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Bitcoin Is not Ideal: Inherent Risks of Bitcoin

Three years ago or two years ago, if you asked me what Bitcoin is, I’d tell you it is the future of money. It is managed by the network, not by the government. Plus, it is private, anonymous and fast. It’s just perfect!

Bitcoin is proved very successful. Since its inception in 2009, Bitcoin has attracted increasing media attention, articles in The Economist, TED talks, BBC news. With surging popularity and increasing price, more currency speculators and even ordinary customers who have no idea what bitcoin is are investing in it, hoping to be part of a so-called revolution. Countries like Canada, Philippines and Japan have legitimized Bitcoin as payment method. Central banks worldwide are exploring the potential of Bitcoin and its underlying technologies like Blockchain.

It seems that we have every reason to be optimistic about the future of Bitcoin. But is Bitcoin ready to rock the world? Or is Bitcoin as perfect as you have imagined?

Anonymity

I believe that the very mentioning of bitcoin will remind people of anonymity, but the truth is that bitcoin’s privacy is widely misunderstood.

“While the Bitcoin technology can support strong anonymity, the current implementation is usually not very anonymous.”

The crux of the problem is that every transaction is recorded in the public ledger network and data recorded on it is available to all. Recently, a group called the Large Bitcoin Collider(LBC) claims that it is using its computing power to smash open bitcoin wallets owned by other people and potentially taking the coins inside. How can they accomplish this?

“Bitcoin addresses containing funds can be accessed by private keys, which are generated at the same time as the address. Technically, a number of private keys could work with any given address, but you’d need a huge amount of computing power to brute force your way through enough possibilities to find any of them.”

Maybe just like what Brunstein said:

“Bitcoin is more accurate to describe it as pseudonymous.”

Security

The unique digital nature of Bitcoin has made it susceptible to be hacked.

Mt Gox

The first Mt Gox hack occurred in June,2011. An attacker with a Hong Kong IP address compromised an account on the site, and then made a massive sale of bitcoins, causing the price of the currency to drop from $32.00 per coin to mere pennies.

On February 24, 2014, MtGox announced that it had been hacked, again. This time, it had lost everything: the sum total of its bitcoin holdings were just 2000BTC, according to a leaked crisis document.

Bitfinex, Bitcoinica, Bitfloor and other exchanges are also included in the list of exchanges being hacked. Unfortunately, it looks like hacking has become a commonplace in the bitcoin world.

51% Attack

A 51% attack is the Sword of Damocles hanging over the head of Bitcoin. In Bitcoin, miners are literally controlling the network. If a pool operator had 51% of the network, he could always have the “longest blockchain” and decide where all new bitcoins belong.

In his Bitcoin paper, Satoshi identified several issues, with the 51% attack being the greatest.

“So what is the 51% attack? To understand that you have to understand how Bitcoin works. Essentially Bitcoin is a collection of nodes performing “virtual work”, the more work you do the higher your rating on the network. So what happens when malicious users get together and manage to do more “virtual work” than the “good people” ? Well that is the 51% attack, and it basically means you can wake up tomorrow with zero Bitcoins in your wallet. It means any business that accepts Bitcoins can get robbed and have all their goods taken with fake Bitcoins. It also means if they wanted, governments, large corporations or hackers can “shut down the network” by refusing to accept any new transactions. Complete network shutdown. Can’t do anything with your Bitcoins, neither can anyone else.”

Now if you ask me what Bitcoin reminds me of, I’d say possibilities, possibilities of expression of value. Before, I’ve been taken it for granted that the government should control currencies. But now I’d like to take a moment to think of the question:

“What is the nature and origin of money?”

COMMENTS(14)

  • Doofus
    4 days ago Doofus

    Three years ago or two years ago, if you asked me what Bitcoin is, I’d tell you it is the future of money. It is managed by the network, not by the government. Plus, it is private, anonymous and fast. It’s just perfect!And Bitcoin is proved very successful. But it has inherent risks like anonymity, hacking,51%attack, double spending. Stop imagining bitcoin is perfect. No coins are perfect. I’d say bitcoin means more about possibilities, possibilities of expression of value. Before, I’ve been taken it for granted that the government should control currencies. But now I’d like to take a moment to think of the question:“What is the nature and origin of money?”

