Cryptocurrency: A trustworthy system or a spider web of scams?

Cryptocurrency could be an interesting topic for group discussions, but we are still far away from drawing any conclusion on it. The virtual currency that is based on the technology known as blockchain is stated as a trustless system by a widely regarded cryptographer of Harvard University. Bruce Schneier, the cryptographer of Harvard University, has bluntly refused to have faith in the blockchain technology that is the mother of all type of Cryptocurrency.

According to Schneier, the blockchain system is not going to work without trust because one of its main features is a peer-to-peer transaction that is impossible without both the ends trusting each other. But the irony lies in the fact that when trust comes in, it totally contradicts the aim of conducting the uncontrolled nature of the transactions in the blockchain system.

Stressing on the issue of trust, Schneier says:

If your Bitcoin exchange gets hacked, you lose all of your money. If your Bitcoin wallet gets hacked, you lose all of your money. If you forget your login credentials, you lose all of your money. If there’s a bug in the code of your smart contract, you lose all of your money. If someone successfully hacks the blockchain security, you lose all of your money. In many ways, trusting technology is harder than trusting people. Would you rather trust a human legal system or the details of some computer code you don’t have the expertise to audit?”

In addition to the above, Schneier also put a light on the need for immense energy to run the system of Cryptocurrencies and its adverse effects on the environment. The reason behind this immense energy is the complex computing process that is followed in blockchain mining.

For example, in a Bitcoin blockchain mining, adding any type of transaction to the blockchain produces a code that is called hash and to attach that transaction in an open ledger of the blockchain, miners follow a highly complex computing process that is fast.

The process includes shuffling the trillions of hash that has already generated to find the one that has generated before the recent one. This is a complex process and involves a lot of energy that can put a huge toll on the environment.

What is blockchain?

The blockchain is a virtual chain of people that have come together and shared their transactions in an open ledger in a manner that all the transactions are accessible by each of the members in a blockchain. A new transaction needs to approve by everyone in the chain and when approved get linked to the chain in the form of a new block.

Many others issues are related to Cryptocurrencies like they are not very popular as a means of payment, they are used for criminal activities, they are not a thing in itself, Cryptocurrencies are not a store of value, etc.

So it can be concluded from the above explanations that one should stay away from Cryptocurrencies, but investors are still investing in Cryptocurrencies.

Why is Cryptocurrency the future?

It is decentralized – It means that there will be no involvement of government and other parties in your transactions.

Less human involvement – It is designed to lessen the human participation in the transaction system as two different person thinks differently. This leads to a secure transaction because if a few of the participants in a blockchain are not trustworthy, other miners are trustworthy and never going to approve the transaction.

In addition to the above, it is easily transportable, involves little to zero transaction charges and high anonymity that makes it a perfect currency of the digital world. It cannot be denied that there are a lot of scams attached to Cryptocurrencies but once a user can tell that which one is the legitimate currency, he can make a lot of money playing in a volatile environment of Cryptocurrencies.

In the words of James Altucher, a well-renowned author, volatility creates opportunity.

Because it’s rare that intrinsic value changes very quickly from day to day.

Example: We know everything there is to know about McDonalds and 1000s of analysts research the company.

The intrinsic value of McDonald’s will almost certainly never go down 20% in a day. But if the stock went down 20% in a day (example: a 9/11 event occurs causing a mass fear selloff across all stocks), then MCD becomes a value buy because the volatility exceeded the normal change in value.

If you can identify the Cryptocurrencies that are legitimate and not scams, then you can make a lot of money playing in volatile situations in Cryptocurrencies.”

Cryptocurrency has many pros and cons, but the fact that some well-educated people still have faith in it and it is still evolving, one can only wait and watch whether it is a trustworthy system or a spider web of scams.

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