Vee Finance, a decentralized finance platform, has officially confirmed its hack on Avalanche. On September 20, the hacker managed to transfer funds worth $35 million. In terms of assets, it was 8804.7 ETH (around $26 million) and 213.93 BTC (around $9 million). According to the report, the stablecoin was left untouched. As for the hacker, the report confirms that they have not yet transferred or processed the funds. The team is working to provide more details of the incident. Further,…
Cryptocurrency is a digital currency managed by using one of the most advanced encryption techniques called cryptography. Bitcoin (BTC) is the first-ever cryptocurrency that came into existence in 2009 but captured the public’s attention in 2013.
Cryptocurrency has several merits over conventional currency technology – they have a massive potential for returns, fraud-proof, no identity theft, fast processing, and lower transaction fees. Despite these advantages, most governments are against the use of cryptocurrencies. In this article, I will discuss some of the reasons why.
1. Loss Of Control By The Government
Governments control fiat currencies. Fiat is a term used to describe the conventional currencies that are issued by governments. These mandated coinages are valuable since the government lays down its worth. Central banks, which are government-controlled, declare or eradicate finances out of thin air by applying monetary policy to administer economic sovereignty. They also control how authorized money is transferred. This aids in tracking the currency movement, trace criminal activity and directs who profits from the action. When non-government bodies make their currency, this control is lost.
Cryptocurrency restricts the application of the current banking system. The currency is made in cyberspace when so-called “miners” use the power of their computers to solve complex algorithms that serve as verification for cryptocurrency transactions. If the cryptos become widely embraced, the whole banking system could collapse. Despite this sounding great, especially in the wake of new banking habits, there are two sides to the coin. In the absence of banks, who will be responsible when the mortgages get hacked? How will savings earn you interest? Who will give guidance when asset transfer fails?
Despite the economic crisis that ruined the bankers’ reputation, there is a positive side about these active institutions, provides a timely oversight, and is trustworthy in their transactions. There’s also the argument of the charges that banks earn for the services they offer. Those charges bring about a substantial amount of income and job creation in banks across the globe.
Without banks, these jobs would cease to exist, so are the taxes those banks and their employees’ remit from their paychecks. The money transfer business would also disappear in a virtual world. Nobody would require Western Union or its competitors if cryptocurrency use is widespread.
The most compelling drawback of cryptocurrencies is the consistent fluctuation of the price. This makes it hard for the customer to accept and use crypto. It is a kind of a trusted exterminator as one is never 100% certain of how much the crypto will be worth tomorrow. At the moment, the prices of most cryptocurrencies are volatile. This implies that only a few people had made vast fortunes when the crypto (Bitcoin, for example) escalated, and others lost just as much when the price descended.
3. Criminal Uses
Just like cash, the discretion assumed by cryptocurrency is applicable for both legal and illicit purposes. For example, significant concerns have been raised that bitcoin provides a leeway for criminals to participate in illegal activities like funding terrorists, exchanging illicit goods and services, and money laundering. The most infamous example of this is Silk Road, the Deep Web marketplace, which used the anonymizing TOR network and the Bitcoin payment system to allow for the peer-to-peer sale of illegal drugs and forged identity documents.
Other scams common in this space include crypto “experts” who are opportunistic because of the lack of governance of the cryptocurrency to buy a lot of cheap tokens then build up in the media. Their endorsement tends to increase demand, which allows the experts to gain a lot of profit from their investment, making it a one-sided profit.
4. Limited Scaling
The design of the cryptosystem curbs the speed and number of transactions that can be processed. Some cryptos, like bitcoin, are very slow to process for daily financial operations. For example, the number of transactions handled by bitcoin is 3-7 per second. Visa, on the other hand, can process over 24,000 over the same time. The resources required to facilitate bitcoin transactions are also cost-prohibitive. During peak periods, the transactions produced could go up to USD 25, which depicts bitcoin unsuitable.
5. Potential for Security Breaches
Since cryptocurrencies are just digital tokens without the government’s backing or a physical commodity, victims rarely have any recourse legally or criminally. The most significant drawback is that not a single transaction can be reversed. Since the criminals are unidentified, they can defraud owners swiftly as their activities like hacking a savings or checking an account are not tracked. According to the FBI’s Internet Crime Complaint Center, total losses of USD 28million were accrued in 2016 from individuals, representing a threefold increase reported in 2015.
6. Money Cannot Be Recovered If Lost
Since a central authority does not regulate most of the cryptocurrencies, each person is duly responsible for ensuring their account is safe and private. If one loses their wallet key, nobody can assist in helping retrieve it.
7. No Way To Reverse The Payment
If one accidentally pays for a service or a product using cryptocurrency, then there is no way to go back with the transaction. Once a transaction has occurred, it is statutory. You cannot roll back the transaction at any cost because it is permanent.
Cryptocurrency is an ingenious but novice approach that can breach the entire financial market. Although there is a lot to be done, it has captured global attention within a short time. There tend to be pros and cons to every new invention. To maximize its use, we ought to look at both sides of the coin before arriving at any decision. With cryptocurrency, most governments hold back on what it has to offer, and only time will tell what the future holds.
Featured image courtesy of Shutterstock.