The cryptocurrency-proof system is also its greatest strength and weakness.
The speed of transactions and the low price of transfer fees have been pointed out as positive.
Most of the weaknesses known about cryptocurrency are (have been) related to conventional money: the best example is the possibility of a wallet being stolen.
The decentralized and mathematically proof nature of cryptocurrency is its greatest strength.
Cryptographic money is also referred to as protest money, which arose as a counterweight to the current monetary system: no one (including any bank or politician) has the opportunity to change the nature and basic principles of cryptocurrency with their decision. At the same time, they do not have the opportunity (even indirectly) to cause, for example, banking crises. It is probably no coincidence that the time when cryptocurrencies entered the market coincided with the global banking crisis. People no longer wanted to trust banks or politicians and were very receptive to any new solution that could prevent it.
The database, or the public accounting register, or the chain of transaction blocks, reflects all the money in circulation or extracted and the transactions made with it, as well as information about all the accounts to which the cryptocurrency has been linked. If it is not possible to monitor the movement of specific banknotes in the money circulation, then the bitcoin system makes it possible to monitor the movement of each bitcoin from start to finish.
Anonymity, commonly referred to as cryptocurrency weakness, is not just a weakness. As the history of all transactions is visible, it is in some ways a much more open system than the traditional banking system. Anonymity in this system is only apparent. By analyzing the patterns of transactions, the motives of the parties to the transactions can be assessed and, if necessary, identified. Cryptographic money dealers also lose their anonymity by linking their identity to a bank account in the event of a purchase or sale.
While it is not possible to track the movement of specific banknotes in the money supply, the Bitcoin system is inherently able to track the movement of each bitcoin from start to finish.
Cryptographic money transfers are characterized by high speed. The transfer itself takes place so-called instantaneously, in addition to which the transfer is confirmed, ie the creation of trust through the formation of a transaction block ( proof of work ), which takes about 10 minutes in the case of bitcoin . Each additional block will re-verify the payment and the payment can no longer be revoked. A transaction is considered to be confirmed with sufficient reliability if it is located at a depth of 6 blocks, so the 10-minute rule ensures a reliable confirmation in about 1 hour. However, a party to a transaction may still accept the transaction after the transaction block to which the specific transaction belongs and not wait for further confirmations.
The algorithm also predicts which transactions have a higher priority and which should be included in the transaction blocks on a priority basis. For example, transactions with higher amounts and transactions with bitcoins that have not been traded for a long time have a higher priority. Small, non-commissioned transactions can take a long time to be blocked.
Cryptographic money transfers are currently free or very low. For example, each subsequent transaction with a data volume of 1 kBe + 23 costs 10,000 satoshi, or 5 US cents. Such a small transfer fee is possible because miners can still be rewarded with new bitcoins . The further away, the smaller the possibility of such a reward and the need to establish transfer fees. At present, transfer fees are not mandatory, but will speed up the transaction confirmation process.
It is a decentralized issue, so there is no central responsible party and the use of cryptocurrency as a means of payment is at people’s own risk. For comparison: by using the services of a bank or other payment institution to make an e-purchase online, it is possible to reverse the transaction in the event of fraud, ie a person’s money is protected. In the case of cryptocurrency, a person cannot turn to anyone in the event of fraud: since there is no central payment service provider, it is not possible to make a claim against anyone. Even if there is a helpful public authority – for example, a person can always turn to the police – it must be borne in mind that identifying the recipient and recovering the money can be quite an unrealistic and impossible challenge.
As cryptocurrency is a regulator of the classical market momentum, its greatest weakness is high volatility (see Crypto-Currency Market Capitalizations ). At the same time, volatility is a phenomenon that is constantly changing according to the usability and popularity of assets – the more the mass is used, the more volatile the money. Nevertheless, investing in bitcoin is very attractive as price increases are projected to continue (see Bitcoin Price Prediction ). The latter, in turn, exacerbates speculation on cryptocurrency. Influencing the normal use of Bitcoin (speculating on price, allowing high yields or creating artificially higher demand) may ultimately be detrimental to the interests of bitcoin users. Coinbase, for example, says that the shares of speculators and day-to-day payers are 80% and 20% respectively.
One of the weakest links in the cryptocurrency system has so far been considered to be the so-called exchange platforms or exchanges. Vulnerabilities in stock exchanges harm the interests of service users and, ultimately, of the bitcoin system as a whole. The best-known example is the closure (essentially bankruptcy) of an exchange platform called Mt.Gox in Japan in 2014. at the beginning of the year, which, according to legend, was caused by transaction malleability . However, Austrian researchers who have studied the field for a long time claim that up to 400 bitcoins could be lost due to the impact of the transfers, not 850,000, as Mt. Gox reported. The operation of exchange platforms is also significantly paralyzed by DDoS ( distributed denial of service attacks) attacks. In addition, problems with stock exchanges and their customer service are highlighted. Exchanges are simply not able to manage the entire customer base that has emerged over the past year. Because cryptocurrencies are not regulated or subject to financial supervision, the background of stock exchange owners is often vague or even anonymous.
Wallet solutions are often mentioned as a significant weakness. In particular, malware is used to search people’s computers for bitcoin wallets and security codes to “steal” bitcoins from their wallets. Online wallets, such as those on your home PC, tablet, or mobile phone, are most at risk. According to estimates published by Kaspersky, in 2013. 6 million attacks on wallets in 2012 and 1 million victims were identified (600,000 wallet owners suffered damage in 2012) (6-million-bitcoin-wallets-attacked-2013). However, it cannot be said with certainty that web solutions have the necessary level of protection everywhere, as the story of inputs.io showed us. It is safest to keep the private key of your bitcoin address on an offline device or even on paper.
The biggest discussion is about anonymity. Many experts also believe that identifying customers using the system and complying with AML ( anti-money laundering ) requirements would help reduce risks. For services built on the Bitcoin system, customer identification may become a critical need. However, anonymity has not only been used for malicious purposes, for example, people have been able to bring their money out of the control of totalitarian states through the anonymity of cryptocurrency transactions.
The possibilities of malicious redesign of the entire bitcoin system cannot be forgotten either. There is a real risk that someone will gain control of more than 50% of computing power and launch a so-called “51% attack”, ie unilaterally change the way the whole system works. Co – miners are more likely to reach this capability, and their coordinators will be able to change the public accounts of the entire bitcoin system if they so wish. At the same time, it immediately jeopardizes the credibility of the whole system for users, and it’s like sawing a branch on itself.
The risks arising from the weaknesses of the Bitcoin system itself are compounded by the risks posed by the external environment. Understanding the Bitcoin system requires in-depth knowledge of cryptography, which many critics unfortunately lack. One of the most common is the suspicion of a bitcoin system using the so – called Ponzi scheme, which is certainly not a true statement. Because banks are generally skeptical, if not repulsive, of the bitcoin system, it is sometimes difficult to convert cryptocurrencies to the regular currency, and it is not uncommon for banks to block transfers to cryptocurrencies. To this can be added the often repulsive or hostile position or lack of position of states. The position of countries with regard to the taxation of transactions is particularly important.
Given that cryptocurrency has value only as long as people trust it and there is a demand for it, the system must be reliable. Any errors in the protocol and software must be rectified quickly. Solutions must also be sought to make the exchange rate more stable. The risks posed by the attractiveness of bitcoin to criminals seeking to exploit people’s trust (through buying and selling) or its general anonymity (through money laundering) should be further addressed.