Complex Made Simple

Bitcoin has internal issues, faces future threats, but is it the ultimate savior for current crisis?

Will good old cash save the day when looking for an out of this global crisis, which many are now labeling a recession? Or is it Bitcoin?

Bitcoins just need a handful of servers to run, verify and complete transactions, makes more resilient than cash based economies The distribution of Hash Rate shows that a new type of centralization is threatening the decentralized side of Bitcoin When a hacker manages to claim 51% of the total computing power he can control the network and create fake transactions

You can say what you want about Bitcoin. It has failed us in many ways, not only price wise, where it has lost 50% of its value in recent times, but also not acting like a safe haven, like Gold.

The price as of writing is $5266 now from a February 9, 2020 price of $10,000.

In fact, both Bitcoin Hodlers and Gold stashers are selling their hoard in order to offer cash relief and allow them to offset stock market losses on global markets.

But here’s the thing: Will good old cash save the day when looking for an out of this global crisis, which many are now labeling a recession?

The jury is out on this. But we’re hearing strong opinions.

Read: Bitcoin could one day reach $1,000,000, but today it’s heading towards $1,000

Bitcoin backers

Bitcoin’s success isn’t judged by its price but by its digital scarcity in a time of helicopter money, quantitative easing (QE) and record low interest rates, reports Forbes.

In fact, Bitcoin, ether and other crypto networks need no bail out or QE. They can’t be artificially boosted by central banks or governments—it will only be supported by increased demand. 

Bitcoin can’t be printed or pasted from a clipboard. 

Bitcoins just need a handful of servers to run, verify and complete transactions, which makes more resilient and independent from cash based economies. Even, though we will see later that there is an issue there with hash rates being too centralized, actually dangerously so.

Billionaire investor Tim Draper delivered another optimistic forecast about Bitcoin, according to the Coin Telegraph.

In a March 16 interview with 415 Stories podcast, Draper outlined decentralization powered by Bitcoin and other new technologies as a major tool that has the “ability to transform the biggest industries in the world.”

“It will be Bitcoin, not banks and governments that save the day,” he said.

According to Draper, Bitcoin will be one of the most crucial tools in the times of the recovery of the ongoing global financial crisis, opposing the major cryptocurrency to centralized structures like banks and governments. 

Read: Bitcoin just lost 10% of its value in 24 hours, equivalent to over $26 billion

Bitcoin wallets: Much simpler domain addresses

Soon cryptocurrency users will no longer have to deal with complicated wallet addresses, because .crypto domains will replace these. Instead of sending a bitcoin to 34CpoxRwJzEzBg7D6DtXTbkUVvzPXyTbKQ, via copy pasting it, people will be able to send it to ‘yourname.crypto’.  

To transfer cryptocurrencies people only need to know the domain name. Pay the domain name once and it’s yours forever.

According to Unstoppable Domains, the simplification of cryptocurrency payments will lead to mainstream adoption.  

But Bitcoin as two main issues to deal with, starting with hash rate centralization.

Read: Kaspersky to make voting on the blockchain a reality

Hash Rate Centralization- Goes against everything 

Bitcoin’s decentralization of its network is one of Bitcoin’s main strengths. This decentralization makes Bitcoin much more resistant to attempts to stop its network since it does not have a single point of failure, according to Medium.com

The validation of Bitcoin transactions is carried out in a process called mining.

During mining, miners make their computing power available to the network to solve the mathematical equation that validates a block of transactions. The more computing power available on the Bitcoin network, the more secure the Bitcoin Blockchain is considered to be.

The computing power available on the Bitcoin network, known as Hash Rate, has been at record levels since the beginning of 2020. 

But, we have a problem.

The distribution of this Hash Rate shows that a new type of centralization is threatening the decentralized side of Bitcoin.

In order for the Bitcoin network to be fully secure, it is necessary that the available computing power is as high as possible, but also that it is distributed as well as possible between different entities.

If a single entity were to control more than 51% of the computing power available on the Bitcoin Blockchain, there would be a major risk of a double-spend attack.

In July 2014, GHash.IO briefly exceeded this 51% threshold, but market reactions to this dropped it to just 2% later in 2015.

Bitmain, a Chinese company specializing in the construction and sale of Bitcoin mining machinery ASIC, controls several Bitcoin mining pools including AntPool and BTC.com.

With a net profit of more than $740 million over half of 2018, Bitmain had extended its dominance over Bitcoin mining to an alarming level.

By 2018, the BTC.com and AntPool mining pools had reached 25.7% and 16.1% of the Hash Rate available on the Bitcoin network, respectively.

In addition, Bitmain is the sole investor in the ViaBTC mining pool, which represented 8.9% of the Hash Rate at that time, and is reported to have very close ties with BTC.TOP, which represented 12% of the Hash Rate.

Bitmain therefore potentially had control over more than 60% of the Hash Rate of the Bitcoin Blockchain. A big cause for concern. But this is being addressed.

As of February 9, 2020, the distribution of the Hash Rate on the Bitcoin Blockchain is as follows:https://ci3.googleusercontent.com/proxy/5L5vuBBO-p9KH1bTFtDckIfo1ldsb409Xtf4RxALAxtEqdNrCX_aZTN7_Tn6dnPe-b0I2X8OksaivwJ0-AkODwSLpXtNcG9vYjg4gCNNIFA=s0-d-e1-ft#https://miro.medium.com/max/5520/1*S4QjSitLGPBzazuAMzSupw.png

Today, no known mining pool accounts for more than 20% of Bitcoin’s Hash Power alone.

This good news is tempered, however, by the fact that more than 50% of the control of Hash Rate Power is still concentrated in China.

 With a control of more than 51% of the Hash Rate, an entity could carry out double-spending attacks or decide to censor certain transactions.

Users should focus on making their computing power available to smaller and above all independent mining pools in order to better counteract the excessive influence of big players such as Bitmain.

Read: Best of crypto and blockchain predictions for 2020 and beyond

Quantum threat 

Quantum computers are a potential threat to crypto and blockchain networks.  Not yet practical at the moment and the cryptography world is already building its fortress, but these threats are real.

These computers can launch an attack on a blockchain network or crack the code to Bitcoin private keys.

Researchers from Google and NASA have claimed quantum supremacy.

They have build a quantum computer that’s capable of performing a computational task that would take a supercomputer 10 thousand years. The quantum computer called Sycamore did it within 3 minutes.  

Cryptocurrencies are build on blockchain technology. To have a blockchain network run smoothly, 51% of the network should be working with the same intention. However, when a hacker manages to claim 51% of the total computing power he can control the network and create fake transactions.

This is called a 51% Attack, and has happened to several networks on several occasions over the years.

If a quantum computer is thousands of times stronger than a normal computer, then it seems likely that such a monster computer is able to take over a blockchain network easily.