Real Issues in Cryptocurrencies



Brief History of Coins Driven Economy
Remember those young care-free days when we were collecting stamps, currency notes and coins of various countries? What interested me most were the coins of various Kings of India. Each king had their own coin imprinted on some form of metal or stone.

While barter system (before coins were introduced) was perfect on many grounds, it was rigid and limited, it forced us to have a transaction only when both parties had what other didn’t have but wanted it. There is more to this but in nutshell coins (currency) became a great engine to fill the gaps in the barter system — giving birth to a much flexible economy.

Currencies, however also gave rise to an issue. Currencies were essentially a printed resource. There are regulations around printing currencies, however it is always subjective and at the mercy of the “expert”, there are also various forms of pressure from stakeholders and not more than often the resources are exploited and more currencies are printed, giving rise to a never ending Inflation — in which few benefit but society as a whole loose.

Introduction of Cryptocurrency
When cryptocurrency came and Bitcoin was introduced, it came with promises to correct many flaws in the Banking systems and the way Government controls printing and inflation and it was said that the new system will disrupt such old systems.
It was impressive to know:
  1. That there will be a logical cap to the bitcoin which forced it to become a finite resource like Gold and can be safely traded.
  2. That it can be rapidly transferred irrespective of locations or countries and with no extra fee that we are forced to pay to the Banks.
  3. That this is the new way the countries that are drowning in inflation can fight back and get a stable economy running again.

These points were enough for me to get started and favour cryptocurrency. As time went by and i started understanding this more better, following became clearer :
A) I have to start calling it "cryptocurrencies" - a plural, and we were being taken back to the era of the Kings, with the difference that anyone can become the king and create its own unique crypto coins and flood it in the market.
B) The design of cryptocurrency was flawed on multiple levels, and if ignored and allowed to become mainstream will become a black hole that will eat up the planet.
Flaw 1: Market is flooded and superficial
Entire cryptocurrency market has erupted on the ground that it is finite like Gold and its logic controls the number of coins that will ever circulate in the eco-system. Let's see if that is true.

A) Only Virtually Finite
Cryptocurrency may have a cap of 21 million, but as more and more mining is done, coins further divide to its smaller values, smallest value nick named Satoshi — 1 Satoshi was 0.00000001 BTC
Between this smallest number 0.00000001 and its largest cap of 21 million Coins there is a large playground. This is “virtually finite” for mathematical purpose. 
This also meant that inflation can occur even with a cryptocurrency.
B) Add another dimension
If that was not enough it came to me as a surprise that Bitcoin is not the only cryptocurrency in the market, and shockingly anyone can open a new cryptocurrency and start trading in it. Even if each nation or let's say just each continent comes up with their own Cryptocurrencies (and i will ignore underworld coins for time being), it is safe to say that there is no CAP to it.
This again means it is not finite - and it is not going to be able to stop inflation
So far the following promises are gone for the toss indefinitely:
  1. That there is a logical cap - which is not there because of infinite division a coin can go into.
  2. and for the fact that there are multiple cryptocurrencies in the market.
It is extremely important to fix this flaw if cryptocurrency wants to delivery what they promised.

Flaw 2: It is overburdened
The architecture it is built on is not energy friendly.
It doesn’t have a central data center like most banks, but the core algorithm of this technology is over burdened and the combined energy that it consumes surpasses any other technology. As more miners get into the game the challenge level to mine the next transaction rises, this not only slows down the transaction but it also requires processing power in which 99% of the processing-time is a "waste" - as it goes into solving an unnecessary challenge. 
This technology is over burdened because:
First it wants to keep the System difficult to hack. This they are achieving by having thousands, or even millions of copies of the same database. This is not some innovative algorithm, but just brute force that is at grand scale.
Second, miners get Coins as incentive to mine; and mining requires investment in servers. So basically “miner” essentially means "futuristic bank" and they are responsible to keep the system working  and the reward is their "fee".
Third, Miners have already started renting space in Datacenter, there are professional groups and service providers with miners as customers. So basically if all goes well and there are no banks in the future and hence no datacenter managed by banks - then there will be datacenters needed by Miners. Miners will probably need 100 more servers for every single one needed by the bank.
Flaw 3: It is not secured as marketed.
This system is equally vulnerable and prone to hack. It is just new in the market and will take more time for hackers to understand the loopholes. It has already been hacked aswell number of times in the past and there is no guarantee it won't be hacked again.
Flaw 4: This system is encouraging many illegal activities.
An entire underground market can flourish with the help of the virtual Coins. Even with cash this can happen, but cryptocurrency specially made for such purposes makes it a lot more easier to operate and harder to trace.
Imagine a complete underground market that is only transacting in cryptocurrency designed to trade all illegal goods. Money will be exchanged and there won't be any control on what is happening, when it is happening, who is buying, what are they buying, from where and whom are they buying.
Due to all of the above it is not even environmental friendly
A system that is not finite, Requires lot of energy just to keep it safe, Can be exploited in any market to buy anything in any volume. How can such a system be friendly in any scenario ?
What is the timeline when cryptocurrencies will be indistinguishable from the very system it was started to destroy?
If we put this system through the test of time. What will happen after all the traditional currencies are out of norm, and cryptocurrencies are mainstream. Who is in control then.
If governments and banks have the monopoly today, what stops miners from having the monopoly tomorrow. Who will provide the service and guarantee of the transaction as cryptocurrency is a not a "service" ?
In an economy "transaction security" comes from a "guarantee", and for this we need a middle person that can take guarantee of the parties and currencies involved in a transaction.

Digital system cannot replace a middle person, because guarantee can be provided either by law or by the person that is trusted by both the parties involved in that transaction. Government is giving me guarantee to buy stuff from the money i have. When i buy from Amazon they act as a middle person and provide a service to ensure the success of the transaction.
Transaction Security comes from a "service provider" and not from a Currency - crypto or regular.
Promoters of cryptocurrencies thought this will dilute the control of banks and governments — which won’t happen because Currencies do not dictate terms, terms are dictated by authorities, services and that will remain unchanged. It was also thought that this system will control Inflation, which it cannot
The only good thing of cryptocurrencies is that it will provide short term benefits to some early investors and it is a stepping stone to a newer better future currency.....that is yet to come.

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