Xolali Zigah is the founder and chairman of Cash Angel and an award-winning investor in 2020.
For those of you who are not yet familiar, Bitcoin is a decentralized digital currency. This means that there is no administrator or central bank to monitor every transaction a person makes. (Full disclosure: The author holds bitcoin investments.) Bitcoin was created in 2009 and uses distributed ledger technology (blockchain) to send value from one person to another. The blockchain is a ledger used to keep a record of bitcoin transactions, among other uses.
The Political Impact of Bitcoin
When Bitcoin was launched, it took a while for governments and authorities to recognize it. Established as a new way to deliver value, Bitcoin later proved to be disruptive when testimonies of investors (such as the Winklevoss twins) getting rich from Bitcoin began to surface in 2017 when Bitcoin reached pre-pandemic highs. This caught the attention of regulators around the world, as one of the tasks of governments is to oversee and regulate financial transactions within their borders. Most countries use a centralized financial system with a central bank, which regulates the printing and use of the currency.
According to coinmarketcap.com, Bitcoin's market capitalization exceeded $320 billion in December 2017. This has led to an increasing interest in cryptocurrencies by authorities. In fact, some countries such as Venezuela and Sweden have created their own cryptocurrencies, named Petro and e-krona, respectively. In February 2021, Bitcoin reached a market capitalization of $1 trillion for the first time.
Today, one thing is clear: authorities around the world are wary of Bitcoin. The main reason behind this is the decentralized nature of cryptocurrencies, which makes it impossible for governments or individuals to control bitcoin. For example, in China, citizens are limited to $50,000 per year to purchase other countries' currencies, but using Bitcoin, citizens were able to make billions of dollars in transactions last year. On the other hand are countries that are more favorable to cryptocurrencies, such as El Salvador, which became the first country in the world to recognize bitcoin as legal tender.
Bitcoin transactions are conducted using cryptocurrency addresses, which mask the identity of the transaction and the parties involved. This raises ethical questions for authorities and provides fertile ground for criminal activity. For example, in 2020, the FBI seized $1 billion in bitcoin associated with dark web marketplaces. There have also been recent high-profile hacks, such as the Colonial Pipeline hack, in which bitcoin was used by criminals to demand ransom.
Can blockchains be hacked?
Decentralization is the main security feature used by blockchain technology. This means that data is not stored on a single record, but is replicated multiple times on the different blocks that make up the blockchain. Even if one of the records is attacked, the data remains in the other mirrored records. This feature makes it difficult to crack the entire blockchain, although it does not rule out the possibility.
No matter how secure a system is, hackers will always find a way to exploit its weaknesses. For example, a February 2019 report from the MIT Technology Review noted that hackers have stolen nearly $2 billion in cryptocurrency since the beginning of 2017. One common hacking method is the 51% attack. It works like this: every block in the blockchain is verified by the system and considered valid. If a user has more than 50% of the computing power, the block will be considered valid even if the wrong transaction block is submitted. This creates the opportunity for double spending, where a person can spend $50 and still be able to spend it again by changing the record.
Blockchain technology will take time to become widely accepted. Authorities and governments still have problems and the situation will likely remain until they find ways to control it and reduce the ethical issues associated with blockchain technology and cryptocurrencies.
Blockchain technology remains secure due to its decentralized system and data replication. However, as computing power continues to grow, this security is not guaranteed to continue in the future.
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