Criticisms of Bitcoin, Ethereum, Cryptocurrency, ICOs and the new Blockchain Technology

 

“Emerging Bitcoin market is volatile. But in volatility, that’s how people have opportunities to make money.” – Sir Richard Branson, in a 2010 Street Smart Interview on Bloomberg.

To provide a balanced coverage, I’d like to point out there are critics of crypto currency, altcoins, ICOs and the underlying blockchain technology in general but there’s no denying the utility and value of how blockchain technology’s potential to revolutionalize how businesses operate in the digital domain in the near future ever since the invention of the Ethereum platform for creating ICOs is evident.

And so the race begins with an influx of $114 billion in market cap over a short span of the last four months from May 2017 until August 15, 2017.

Who will be the first to come to market with robust blockchain applications for the enterprise will be the one(s) to achieve dominance and be rewarded with the majority of the market share.

Until then, let’s put on our critical thinking caps and examine whether critics have valid points in their arguments that blockchain is not robust enough an innovation to warrant billions of dollars being invested in its development and application for a better digital future.

Outlined below are some of the critics’ highlights to mull over..

(1) Some critics of blockchain technology as a whole are uncomfortable with the idea that there are so many attack vectors that are theoretically plausible today. I think it is worth noting that, given enough money and time, an attacker will always be able to do damage in any system. Cryptoeconomics stands as a critical bulwark that, at worst, endeavors to make these attacks as expensive, difficult, and undesirable as possible. – > Kyle Wang, blockchain addict; author of ‘Cryptoeconomics: Paving the Future of Blockchain Technology’

=>> CRYPTOCURRENCY ICOS ARE A RISK

Even though virtually every company or project looking to raise money wishes to conduct an Ethereum-based ICO, these crowdsales can have negative repercussions. A lot of these projects will eventually liquidate the amount of ETH raised and dump it all on the market. Not only will this affect the Ether price negatively, but it also shows Ethereum is merely a facilitator to raise funds, rather than technology in which these companies believe.

It is only a matter of time until the influx of cryptocurrency ICOs backfires on the Ethereum ecosystem. There is no guarantee that any of these projects have legitimate intentions, and any bad PR will automatically taint Ethereum’s reputation further. While it is true that Ether allows people from all over the world to invest in ICOs, there is never a guarantee for success.

(a) EXPLOITS AND WEAKNESSES

Even though many companies have joined the Ethereum Enterprise Alliance, they are not necessarily aware of the issues this network has. We have seen two major exploits discovered and used, both of which resulted in massive amounts of funds being stolen. The first exploit was the DAO smart contract bug, and the second exploit showed how Ethereum has no secure multisignature wallet solution currently. Immature technology often suffers from issues like these.

(b) NO SUPPLY CAP

Contrary to what some people may assume, there is no official hard cap on the amount of ETH. While proof-of-work will be replaced by proof-of-stake in the future, Ethereum will continue to be inflationary as a result. Unlike Bitcoin, with its 21 million hard cap, Ethereum has no fixed maximum supply. This means the value of every individual ETH lowers every time a new coin is brought into circulation. In this regard, Ethereum is quite similar to fiat currencies, even though its level of inflation is significantly lower.

(c) NOT AN IMMUTABLE BLOCKCHAIN

The main selling point of Ethereum is how it provides blockchain technology and new features to the entire world. One of the primary aspects of using a blockchain is that this ledger creates an undisputed record of events which can no longer be altered once the information has been accepted and confirmed by the rest of the network. That is no longer the case for Ethereum, and it is surprising how few people recognize this important detail.

