A short summary of bitcoin
Electronic money is all about ledger (transactions) which tells who sent money to whom, in standard financial system, central/federal/reserve bank (different nations have different names for these) and by extension, financial institutions are “trusted” to maintain that ledger. Any work which requires a “trusted” party can in principle, be done using cryptography without requiring a “trusted” party and bitcoin is manifestation of that applied to ledger. For more thorough treatment have a look at original paper or this blog post.
Objections to current status
Lets look at some of the most touted aspects of bitcoin
- Anonymity – By using bitcoin mixers (mixing bitcoins from different sources)
- Decentralized – Since no single entity controls it, any fiscal or monetary modifications are practically impossible, so, no more central control over money
Now lets see a few recent news about bitcoins
- Chinese bitcoin exchange disappears with $4.1 million
- Man says he lost $500,000 in virtual currency heist (probably to windows malware)
- Bitcoin Payment Processor BIPS Attacked, Over $1m stolen
- Hackers steal $1.2m of bitcoins from Inputs.io, a supposedly secure wallet service
- Bitcoin Worth £4.6 Million Is Buried Under A Landfill In South Wales
- A big chunk of bitcoins seems to be lost forever
Does there seem any relation?
In standard financial world, someone who steals electronic money from (say) a bank account has to transfer it to somewhere (via Western Union) or for buying something like charge cards or goods with good resale value. Whatever happens is not anonymous and it leaves a trail behind, these trails are useful sometimes for catching the thieves but more often than not to detect potential fraudulent transactions. Of course, the anonymity and decentralization implies that neither a transaction cancellation nor the trail finding will work as expected. Similarly, losing bank account password does not imply losing access to money, worst case, there will be a long phone call with customer care but losing bitcoin wallet implies that bitcoins are permanently lost.
So, where does this leave a common man holding crypto currency with?
What’s the assurance that they won’t suddenly disappear ? or will be traced if stolen?
Rather than making it easier to manage money, the whole burden of protecting the money has been moved from financial institutions to individuals.
Of course, the bitcoin is currently evolving and things might change in future but if the techno-libertarians start focusing on making a better product out of bitcoins which can guarantee fraud protection and recoverability of money, then only we can expect bitcoin to reach common man. While I strongly believe, the tech community can solve or find work around these issues, they just does not seem to be high enough on their priority list.