Cryptocurrency for the Hacker : Part 3 (Why It May Be a Bad Idea for You)
Of course, if it were a perfect form of currency, it would have become the standard by now. But it hasn't. Wanna know why? The story begins with the advent of agriculture, when humans had settled down under groups as units called villages, over 10,000 years ago.
That's when the concept of 'exchange' came into existence, when the short-lived humans had evolved an economy. Soon, there came 'money' and other things to measure worth.
But I'm not delving in the history of economics or civilisation. So let's timeskip to the 21st century, with creation of Liberty Reserve. The wikipedia article is pretty good, but if you're not willing to read it: It was an anonymous form of digitized currency (offshore) that later got banned due to being accused for 'money laundering'.
Now that's created fear in companies from our more advanced, 'decentralised' cryptocurrencies. They fear that it may be shut down anytime. And the fears are not baseless, I assure you. If it weren't for being decentralised, it (along with torrents, darknets and other things) would have been shut down. After all, the government does not invest anything in them. And no ruler likes his people to be anonymous.
So now, I present to you the reasons for NOT using cryptocurrencies, and I believe you would not be overswayed by them and continue to read my series. ;-)
As I said, if they were centralised, and be located in US or India, they would have been shut by now.
But now it's too late. Individual cryptocurrencies can't be shut down now like that, unless there is strong evidence specifically against them.
But, what I believe, is that once someone gets enough power to get their usage stopped, the affected are due for big losses. I wouldn't believe the governments unless they get crypto-friendly, and become cryptocurrency player themselves.
Now this is where I get confused: Sometimes entire cities can switch to bitcoin, and still it is illegal for Xapo to ship Bitcoin Debit Cards to US or India.
So, what will prevail in the future? Will the world switch over, or will every cryptocurrency get banned forever?
Unless you aren't a big fan for uncertainty, maybe you can watch the passage of time from the perfectly legal side. No big risk there, except for maybe your entire government collapsing?
You think you know volatility from graphs of bitcoin? Think again, my friend. Bitcoin is simply nothing in volatility as compared to the more volatile cryptocurrencies.
But first, what does that mean? It means that their rates are highly uncertain, and the gradient of the change can be high. It all depends on the free market, or whatever the creators of that particular cryptocurrency have in mind while creating it.
If you want to see how much volatile they can actually get, you can head over to the Cryptonator Winners Losers page. As of today(10th Dec 2015), it varies from 5000x to 0x, in 24 hours.
Now, speed comes with risk. If something can rise quickly, it can also fall hard.
And their being volatile(especially bitcoin) is THE major reason that they aren't widely accepted.
Unless you have somewhere you can actually SPEND it, what's the real use? I mean, though we have web hosts, online casinos, ad networks, online stores, freelance job boards etc. that accept crypto-payments, how many of them really cater to you?
And compare it with what you can find in fiat currencies. The ratio is depressing.
When asked, they (usually) give the case of Liberty Reserve and say that they would not accept cryptocurrencies any time soon.
And there are not many offline services that can be purchased using them. If asked, they'd reply, 'What's a cryptocurrency?', and then you'll have to point them to a good tutorial about it.
But, as I was saying, you don't have much to gain by owning a medium of exchange that isn't accepted anywhere near you.
As I said in my previous post on 'Why every hacker should use cryptocurrencies?', they decentralised AND secure. So, what does that mean?
It means that if, by any incident (by accidental deletion or your wallet provider ditching you as in case of Mt.Gox or some hardware problems), you lose access to your cryptowallet, there's no getting it back, no central organisation you could ask help from, no way to hack in.
So, if you lose the access to your private keys, you permanently lose the wallet, unless, of course, you kept the private keys' backup somewhere safe, preferably in printed or written form.
But if you lost them, you're locked out.
If you purchase something using PayPal, then the buyer's protection's got you covered, but in cryptocurrencies, the transaction is neither refundable nor verifiable.
That means, a transaction can not be refunded. That owes to the fact that they're decentralised and secure. No central organisation or trick is there to help you out.
And, since they're anonymous, the transactions are not really verifiable. Nobody can easily know who's behind a hash, especially not the machines that have to verify the transactions.
So, what that proves is that there is nothing hard for stopping the companies to take away your money and completely disappear.
Ethics is a big word. As I always say, they are just a survival trait.
So, you have to trust the provider or get the full core wallet to yourself, which is around 6GB in bitcoin. And that isn't a very lucrative option either.
Just pray that your wallet provider will prove well. You could still use a provider that uses client-side made keys and personally has no access to it, like Blockchain.info(bitcoin), but then again, there is no guarantee on your money. I, personally, wouldn't trust even myself if I had the option.
What can be better for scams than some medium of exchange that is anonymous, decentalised, secure, disposable and easy to use?
And to prove that I'm not speaking empty words, I hereby point you to the badbitcoin.org complete badlist. It is a list of all bitcoin (bitcoin is the most famous cryptocurrency) scams that the people at badbitcoin.org have ever known.
Once the money goes, you can only pray that things play out perfectly.
Now that the introduction is over, next part of the series will focus on how the technologies work, and why it matters, starting with blockchains.
I hope this was not demoralising enough for you to stop reading my series. :-)
As to where the future lies from (1), I believe that fiat currencies will soon be perfectly replaced by cryptocurrencies, ie. USD, INR, GBP etc. will become Proof-of-Stake cryptocurrencies (I will explain it in the next post). But there are a lot of complications to this idea, if you think of it.
Introduce a little anarchy to the established order, and everything becomes chaos.
Humans shall never rise above chaos