ISLE OF MAN — The cryptocommunity needs to "grow up" if Bitcoin is going to flourish, according to a prominent member of the security community.
Interest in Bitcoin exploded after the 2008 recession. In 2012, there was a sharp rise in Bitcoin-based merchant services. Since this time, the cryptocurrency has become monetized due to rising demand, which peaked last year at over $1,000 for a single BTC. Many attempted to cash in, but the price fell by over 50 percent following the decimation of major Bitcoin trading post Mt. Gox.
Despite this, faith in virtual currency remains strong — but could the lure of cryptocurrency's unstructured and unregulated system also be its undoing?
There are endless possibilities for cryptocurrency, and this is not limited to Bitcoin. Litecoin, Dogecoin and Peercoin — to name but a few — are also in the mix, and many individuals and businesses are working out how virtual currency will fit in to our future. Traditional financial institutions may underpin transactions using virtual currency, more individual power and privacy could end up in the hands of consumers, and underdeveloped nations may be able to use crypto to circumvent corrupt governments or to allow for easier payments and reduced transfer costs where traditional economies are volatile.
Bitcoin may have had its name tainted by association with underground marketplace Silk Road, but virtual currency's story doesn't have to end there.
Bruce Elliott, an executive from financial services firm Boston, told attendees at the Crypto Valley Summit on the Isle of Man:
Bitcoin for us is a nice thing and a nice way to make money. For others, it's a matter of life and death — and a way to transform their own lives [...] and control their own destiny.
In short, Bitcoin is more than a "scheme," as a recent report issued by the Bank of England implied. Within the report, the financial institution said that while Bitcoin had the potential to "disrupt monetary policy," the inherent volatility of the currency means crypto is not a threat to traditional currency — and the "small size of such schemes" leaves virtual currency outside of the bank's notice.
However, in order for virtual currency to succeed, more is needed than ideas, glue and tape. Major ingredients including investment, security and regulation may also be necessary.
Speaking to ZDNet, Konrads Smelkovs, KPMG UK manager said the cryptocommunity needs to "grow up" in order to survive.
There are many, many ways for cybercriminals to take advantage of the fledgling industry. As noted by the security expert, hacking mining pools — clusters of users who share computing power to earn Bitcoin — and stealing the rewards outright or manipulating the returns to grab the lions' share is only one method. Hackers can also infiltrate software used to mine cryptocurrency, break into cloud storage systems, or hack personal PCs to swipe Bitcoin in cold storage.
"It started out with 'pirates,'" Smelkovs said. "But now the industry needs to grow up in terms of becoming 'more like the establishment' it originally rebelled against."
While the community has enthusiastic players ranging from keen businessmen to anarchists, the novelty factor may have worn thin — and the white hat hacker believes that elements of a traditional financial structure are missing. In this manner, risk managers, security professionals and developers need to be hired by players in the crypto space if the concept of digital currency is going to evolve and grow.
There are many benefits of cryptocurrency technology. Open source technology, few barriers to development and no license fees to pay are only some of the benefits of pursuing virtual currency evolution. However, every successful piece of technology needs a backbone — and in this case, as we have seen with the constant failure of Bitcoin trading exchanges, security has to become a top priority, in the same way as modern businesses in the enterprise, lacking the correct level of investment in security will only lead to disaster.
Read on: Cryptocurrency, Bitcoin