How secure is cryptocurrency?

According to Coinmarketrate.com , the first cryptocurrency to appear was Bitcoin. Bitcoin was created in 2009 based on the work of an author named Satoshi Nakamoto. However, “Satoshi Nakamoto” is just a pseudonym, so it is unclear who created Bitcoin or even cryptocurrency in a broad sense.

And the complete anonymity of its creator is a very revealing fact that characterizes Bitcoin, since the cryptocurrency as a whole does not depend on any individual, or on any closed organization, or even on any state that should be trusted.

Indeed, cryptocurrency (and in a broader sense, blockchain) is based solely on a mathematical model and on an open community of users, that is, on a community to which every Internet user can belong, if he so wishes.

It is no coincidence that the BTC was created in 2009. Let us recall the great financial crisis of 2008, and the subsequent distrust of states (states are rightly recognized as unable to regulate markets), and of large banking institutions, rightly accused of non-compliance with the rules.

Indeed, it was after the financial crisis of 2008 that many States took measures to finally undermine the confidence of individuals in them, for example, the State of Cyprus, which appropriated all bank assets exceeding 100,000 euros in the form of nationalization, or India, suddenly demonetized all banknotes in denominations of 500 and 1000 rupees.

The context of 2008 and 2009 favored the emergence of a currency that would no longer depend on any State or institution. A currency that could be trusted. This is the essence of the cryptocurrency, which is not based on any particular person or institution, but only on a public mathematical algorithm.

This makes manipulation impossible, and the currency that used to be “government truth” becomes “mathematical truth”. The creation and circulation of cryptocurrencies is absolutely predictable and controlled by everyone.

How Cryptocurrencies work

Thus, each person can participate in the creation and operation of cryptocurrencies of their choice, providing the power of their computer for the operation of the blockchain, that is, the chain of calculations for the creation and distribution of cryptocurrencies based on a mathematical algorithm that manages this currency.

Cryptocurrencies are created by “miners”, that is, all Internet users who participate in the algorithm by installing a program containing the cryptocurrency algorithm on their personal computer.

This means that every Internet user can calculate the record of transactions on their equipment, as it follows from the movements of cryptocurrencies that have occurred and the mathematical results that the application of the algorithm to these transactions will give. A new transaction log page (in principle, generated every 10 minutes) will be confirmed only if it reaches consensus among all miners. Consensus is, theoretically, easy to achieve, since it is based on mathematical truth. Miners who participated in the calculations are rewarded for their participation in the functioning of the algorithm by allocating cryptocurrencies, constantly created by the algorithm, in a regular and predetermined rhythm.

And among the notable innovations offered by blockchain technology, unlike traditional banks, which are only custodians of accounts, blockchain also ensures the constant maintenance of transaction history.

In this context, are cryptocurrency investments safe?

If the cryptocurrency itself is clearly a safe money, since it is based on a mathematical truth that is predictable and observable by everyone, then, on the other hand, it seems that the global system of storing cryptocurrency assets is much less secure… and, in truth, perhaps even completely random.

Owning cryptocurrency assets implies storing these assets, and if they do not participate directly in the blockchain, as the most proactive investors (with experience in both computer science and finance) can do, “classic” investors will have to resort to the services of portfolio platforms that will be responsible for storing and preserving cryptocurrency assets on behalf of their clients. There are many such platforms on the Internet: Bybit, Binance, Etoro, Exodus, Coinbase, etc….

But although many “savers” are usually vigilant and critical in choosing a bank (asking themselves endless questions like “is a savings bank safer than a commercial one? “), these same savers blindly trust Internet platforms with their cryptocurrencies for storage. And this is despite the fact that these platforms are not subject to any control or supervision, and therefore can disappear overnight with the assets entrusted to them without the possibility of an effective appeal to the court…

We are talking about a misadventure that recently occurred with a person related to the LPG Trust (a case that is currently under criminal investigation). And here’s the thing: the investor opened an account in early 2021 on the EXMO platform (the platform, however, has existed for several years, and did not cause much negative comments on the network), which she then replenished with cryptocurrency through the BINANCE platform.

When this investor wanted to check the funds on the wallet, the EXMO platform reported that it had been attacked by hackers, and forced her to open a new account using a link to the SIMEX operator (which was also not the subject of negative comments on the Internet). He first received a wallet with crypto assets, and then blocked access to it, closing the crypto investor’s account, without the possibility of further return of funds. And despite the actions taken by the French police, it seems that this cryptocurrency wallet has simply disappeared into the wilds of the global Internet, without any specific actions.

And this misadventure, unfortunately, is just one example out of many others, because even if these platforms enjoy a good reputation, nothing prevents them from one day becoming the target of an organized hacker attack. Also, these platforms may have been sold to an unscrupulous person who will be able to freeze accounts, as in the example given, or change the rules of the game and withdrawal methods at his discretion in order to take his depositors hostage.

All this takes place, as well as the fact that in order not to get into this kind of trouble, you need to use reliable resources, and best of all those where you manage the private keys, not the exchange.

 Conclusion

The limitation for the development of cryptocurrencies is not so much the cryptocurrency itself as its ecosystem: indeed, if today it seems generally accepted that the cryptocurrency (Bitcoin, Ethereum, etc.) itself is a definite and reliable monetary asset due to a mathematical algorithm that organizes it in an objective way, this is not the case when it comes to storing these cryptocurrencies.

Possession, circulation and especially storage of crypto assets is really much more dangerous, because when cryptocurrencies are placed on unreliable platforms, they can disappear any day, into the flesh, even due to the inexperience or incompetence of the platform that stores them, without the possibility of any options for their recovery.