Javascript on your browser is not enabled.

Advertisement

Reshmi Khurana

Reshmi Khurana is Managing Director and Head of South Asia in Kroll’s Investigations and Disputes practice, based in the Mumbai office. Reshmi has more than 15 years of experience in the United States as well as in South and Southeast Asia conducting complex corruption investigations, litigation support projects, and due diligence on the management, operations, and business models of organizations. Her experience includes helping clients identify and bridge gaps in internal controls and corporate governance through people, processes, and technology.

More From The Author >>

The Future of Bitcoins

The characteristics that make Bitcoins attractive to some users are the same ones that are standing in the way of their scalability and mass appeal.

The main appeal of Bitcoins and other cryptocurrency is that these digital currencies are commonly perceived as “democratic”, in the sense that they are not controlled by any one central bank and therefore are not subject to the politics and influence of any one government or economic trend (e.g, price of oil or inflation). They are generated by the users or ‘miners’ as they are called, using complex mathematical formulas. In today’s fast digitizing world, they are attractive because these currencies can be transferred electronically, almost instantaneously and with very low transaction fees.

So why do Bitcoins remain an exotic currency, their use limited to cyber and tech savvy users, with no significant scale up? Why are they not the preferred currency for digital or transnational transactions, where they would supposedly be an appealing choice of currency?

The characteristics that make Bitcoins attractive to some users are the same ones that are standing in the way of their scalability and mass appeal.

First is the question of need. Over the last five years, as economies around the world started their slow recovery from the Global Financial Crisis (GFC) of 2007/2008, governments and central banks have been focused on economic stability and control of inflation. When the economic environment is relatively stable, it is difficult to peel users away from traditional currencies to cryptocurrencies despite their promise of being more democratic and having lower transaction costs. With economic growth in China slowing down, the US dollars remains the dominant currency of the world, a position that was only temporarily threatened in the immediate aftermath of the GFC.

Second is the question of the infrastructure that supports Bitcoin’s ecosystem. There is a limit to the amount of transactions that can occur on the network and this limit has never been breached or tested. And yet, because Bitcoin is an open-source project, it is unclear who is responsible for ensuring that the infrastructure is up to date, upgraded and able to withstand a certain scale of transactions. It is a ‘chicken or the egg’ situation, where the Bitcoin network has not been stress tested because Bitcoins are not a mainstream currency and the volume of transactions is still limited, and on the other hand, it is unclear who / which group is ultimately responsible for ensuring that the network is constantly upgraded and capable of handling a larger volume of transactions.

Investors in Bitcoin and other cryptocurrency understand that capacity will eventually become a constraint and that this problem has to be tackled head-on, to ensure that Bitcoins remain a meaningful alternative currency.

In the meantime, governments and companies struggle with the use of Bitcoins in various forms of illegal trade on the deep web. This includes the trade of controlled substances such as certain drugs, arms, contraband and child pornography. Cybercriminals also use Bitcoins in ‘ransomware’ attacks and demand payment in Bitcoins. ‘Ransomware’ attacks are when hackers take control of the IT systems of a government agency or a private company, and demand ‘ransom’ in exchange for not causing damage like releasing a virus, or shutting down its IT systems. The ransom is often demanded in Bitcoins.

Because Bitcoins users on either end of a transaction can remain relatively anonymous and cybercriminals have found ways to mask their addresses, it can be difficult for government authorities and companies to trace such illegal activities. Bitcoin alone cannot be held responsible for these illegal activities, since Bitcoin transactions can often be traced and clues to the user’s identity uncovered, but with more difficulty than other payment methods.

Bitcoins and other cryptocurrencies are here to stay. It remains to be seen whether they can overcome the challenges described above to gain scale in their use around the world.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house


Tags assigned to this article:
bitcoins

Around The World

Advertisement