Maybe My Last Warning
As usual, I am going to beat a subject to death and again that subject is cryptocurrency. As you know by now, I am no fan of any of these forms of cyberlunacy. I firmly believe it will be a long time before any cryptocurrency becomes a legitimate form of exchange in this country. El Salvadore be damned!
Yet, with all the naysayers out there, there are still a very large group of investors who believe that Bitcoin or some oddly named digital numbering system will replace the US Dollar or the Euro or any major currency. The flaws are well known and instances where these flaws have cost people real money are becoming more frequent. No matter, one day all transactions will be done in Bitcoin and the World will be safe from the tyranny of government oppression or whatever mantra these zealots believe.
Fat chance. In my last few articles about Bitcoin I stated the obvious flaws: Governments will not allow them until they can control them. The volatility makes them an extremely risky form of exchange. They are environmentally way more destructive than printing bills or using the dollar to transact business.
One element I only vaguely mentioned but I think may end up being the ultimate undoing is the security of said currency. Governments around the World have been fighting the war against counterfeit bills. Every government has a branch directly responsible for rooting out these criminals and the processes are very well known. Counterfeiters get or make printing plates, find a master forger and locate a supply of the specialized paper used in printing money. Then it is off to the races.
With cybercriminals, it is a lot harder to stop theft.
While most investors feel safe with their stash of Bitcoin or Ethereum stored at a place like Coinbase. They trade in and out at low cost and the app is simple to use. However, do those investors have any idea how serious a breach of Coinbases security could be? Their digital wallet can be emptied in milliseconds and then what? You were a Bitcoin Millionaire one minute and then you are scrambling to get your money back the next. If, for instance, Coinbase has a breach and billions of dollars of Bitcoin are stolen, will Coinbase reimburse you? Do they have insurance and up to what point is that insurance good for? And don’t forget that if there is some sort of hack of Coinbase, the value of Bitcoin will tank. Does Coinbase have the cash to make your investment whole at the hack price or do they reimburse you at a much lower price? I can answer all of these questions pretty simply. You have an account with them and they get hacked, you lose. Insured or not insured, you will not see all of your money returned. They do not have the cash on hand to withstand such an attack. Investors will not pony up the money to keep that business sound.
Every person that I talk to that is invested and in love with cryptocurrency says the same thing, it can’t happen. Why not I ask? The answer are always that Bitcoin and the other currencies are unhackable and it is impossible to steal them from an account holder. Nonsense. It just hasn’t happened yet and as billions flow into these currencies, the risks rise. Someone or some group created the magical Algorithm that is Bitcoin. You seriously don’t think it’s possible that some hacker or hackers can’t go in and figure out how to steal these digital tokens?
While governments fight counterfeiters everyday, they have not allocated the resources to fight the potential hackers that may destroy one of the riskiest markets ever created. I firmly believe it will happen, either at the micro level (busting into accounts and emptying them) or the macro level (hacking the computers that are mining these things), it’s just a matter of time.