  • Qartada
    4 days ago Qartada

    Bitcoin can’t be hacked, it’s impossible.  Even 51% attacks wouldn’t be hacks, they’d just be attacks on transactions.  Double spending isn’t really very much of a threat unless it has no confirmations – a lot of the reason we have mining is to fix the double spend problem.A lot of the problems you mention don’t exist.  Anonymity isn’t even a problem, and if people want anonymity they’ll gradually move to real anonymous coins like Monero, and illegal activity will just be a side effect so it doesn’t really matter that they’re used for illegal activity.  Cash is as well.Bitcoin isn’t perfect but you’re looking at the wrong things as problems.

  • webtricks
    4 days ago webtricks

    Quote from: Doofus on April 21, 2017, 10:24:19 AM
    Three years ago or two years ago, if you asked me what Bitcoin is, I’d tell you it is the future of money. It is managed by the network, not by the government. Plus, it is private, anonymous and fast. It’s just perfect!And Bitcoin is proved very successful. But it has inherent risks like anonymity, hacking,51%attack, double spending. Stop imagining bitcoin is perfect. No coins are perfect. I’d say bitcoin means more about possibilities, possibilities of expression of value. Before, I’ve been taken it for granted that the government should control currencies.

    You may have many questions on Bitcoin features and drawbacks. Well, everything in this mighty world has drawbacks. This is the basis of evolution. Same applies to Bitcoin and one of the major reason why we see more and more cryptocurrencies everyday is the lacks of Bitcoin. Just take a moment and go through Altcoins ANN section, you will see many coins claiming themselves to be superior than Bitcoin on these basis.

  • Sadlife
    4 days ago Sadlife

    Bitcoin can be hack? Impossible.I guess your were talking about the bitcoin exchanger sites that got hack? Right. 51 percent attack is just spamming the network with transactions but the solution is miners. Double spending the solution is also miners. Bitcoin’s only major crisis right now is it’s stagnant scaling problem.

  • ETFbitcoin
    4 days ago ETFbitcoin

    I have few arguments such as :1. Bitcoin isn’t anonymous, but only pseudonymous and user need efforts to keep their anonymity. If user only use few address, anyone could track him/her easily.2. Hacking is impossible, otherwise many hackers/government already hacked bitcoin.3. 51% attack doesn’t mean take control over bitcoin network or attack bitcoin network (CMIIW)4. Double spend is impossible by now, miners simply confirm transaction that have earlier LockTime and reject the others.I can agree that no coins/currencies is perfect, but those aren’t real bitcoin problems.

  • Dorky
    4 days ago Dorky

    Where are the real life cases of double spending?

  • davidmccoy
    4 days ago davidmccoy

    The world is going towards IoTs (internet of things). Everything will be connected in future. The missing part is money. Although online bank transactions and credit card payments contribute to the online concept, but still there is a need of a strong cryptocurrency to become a Pivot point in IoTs. So far, Bitcoin is a strong candidate, but I agree there are a lot of problems regarding the security of something which is online… Special protocols are required to safeguard Bitcoins from adversaries.

  • cpfreeplz
    4 days ago cpfreeplz

    I stopped reading after you said bitcoins are anonymous. Obviously if you present false information in your  statement your whole post is going to be stupid bullshit FUD.TD;DR, OP is going to use shitcoins for his big important purchases now. Thanks for dropping by. Don’t let the door hit you on the way out.

