One of the primary reasons why investors and speculators have piled into Bitcoin over the past 24 months is the fact that it’s a decentralised asset. It cannot be manipulated or controlled by central banking systems, or other investors.
The decentralised control of Bitcoin and all other cryptocurrencies works through a distributed ledger technology — typically blockchain — which serves as a transaction database that’s openly available for public scrutiny.
A benefit of using this system is the fact that Bitcoin becomes immune to seizure. Nobody can confiscate your cryptocurrency and you also don’t have to rely on any one single trusted third-party (like a bank), because the network is distributed globally across many thousands of computers around the world.
That is the theory anyway. In practice, as it turns out, Bitcoin isn’t immune to seizure, and you do have to rely on trusted third parties.
Sudden deathÂ
At the beginning of February, cryptocurrency executive Gerald Cotten died in hospital from complications related to Crohn’s disease. When he died, he took with him the codes for vaults at QuadrigaCX, Canada’s biggest cryptocurrency exchange, effectively confiscating more than $100m worth of Bitcoins from their rightful owners.Â
Cotten’s death is just the latest in a series of events where Bitcoin owners, who think no one can touch their assets, have found themselves bitterly disappointed.Â
For example in 2013, the FBI seized 144,336 Bitcoins after they shut down Silk Road, the online marketplace for illegal drugs. Investors and speculators have also lost hundreds of millions of dollars to theft over the past few years. In the first half of 2018 alone, more than $1bn worth of cryptocurrency was stolen.Â
Undermining credibilityÂ
These events have all weakened the credibility of Bitcoin, and it seems to me as if the cryptocurrency’s reputation has been damaged beyond repair as a result.Â
The problem is, for it to become widely accepted as a global method of monetary exchange, investors have to trust Bitcoin and blockchain. Otherwise they won’t be transferring their pounds and dollars for the cryptocurrency.Â
Thefts, asset seizures and even the death of the exchange CEO have done little to reassure users that when they buy Bitcoin, it will remain theirs.Â
Granted, traditional money does have the same problems. Scammers stole more than £500m from UK bank customers in the first half of 2018, and authorities around the world are more than capable of freezing your assets if they think you have committed an illegal act. But when you deposit money in a bank, you can be sure that when you go back to get it, it’ll still be there.
In the UK, up to £85,000 per bank account is insured by the Financial Services Compensation Scheme if a financial institution fails. Meanwhile, if a bank is responsible for fraud as a result of a flaw in its IT systems, it usually re-compensates customers — as TSB did last year.Â
The cryptocurrency doesn’t have the same safeguards. Until it does, people will never be able to trust the cryptocurrency fully. The growing number of scams and frauds could mark the end of Bitcoin as we know it.