The Issues Facing Cryptocurrency Today

While the ease and security of cryptocurrency transactions have improved in recent years, the industry still has a reputation for hacks and criminal activity that is hard to get past. While public blockchains do bring transparency to cryptocurrency transactions, they can also provide the potential for anonymous transactions.

With that anonymity can come identity theft, fraud, currency manipulation, money laundering, and ransomware. While these are straight-out criminal activities, cryptocurrencies can also be easily lost through ‘user error’ (don’t forget your passphrase!).

So what issues and security challenges does the crypto industry face? Let’s find out.

Extreme Volatility

Even though the largest virtual currencies have addressed many of their security issues, that doesn’t mean most of them are in any way stable from a price perspective. The advent of stablecoins such as Tether, DAI, and USDC, which are pegged to the US dollar, has introduced stability for those wanting to transact with a digital dollar alternative. But for cryptocurrencies that are unpegged, volatility remains extreme.

To a large extent, altcoin prices follow the price of Bitcoin. Therefore, even if there is no fundamental reason why your favorite altcoin’s price should fluctuate, if the Bitcoin price moves, it will probably move too.

For example, at the start of the Covid-19 pandemic, the BTC price fell around 50% between February 2020 and March 2020, from approximately USD10,000 to USD5000 – dragging the whole sector down with it. Then, after hitting an all-time high of around $62,000 in April 2021, Bitcoin had fallen 50% once more by mid-July – again, pulling the entire market down again. There is no reason to believe cryptocurrencies will be any less volatile any time soon.

Lost Passwords

It is very difficult to secure insurance coverage for cryptocurrencies. One reason for this is the amount of Bitcoin that has been lost. According to statistics from research firm Chainalysis, about 20% of all Bitcoin mined so far has been lost. Lost doesn’t mean stolen. Instead, it means a misplaced USB or a Post-it note with a seed phrase on it that got thrown in the trash or was otherwise lost.

Since there’s no central authority to help you access your account, you can’t recover the money. If someone can’t locate their passwords or seed recovery phrases for a lost or damaged hardware wallet, then the Bitcoin is probably gone forever. A recent report shows that owners who forgot their log-ins have not claimed approximately $140 billion in Bitcoin.

Anonymous Transactions

As crypto has evolved, so have the types and functionalities of cryptocurrencies. Among them are camouflaged, anonymous cryptocurrencies like Monero and Zcash. Governments and regulators struggle to keep tabs on transactions made with these privacy-centric coins. As a result, this brings a heightened risk of money laundering and terrorist financing to the table.

Since the digital space and anonymity increases the risks of fraud, for protection, businesses have the option to remove the anonymity layer and reveal the actual address of the crypto sender. A great example of achieving anonymity online is proxies, which are used in 97% of fraudulent transactions. Such high rates can be minimized with Proxy Detection, an automated tool that scans the users’ geolocation and prevents unwanted losses. Such a service detects anonymity of the IP in the murkiest depths of the net, like the dark markets.

Double Spending And 51 Percent Attacks

In 2018 some major cryptocurrencies fell victim to 51 percent attacks, highlighting the fact that not all blockchain networks are as secure and ‘unhackable’ as they claim to be. Also known as a majority attack, a 51 percent attack refers to an attack on a blockchain network by a bad actor who gains control of over 50 percent of the network’s hashrate.

Taking over a blockchain network allows the bad actors to reverse transactions, halt payments, or prevent new transactions from confirming. Most importantly, it also allows the hacker to engage in double spending to create ‘free’ money from the network, which can then be sold for other cryptocurrencies on exchanges to cash-out after the attack.

Although the size of the Bitcoin network means it is very unlikely it could fall victim to a 51% attack today, other big networks like Ethereum Classic and Verge have been hit by double-spend attacks multiple times.

The bottom line

Due to blockchain’s strong encryption and the randomness of data transactions, it can be difficult to detect inconsistencies and fraud patterns. Cybercriminals can take advantage of this situation, making cryptocurrency security hard to maintain. That’s why businesses wanting to make the most out of transacting using cryptocurrencies should ensure they do all they can to detect bad actors and ensure proper security measures are in place.