  • BitcoinAllBot
    4 days ago BitcoinAllBot

    Here is the link to the original comment thread. Or you can comment here to start a discussion. Author: 8btccom

  • Nagadota
    4 days ago Nagadota

    Quote from: cpfreeplz on April 21, 2017, 05:38:03 PM
    I stopped reading after you said bitcoins are anonymous. Obviously if you present false information in your  statement your whole post is going to be stupid bullshit FUD.TD;DR, OP is going to use shitcoins for his big important purchases now. Thanks for dropping by. Don’t let the door hit you on the way out.
    A bit of rephrasing would make it easily correct – “Bitcoin can be solely pseudonymous, making it anonymous for practical purposes as long as you take various steps involving anonymising your own Internet connection and using mixing services, or at least dramatically closer to anonymous than digital fiat currency as long as you’re careful enough”.  But that doesn’t sound so nice in a post like this, so why be pedantic?

  • ekoice
    3 days ago ekoice

    Quote from: Qartada on April 21, 2017, 04:14:46 PM
    Bitcoin can’t be hacked, it’s impossible.  Even 51% attacks wouldn’t be hacks, they’d just be attacks on transactions.  Double spending isn’t really very much of a threat unless it has no confirmations – a lot of the reason we have mining is to fix the double spend problem.A lot of the problems you mention don’t exist.  Anonymity isn’t even a problem, and if people want anonymity they’ll gradually move to real anonymous coins like Monero, and illegal activity will just be a side effect so it doesn’t really matter that they’re used for illegal activity.  Cash is as well.Bitcoin isn’t perfect but you’re looking at the wrong things as problems.
    Yes,the problems you mentioned are not at all an issue.Bitcoin cannot be hacked at any time.I do accept that bitcoin is not perfect.But i could surely say that bitcoin is far better than the existing centralized currencies.

  • Doofus
    9 hours ago Doofus

    Quote from: cpfreeplz on April 21, 2017, 05:38:03 PM
    I stopped reading after you said bitcoins are anonymous. Obviously if you present false information in your  statement your whole post is going to be stupid bullshit FUD.TD;DR, OP is going to use shitcoins for his big important purchases now. Thanks for dropping by. Don’t let the door hit you on the way out.
    by anonymity, i only mean that’s the first impression of bitcoin to many people. of course, the pseudonymous is more accurate.

  • Pursuer
    5 hours ago Pursuer

    Quote from: Doofus on April 21, 2017, 10:24:19 AM
    Three years ago or two years ago, if you asked me what Bitcoin is, I’d tell you it is the future of money. It is managed by the network, not by the government. Plus, it is private, anonymous and fast. It’s just perfect!
    after 3 or so years I am still saying a similar thing, although I never used the word “anonymous” I prefer calling it “giving you a better privacy if you know how to” and I would never call it perfect but only because NOTHING is perfect. but bitcoin is the best thing that I have seen so far. many others claim to be better, some even come close but nothing could compete with bitcoin so far.Quote
    But it has inherent risks like anonymity,
    what is “risk like anonymity” how can it be a risk?Quote
    hacking,
    bitcoin has never been hacked and for many years to come, it can not be hacked. the cryptography level that it uses is good enough to prevent it and in case some vulnerability was found it will affect a lot of things, not just bitcoin. and it can be patched.hacks have always happened because of people’s mistakes. like having a key logger, having no password on your wallet, not using cold storage,…Quote
    51%attack, double spending.
    I wouldn’t call these as “risks”. these are small possibilities that also can be prevented.Quote
    Stop imagining bitcoin is perfect. No coins are perfect.
    it is best to have a better understanding of the advantages and disadvantages (or if you like calling it risks) of bitcoin or anything for that matter before starting to use it and try to learn then from reliable resources not what you read on the internet from random source or what your personal understanding is. they can be very wrong.

  • Sniper44
    1 hour ago Sniper44

    bitcoin is the first of its kind (at least the first one that became big and popular on a large scale). and it has also been receiving improvements, bug fixes, etc. so it is understandable that it is not perfect. there are always weaknesses in every system and anything that claims to have none is clearly lying.however i’d say these weaknesses are not at all serious or a reason to call bitcoin “not perfect”.

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