What are the threats Bitcoin faces?
Originally posted by Carole Ann Furman @ learncfds.com
It might seem a strange question to ask whether Bitcoin will survive, given that it kick-started the whole crypto sector which is worth a great deal of money only ten years later. However, if you look back at the game-changing originators of social media, such as Myspace, there are precedents for what once looked like unassailable digital giants falling prey to follow-on rivals. So, as Facebook and Twitter took the lead from other platforms that initially led the way, is it possible that Bitcoin could suffer as similar fate?
Although CFD traders are always on the lookout for opportunities for taking positions on prices that go down as well as up. Those who take a particular interest in crypto forex markets might well find the idea of Bitcoin failing on a fatal scale something that could be very worrying.
Cryptocurrency pioneer Charlie Shrem called Bitcoin “the most durable currency for a nuclear war” and its resilience against attack and unbroken decade-long operational capabilities do point towards robustness that others still follow as an example. However, there are several credible risks and threats that could ‘take down’ Bitcoin and even though most may be unlikely they are still worth discussing.
As a wider acceptance of the crypto sector is still an aim for many involved in it, the idea that the original digital coin could have vulnerabilities is an issue in itself. As the 2008 global banking crisis proved, the idea that anything is ‘too big to fail’ is not true, and for Bitcoin it would be highly unlikely that any central bank bailouts would be on offer if the worst were to happen.
The 51% attack
Perhaps the most damaging threat that any cryptocurrency faces is the so-called ‘51% attack’. Prof. Matthew Green of John Hopkins University has recently been quoted as saying that just such an attack could come from government sources including the US or China. As much of Bitcoin’s hashing power is based in China, this places it at the forefront of this type of threat.
Green explained: “If a government like the US or China decided they wanted to hurt Bitcoin, they could either rapidly shut down a lot of mining power so that they control a majority of what’s left, or they could deploy new hashpower that takes over the network.”
There would be an extremely large expense involved in any such action, but that outlay is actually decreasing as the University of California at Berkeley’s Nicholas Weaver has pointed out.
“Bitcoin, in particular, is nearing a danger point: there is a lot of “off” mining capacity, and any further erosion in price and you’ll have more ‘off’ capacity than ‘on'”, he is on record as saying. “Now that mining may not be cost effective for mining bitcoin, but it may be rentable for attacking it”, he added.
Whether or not there would be a sufficient reason for government level action is a moot point. 51% attacks essentially allow double spending, which in term undermines confidence in a digital token. Although exchanges and merchants would be hard hit, people’s coins would still be safe but open to a dramatic drop in value as the currency affected became unusable.
Various levels of threats from technology also pose risks for the future of Bitcoin. Quantum computing has been something of a buzz phrase for some time, but ongoing developments in the field make its introduction much more likely. However, before any attacks using this level of tech could be launched, the machines themselves would have to have been in use for some time, meaning the crypto community would be able to take pre-emptive action. Post-quantum cryptographic algorithms would most likely be developed to counter this particular threat.
However, spam attacks already have had some success at targeting other coins such as Ethereum. Essentially a form of denial of access attack, a huge volume of spam could lead to a network installing spam filters, which the attacker then uses to create false positives. This level of threat is something to take seriously, although it would entail a comprehensive and concerted effort on behalf of the perpetrators in order to be significantly damaging.
Collapse of the market
Perhaps the biggest threat to Bitcoin already reared its head last year. The possibility of a general market crash is something that cannot be ruled out, triggered by something unforeseen or simply by becoming a self-fulfilling prophesy of the kind that usually ushers in the changeover from a bull market to a full-on bear market.
Although loss of public confidence or interest could be the starting point for this threat, government intervention in the way of extreme regulation leading to prosecutions and prison sentences of people involved in exchanges and currencies could equally be a reason for it to happen.
In this case though the opposite is more likely to occur, as both governments and established financial institutions seem more interested in absorbing crypto and blockchain tech by regulation rather than outlawing it.