November 14, 2018 AtoZ Markets – Dangerous, unstable, used by criminals, and even… illegal are a few things that cryptocurrencies are accused of. And yet they are increasingly popular. Transactions are becoming more and more transparent, and global corporations plan to introduce their own cryptocurrencies and tokens. This article sets out to examine and debunk the common cryptocurrency myths and misconceptions.
Objection #1: Cryptocurrencies Are Not Safe
One of the main criticisms levelled against cryptocurrencies is that they are vulnerable to hacking attacks and loss of the invested funds. The survey by SW Research and TNS for Luno (June/July 2018) shows that from 30% to over 45% of surveyed European Internet users (several countries: UK, IE, FR, IT, PL, RO, DE, NL) who do not hold digital currencies would be willing to buy them if they had a guarantee that their funds are adequately protected against cyberattacks.
How are cryptocurrencies protected? The key measure is the blockchain technology. Simply put, it is a digital register of transactions in the form of a data block chain system. Each subsequent transaction is ‘added’ to the chain. The source code of the blockchain for any cryptocurrency must be public, so that the users can inspect data record and track abuse.
Currency exchanges and digital currency wallets also have numerous other safeguards. Cryptocurrency wallets use the so-called private and public keys. What is the difference? A private key is used for encryption, and a public key for reading the record. You are unable to reproduce the private key with only the public key at your disposal. Users must keep their digital private keys secure. A lost key cannot be recovered and even contacting the owner of the currency wallet will not help.
If you want to be sure that your private key is safe, it is worth having a look at the so-called non-custodial wallets. Operators of such cryptocurrency wallets store users' private keys in traditional biometrically protected vaults, which require fingerprint verification or retinal scan to be accessed. The private key of a single user is divided into several parts and each of them is protected elsewhere, often in different countries. Only the wallet operator knows how to piece the individual parts together. Only one piece of a key obtained by a hacker is useless. Ironically, the digital Bitcoin is the safest when we protect it with traditional measures. For more information about private keys and its protection, please watch the video below.
Another noteworthy solution is the lightning network, also known as Bitcoin’s ‘second layer’ or ‘overlay’. Its distinctive features include independence from third parties and strong safeguards that impress even experienced programmers. Unlike the bank technology, the lightning network technology does not allow to alter the account balance or to make unauthorised transactions. Banks can do this because their customers do not own the databases, even those that concern them. Making a transaction is like opening a joint bank account, with a fixed group of authorised individuals selected by the user. This makes it impossible to block funds or cause an error.
It’s noteworthy that safeguards do not relieve users of responsibility, and although technology helps them, they must protect their data and passwords. It’s important to only use the services of reputable companies, currency exchanges and wallets. It’s a good idea to protect your e-mail account and accounts on social networking sites, use strong passwords and enable two factor authentication. Hardware security devices are also an interesting solution. HTC and Sikur are working on smartphones dedicated to cryptocurrency owners.
Objection #2: Cryptocurrencies Are a Safe Haven for Criminals
Where there is money and the possibility to get rich fast, there will also be frauds. Law enforcement agencies around the world are reporting cases of pyramid schemes disguised as cryptocurrencies, ICOs or start-ups investing in the blockchain technology. Cybercriminals address their ‘offer’ to unaware consumers, who often lack any knowledge about digital currencies, but also to as professional investors. Let’s have a look at some of the most spectacular cases.
Transform Group founder, Michael Terpin, has fallen victim to two hacking attacks in the past few months. Recently, Terpin has sued AT&T, the American mobile network operator, for $24 million in cryptocurrencies having been stolen. AT&T was the main provider of telecommunications services for the aggrieved. Terpin claims that the company robbed him with the hackers’ help and demanded $224 million in damages.
Despite reluctance on the part of the government, China has a huge share in the cryptocurrency market and may become pioneers in the introduction of the blockchain in the future. In March, 100 million yuan (or 15 million dollars) evaporated from the account of Zhang, a Chinese investor. During the investigation, the police found the perpetrator and two accomplices. In total, the group stole 600 million yuan by attacking the private computers of big-league investors. The Chinese police called it the largest cryptocurrency investigation in the history.
