Blockchain. Hashes. Russian Hackers. Encryption. Privacy. These are all ideas pertaining to the concept of ‘cryptocurrency’ that have gone viral over the last 6 years with the birth and several rebirths of Bitcoin and other Altcoins.
Yet, despite the fact these words keep popping up during media interviews of crypto nerds and Bitcoin millionaires, they have never really become vernacular in the same way that we speak of ‘money’, ‘cash’, ‘bank transfers’, ‘visa’, ‘credit’ and other traditional financial terms.
In fact, when anybody knows anything about Bitcoin and crypto they parade about it, create youtube videos and pretend they’re some sort of hyper-developed ‘woke’ humanoid like the first people to sign up to LinkedIn, showing just how novel and semi-esoteric the concept of cryptocurrency actually is.
The question is, is this novelty just a product of the fact that this field just hasn’t reached its predestined peak — a point when all of society begins to adopt the concepts? Or, is this novelty a reflection of the fact that the concept of cryptocurrency itself is flawed and hasn’t taken off at the rate that modern lightbulbs should — see Tesla, GymShark, Memes.
Is it novel because there is something inherently wrong with it? That while it is disruptive, there just isn’t any demand for it?
Almost every person I’ve spoken to who has ever studied Economics or worked at Deloitte, Mckinsey, PwC, JP Morgan, KPMG, Grant Thornton (Please don’t be bitter if I didn’t mention your grad-scheme), resoundingly agrees with the second option.
‘Bitcoin is flawed’ — is a popular opinion. More accurately, ‘cryptocurrency’ is flawed.
But why do they say this, you may ask?
Problems With The Current Protocols
One answer is that they’re socialized and traditional finance has become a sort of ideology for them. You might hear them say: “Bitcoin cannot work. It just cannot. That is the end of the matter.”
Others, who I’m actually more inclined to listen to will say:
Lack of regulation.
And others: it’s the fact that Bitcoin payments are too public. Anyone who accesses the Bitcoin network can observe payments from one user to another — although each one is enshrouded by a hash — a randomly generated set of numbers and letters that reflects their publically visible identity.
Although payments are anonymous, through the process of blockchain analysis (mapping real-life identities by identifying payment patterns) it’s possible to trace back payments to a real-identity or institution that is represented by a public key. It doesn’t take a genius to figure out why financial institutions don’t want their payments to be on a public ledger. I’ll leave that one for you to think about.
Anyone reading this might say “didn’t Monero fix that?”
Monero — Privacy in place of pseudo-anonymity
Monero is a privacy coin that uses complex, and longer encryption methods to prevent exposing how much was sent and to whom. The Monero Protocol encrypts the message (payment data) as well as obfuscating the identity of the user.
Monero also prevents people from shorting the network because nobody can identify big sell orders before they’ve happened, which is theoretically possible on the Bitcoin network.
However, arguably Monero suffers from the fact that it is un-auditable — raising concerns for anti-money laundering forces worldwide.
The Monero community is incredibly grass-roots, being initially launched on a Reddit post by privacy seekers. If some of the networks partnered with larger, centralized institutions who could audit payments, a hard-fork in the community, which is already much smaller than the Bitcoin community, could occur.
Recently, however, crypto developers have been trying to figure out a middle ground — a way for payments to remain confidential, but allow for potential auditing.
The Middle Ground — Attempts To Popularise Cryptocurrency
PGC — Pretty Good Confidentiality System is a concept, currently seeking institutional investment, which works as an off-chain solution on Ethereum and other crypto networks to the problems that we have discussed.
The PGC system would allow for end-to-end encryption, including message and identity encryption. Yet, in special circumstances, the PGC system would allow interference from third parties such as governments and other regulatory authorities — allowing it to be auditable and alleviating laundering concerns by authorities.
It also seeks to further privatize current pseudo-anonymous stablecoins which are pegged to the USD —even further minimizing the disruption that PGC would cause to the current financial system.
While this goes against a lot of the values of the early Blockchain community, it is a strong attempt to moderately bridge the gap between the status quo and a viable future with cryptocurrency at the heart of payment processing.
In fact, PGC is not the only crypto project which is trying to act as the middle ground between cryptocurrency and the current financial system. Ripple was another invention, which aimed to allow cryptographically protected users to transfer payments while restricting access to the ledger to financial institutions.
Only time will tell whether the project takes off the ground.
You could say that moderate crypto projects such as Ripple and PGC are the popularist attempts to reconcile cryptocurrency with the current financial system.
They are much more likely to be accessible in countries such as China which have already looked towards banning cryptocurrency because of it’s disruptive nature.
I wanted to mention that I’ve missed out on a ton of different potential issues with the concept of cryptocurrency and inventions to solve them but they are to explore for another day.
