Did We Miss Out on Bitcoin & Cryptocurrencies?

What was going on seven years ago today? July 19, 2010, LeBron James was still on the Miami Heat and a Bitcoin costed $0.06. Clearly something has changed if today's ransomware attackers are demanding fractions of a Bitcoin & Cryptocurrencies in return for the stolen files. For the most part, attackers set the ransom price anywhere from a few hundred to a few thousand dollars, roughly 0.1 to 8 Bitcoins. Six cents for a coin does not sound crazy since we are in the realm of nickels. However, the cryptocurrency peaked in June hitting just over $3,000. It has since slid, and currently sits at about $2,335. The volatility is simultaneously worrisome and tantalizing. I mean come on, that is an increase of almost 39,000 percent in just a few years! Do I understand what is going on? No. Do I want in? Yes. But did the Bitcoin bubble pop, and did we already miss out on this phenomenon?

What is Bitcoin?

The recent near vertical rise of Bitcoin tempts me to fully buy in to the hype without a second thought. However, I’m going to pump the breaks, only slightly, and figure out what is going on. But actually, what is going on? Well first off, Bitcoin is just one specific cryptocurrency. It acts like money in the sense that you can use it to purchase goods and services. What distinguishes it from a credit or debit card comes down to a few key factors. Usually, transactions link your credit card to your personal identity. A Bitcoin uses a “private key” associated with your digital wallet to generate code, which is publicly associated on the “blockchain” with your transaction. Usually a third party, like a bank, controls the network. This is not the case with Bitcoin. It is decentralized, which means no single institution controls the network or your money. Overall, Bitcoin is decentralized, (pseudo-)anonymous, and transparent. These features are fueling its popularity.

Bitcoin in the Market

Bitcoin commands a market cap that is on par with giants like Ford, Sony, and Barclays. It can talk the talk but can it walk the walk? Realistic estimates place Bitcoin at handling around 2 to 3 transactions per second. Compare this to VISA, which averages around 2,000 transactions per second. Also, Bitcoin has high transaction cost, about $4 per transaction. This is too high to compete with any major digital currency company (which eliminates Bitcoin from micro-transactions since no one will buy a coffee with Bitcoin when the transaction cost is greater than the cost of the drink). Bitcoin also took a hit when the Securities and Exchange Commission ruled against the Winklevoss twin’s brainchild: the first Bitcoin exchange-traded fund. Yet these events have not stopped some companies (like PayPal & the Sacramento Kings) from using Bitcoin. Even Japan has come to recognized it more as legal tender. But just because Bitcoin & Cryptocurrencies might be the way of the future, that does not mean the future will feature Bitcoin.

Cybercrime and Bitcoin

One of the most detrimental aspects of Bitcoin is its involvement in nefarious actions. The recent spree of ransomware (namely WannaCry and Petya) has caused much of the blame to fall on Bitcoin. Attackers effectively steal an individual’s files and return them when the ransom is paid (sometimes). Is Bitcoin really the problem? I say no. To solely blame Bitcoin is a bit of a stretch, and it does not capture the whole picture. The core of the issue is poor security policies and disregard for best practices. Businesses have been reacting to breaches and ransomware attacks, rather than being proactive. Iuvo's White Paper on security in layers is a must read if you would like to see if your business' security plan will do the job (Check it out here). Overall, the usage of cryptocurrencies for illicit dealings could damage the reputation of Bitcoin and its alternatives, but there still are positive aspects to these digital currencies.

Bitcoin is exciting, and you might be able to have fun and make some money. But ultimately, I do not see the government and the Dollar being uprooted by private currencies anytime soon. (Unless cyber-criminals are using ransomware attacks to manipulate the price of Bitcoin in a play to control the market with the goal of funding crime on the level of Specter from 007. If that’s the case, then someone should probably call Pierce Brosnan or Daniel Craig).