastructure is hard to find, and fraud can be as simple as stealing a unique Bitcoin key like one would steal a dollar bill. This lack of security was on display in 2014 when Mt. Gox, the most popular Bitcoin exchange, closed its doors after 800,000 of its customers’ bitcoins (worth around $460 million at the time) went missing. Mt. Gox claimed the bitcoins were stolen by hackers, but they later recovered 200,000 bitcoins from their own overlooked servers. Furthermore, in 2015, Mt. Gox’s own CEO was charged with the unrelated theft of $2.7 million worth of his customers’ bitcoins. Although it appears most of the still-missing bitcoins were indeed stolen by hackers, the primary blame for the theft has been placed on vulnerabilities stemming from Mt. Gox’s own gross mismanagement rather than any vulnerabilities of Bitcoin. Whether or not Bitcoin itself is insecure, the Mt. Gox debacle illustrates some of the problems that can arise when a currency lacks mature infrastructure and centralized security and regulation.
One company, Coinalytics, has taken a back-end-focused approach to security that aims to help future companies avoid facing security problems like those faced by Mt. Gox. Coinalytics co-founder and CEO Fabio Federici explained to the HPR how his company enhances Bitcoin security by “helping companies with compliance, and assessing who they are transacting with and where their transactions are coming from.”
Ken Miller, former COO of the Blockchain technology firm Gem, told the HPR that “in order for [Bitcoin] to take off, you need people to feel as comfortable or more comfortable than they are used to.” As such, Miller explained how Gem worked for the better part of a year to develop a Bitcoin wallet with “enterprise level, better-than-your-bank-type security.”
People need to be persuaded not only to trust Bitcoin, but to trust the exchanges, digital wallets, and other services that are vital to their use.
info.
https://iop.harvard.edu/get-involved/harvard-political-review/future-bitcoin-rocky-path-currency
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Topic: The Future of Bitcoin: A Rocky Path to Currency (Read 1378 times)