The Polish Coinroom cryptocurrency exchange was also attacked. In August, hackers took over the Internet domain of the currency exchange and redirected users to a fake site that imitated the original platform. This is not the only such case. Hackers have recently attacked the Korean Coinrail exchange, stealing about 30% of its virtual currency assets. The hackers managed to steal over USD 500 million from the Japanese Coincheck exchange. In 2017, two exchanges collapsed, having been attacked by hackers.
Frauds are certainly creative in their efforts. In the Play store there is a mobile app called Ethereum that costs 335 euros. Unbelievable? Yet over 100 people jumped at the opportunity. The app received 22 reviews from its users, and the average rating was around 4/5 stars. Users had to be very disappointed when after installation it turned out that the app does nothing but display the symbol of the cryptocurrency, and in low resolution at that.
One of the most commonly repeated misconceptions about Bitcoin is that it is called the currency of criminals. This is probably due to the fact that some of the so-called early adopters of this currency, in its early days back in 2009, used Bitcoin to conceal their transactions from the tax authorities. However, I think Bitcoin, after almost 10 years of being out there on the market, has grown out of its ‘teething troubles’. Moreover, we know now how to track transactions and how the blockchain works. It is now a completely transparent system and the entire chain is visible to every user. Regulating the market at the state level will certainly help counteract these misconceptions.
Objection #3: Cryptocurrency Prices Are Unstable
Poles tend to think that cryptocurrencies lack stability. This surfaces both in the lyrics of the popular Taconafide duo as well as in public surveys. According to the survey by Luno and SW Research, fluctuations of prices are one of the three main deterrents from buying Bitcoin for Polish Internet users (apart from hacking attacks and the lack of regulation at the state level).
More hype was built by the exorbitant increases in the prices of cryptocurrencies in the winter of 2017, mainly concerning Bitcoin, which spiked to USD 20,000 from USD 900. In September 2018, after the holiday fluctuations, the Bitcoin price fluctuated around USD 6,500, according to CoinMarketCap's data. According to the research by Allianz economists, the price of Bitcoin should stabilize at around USD 5,000.
On the other hand, from the perspective of traders, frequent changes of rates are great news, as they can make a lot of money by speculating on currency exchanges. With every record in the price level, publicity of digital currencies increases and popularity among the mass audience rises. Who knows, if it were not for the record-high prices, would Poles know so much about cryptocurrencies?
Speaking of fluctuations in the price of Bitcoin, it is important to consider the fact that it is a very young currency, which has been around on the market for less than 10 years. Certainly the introduction of clear regulations and taxation rules at the state level would help the price stabilise. It is important to remember that the cryptocurrency market is decentralized, and cryptocurrencies and tokens come and go every day. Out of the around 1,500 currencies that are currently out there, only a few dozen really matter. As regards the future of digital currencies, we are not certain that Bitcoin will become the global currency of tomorrow. Perhaps we will soon see a cryptocurrency that will overcome the technological limitations of Bitcoin, including the fairly long time it takes to confirm a transaction, which is an obstacle in everyday shopping.
About the Author
This article was written by Magdalena Gołębiewska, the Country Manager of Luno. If you have any questions or simply want to talk, do not hesitate to contact her per email email@example.com or phone +44 7904 389 285.
About Luno, it is a leading platform offering digital currencies (Bitcoin and Ethereum) that enables everyone to buy and trade them easily and safely. The company operates in over 40 countries and has offices in London, Singapore and Cape Town. It employs over 200 experienced technology and finance professionals. Its main shareholders include Naspers, a global IT and e-commerce tycoon and owner of well-known platforms such as PayU, Kreditech and Showmax. In 2018 Luno was recognised as the fastest-growing tech company in the UK in the Tech5 competition organised by Adyen and TWN.