Crypto assets have slowly assumed the reputation of being the next poster boy for the financial industry. However, throughout its long and tedious ascent to global reckoning, cryptocurrency still continues to beg the question of whether its eventual adoption is near anytime soon.
I can’t help but notice issues that have continued to question its heralded status as a viable alternative to conventional financial systems.
So, where has digital currency security failed and how has it affected the community as a whole?
At its first go at global prominence, crypto enthusiasts would argue that crypto was the ultimate alternative to fiat. More so, security was naturally one of the major talking points used to back up this argument, as it is a technology that claims to enable immutability and topnotch encryption. In a way, this argument is valid considering how crypto has found a way around the drawbacks of decentralization (a feature that detaches the network from bureaucratic control).
To ensure that decentralization would not give individuals the license to spend a coin multiple times, developers have made consensus-based verification, core functionality of its underlying technology. Also, the immutable nature of the Blockchain establishes transparency that often evades traditional financial institutions. Similarly, state-of-the-art cryptography offers encryption; therefore, only holders of sets of keys can access digital assets.
To simply put, these security measures make it almost impossible to hack a distributed network.
It all boils down to a series of flaws attributable to human error. From the known and documented cases of cryptocurrency theft, such as recent Binance hack or The DAO, Mt. Gox, Bitfinex hack, etc. These human factors are security loopholes. Needless to say, human inputs to the development and maintenance of blockchain networks are some of the flaws enabling this security wrath.
Also, remember that crypto owners have the responsibility of keeping their private keys safe. Consequently, our inability to keep these keys away from prying eyes is a major stumbling block.
It wasn’t until the explosion of cryptocurrency to the mainstream in 2017, that analysts began to record a disturbing increase in crypto crimes which isn’t decreasing in 2019. The exponential increase of crypto crime suggests that the last bull run also ushered in fraudsters and hackers en masse into the digital asset space.
According to a June 2018 report by Carbon Black, in the first half of 2018, $1.1 billion worth of cryptocurrency was lost to various crypto theft schemes. More importantly, crypto exchange hacks contributed to a large chunk of this figure. In January 2019, CipherTrace Cryptocurrency Intelligence noted that crypto thieves had carted away with a total of $1.7 billion worth of cryptocurrency in 2018.
In the aftermath of CipherTrace’s another report by Chainalysis went on with crypto theft activities in 2018. According to the report, two entities, dubbed, “Alpha” and “Beta,” were responsible for many of these hacks, in what they describe as talented teams of computer scientists backed by organized crime syndicates. Consequently, it was becoming more clear that the average crypto owner stood very little chance against the evolving scope of the crypto crime world.
Shifting to the first quarter of 2019, reports show that the value of stolen crypto in this timeframe had already hit $1.2 billion. This alarming revelation could suggest that s nefarious entities have stolen 70% of the total amount lost last year. Interestingly enough, unlike the high-profile crypto exchange hacks that made up the bulk of last year’s figure, crypto thieves are finding new ways in our digital age to steal crypto.
Ordinarily, cryptocurrency is meant to afford users financial independence from centralized entities that charge ridiculous fees for transferring or storing money. In this new system, everyone has a say in the operation of the network. Decentralization is the buzzword as crypto gradually emerged as a disruptive force.
Nevertheless, it is known that crypto’s ascendance up the echelon of mainstream acceptance stalled in 2018 as the prices slumped. It’s possible for one to assume that security issues had contributed to this situation, which is not far-fetched. The crypto was unable to escape the unrelenting battering, dished out by popular media platforms with security featuring prominently as a yardstick to determine its viability. Fortunately, the revamp of the market in 2019 is slowly sidelining this sentiment, as institutions are finding more reasons to have faith in the viability of cryptocurrency.
In 2018, however, this narrative played a pivotal role in how much enterprises were willing to risk in their quest to explore crypto. These powerhouses did not show the sort of commitment I expect from innovation-driven enterprises. Moreover, the validity of this argument lies in the fact that similar disruptive technologies, such as the internet of things, or IoT and artificial intelligence (“A.I.”), commanded more funds, bloated initiatives, and unmatched manpower.
Take Goldman Sachs for example. Its contemplative interest in the market was a major talking point last year, which never came to fruition.
Instead of massively banning cryptocurrencies, the majority of the regulators actually provided a clear framework on digital assets/virtual currencies. Some regions, however, decided to completely ban crypto, while others are setting up restrictions that are stifling its growth. To be fair there are other reasons for such bans, one simple summary can be described as a fear of losing control.
Another challenge this situation poses is determining who or what gets blamed for security breaches. Just as Michael Terpin, who lost his crypto holdings to SIM swapping, had won his lawsuit against AT&T for sending security codes to malefactors, there are countless victims out there searching for answers. In addition, not all crypto exchanges have an insurance fund lying around to pay affected users after a crypto hack as Binance did. In most cases, a lost private key means that the digital asset assigned to it is lost forever.
Crypto assets should avail of financial security. Nonetheless, these vulnerabilities are slowly chipping off its security integrity. The question remains as to whether industry players are making the right conclusion from these events and investing more funds and efforts to secure the cybersecurity aspect of the business.
Let us not forget that crypto is still an emerging technology, and there is still time to work out solutions that would eliminate these threats. A lot of great minds are tirelessly working on building the infrastructure of the future.