From the start, Bitcoin has been seen as something of a ‘behind closed doors’ asset. With SilkRoad and other black market sites been heavily Bitcoin dependent, the image has not been good.
While this has begun to change, and the general public has started to hear more positive reports, things are still touch and go. And the main cause of the loss of consumer confidence in the cryptocurrency is the almost incessant security breaches that plague the industry.
A quick summary
Because Bitcoin is a digital currency, the potential for hacking is extreme. Of course, this is also true of banking institutions that handle digital funds, but it seems more prevalent in cryptocurrencies. In fact, the total for stolen funds in cryptocurrencies crossed $1.3 billion—a massive amount of loss for an industry just ten years old.
And, for those who think the direction is positive, and security is improving, statistics show that more than 61% of the losses occurred in 2018. It seems that as values for cryptocurrencies increase, the motivation to steal them increases proportionately.
Seeking solutions
This increase in security failures is due, in large part, to the early stage of adoption of the industry. While banks have had thirty years of digital transactions to improve security, Bitcoin has been around just ten. The nascent technology has left gaps for some to exploit, and exchanges are the biggest culprit.
But beyond simply security threats, exchanges are often their own worst enemy. For example, the recent news of the death of the CEO of QuadrigaCX, and the loss of his personally held private keys for investor funds only highlights the need for better and stricter exchange policies.
This has led investors to pursue new and more secure exchange options, and particularly those with financial backing. Exchanges that refuse to move toward security and fiscal responsibility will eventually be left on the sideline.
Secure and backed
One such example of this new exchange model is FT Exchange or FTX for short. The company has the backing of Alameda Research, responsible for more than $1 billion in trades. With this level of external support, the exchange offers a level of investor security that is rarely available in the cryptocurrency world. Plus, they have created some of the tightest security protocols around.
Other exchanges are coming into the market or seeking to enhance their value proposition as well. The main goal is to allow the freedom of financial transacting that has characterized Bitcoin and cryptocurrencies, while at the same time protecting investor funds. This sort of ‘safe/freedom’ model has been tricky to provide but is growing.
Of course, as with most assets, Bitcoin and cryptocurrencies can be stored offline for maximum security. Simply storing private keys on a hardware or paper wallet will make the coins effectively 100% safe for users. But this defeats the purpose of a cash/payment methodology originally conceived by Bitcoin creator Satoshi Nakamoto.
Crushing the market
As security threats continue, the adoption cycle for Bitcoin has begun to slow. No wonder the euphoria of 2017 turned into the crypto winter of 2018. What seemed a great opportunity for quick returns turned into a security nightmare.
And, convincing banks and business owners to offer cryptocurrency support for payments and transfers is an uphill battle. The risks associated with moving into the space are dramatic. And, given the risks, the cost associated with creating the necessary security protocols can be dramatic.
Of course, those costs can be offset by market gains and profits. And, the current bull run that Bitcoin is experiencing should provide additional incentive. However, the end game of market adoption won’t be easy to achieve without massive change.
Whether Bitcoin and its cryptocurrency cousins eventually grow in adoption remains to be seen. However, the great need in the market is not another low-security exchange startup. Instead, the market must find ways to bring well-funded, secure exchanges online for consumers to use. Without these types of market enhancements adoption will stagnate and the market will be crushed before it reaches maturity.