Ethereum’s developers introduced a hard fork after the DAO was hacked. This hack put a large amount of the available ETH supply at risk of falling into the wrong hands. The hard fork also removed the immutability aspect of the Ethereum blockchain. This means that any application or project built on top of the Ethereum blockchain could see part of its history or transactions wiped out if a similar incident were to occur. People looking for the immutable Ethereum blockchain should look into Ethereum Classic, which was maintained as an ideological opposition to this blockchain rollback. Source: https://themerkle.com/top-4-reasons-why-ethereum-may-ultimately-fail/

=>> It’s a very good time to be a money launderer, and you can thank cryptocurrencies namely the explosion of ICOs as the main culprit.

(2) Cryptocurrencies have exploded in popularity in recent years that has led to a red-hot fundraising trend where start-ups bring in millions of dollars in capital by issuing virtual tokens to investors in exchange for money.

Initial coin offerings (ICOs) have become a primary means of fundraising for projects built on blockchain technology. Companies create and issue digital tokens that can be used to pay for goods and services on their platform or stashed away as an investment. They put out whitepapers describing the platform, software or product they’re trying to build, and then people buy those tokens using widely-accepted cryptocurrencies (like bitcoin and ethereum) or fiat currencies like the U.S. dollar.

All of that is done without any regulatory oversight, and that has regulators — and members of the financial industry — worried about the potential of widespread money laundering and fraud.

All told, start-ups have raised more than a billion dollars this year in coin sales and in recent months, just four crypto projects have raised over $660 million combined, according to Smith + Crown, a blockchain research and consulting group.

Digital currencies are pseudonymous, decentralized and encrypted, making it harder to track each of the transactions made, and the individuals behind them. Theoretically, anyone with an internet connection and a digital wallet can be part of a coin sale event. That, many worry, leaves plenty of room for people to launder money or finance terrorist activities and engage in other fraudulent behaviors — especially in countries where corruption is rampant. Source: https://www.cnbc.com/2017/08/04/icos-may-be-seen-as-securities-by-u-s-and-singapore-regulators.html

=>> (3) Bitcoin SCAM warning: Currency is ‘pyramid scheme’ says top investor who predicted a crash. CRYPTOCURRENCY Bitcoin is a nothing more than a fad or pyramid scheme style scam, according to billionaire investor Howard Marks.

The respected Wall Street boss warned clients against investing in the digital money, which has surged to record highs this year.

But the co-chairman of Oaktree Capital said Bitcoin has little value and its price has been pushed up by speculators.

Mr. Marks previously predicted both the financial crisis and that the dot-com bubble would burst, according to CNBC.

He told clients: “In my view, digital currencies are nothing but an unfounded fad (or perhaps even a pyramid scheme), based on a willingness to ascribe value to something that has little or none beyond what people will pay for it.”

The investor compared cryptocurrencies to the Tulip mania of 1637, the South Sea bubble of 1720 and the internet bubble of 1999.

He added: “Serious investing consists of buying things because the price is attractive relative to intrinsic value.

“Speculation, on the other hand, occurs when people buy something without any consideration of its underlying value or the appropriateness of its price.”

Bitcoin suffered a crash earlier this month but has since bounced back and is now up by almost nearly 160 per cent this year.

Its success has prompted values to increase in other digital currencies.

Ethereum cryptocurrency is up around 2,300 per cent in a year to date.

The digital currencies limited supply has caused some experts to compare it to safe havens, such as gold.

And a number of experts have predicted Bitcoin’s value will reach much higher in the coming years if it becomes more mainstream.

Sheba Jafari, the head of technical strategy at Goldman Sachs could reach $3,691, from current levels of around $2,600.” Source: https://www.express.co.uk/finance/city/833706/Bitcoin-scam-price-news-cryptocurrency-pyramid-scheme-forecast

=>> (4) The trouble with reimplementing the gold standard with Bitcoin in the 21st century is that financial attacks, just like cryptographic attacks, don’t get less effective with time—if you apply attacks evolved in a hundred years of Red Queen’s race against regulation, then remove the regulation, the sub-economy in question is utterly defenseless. As one quant on Hacker News outlined:

Bitcoin takes the monetary system back essentially a hundred years. We know how to beat that system. In fact, we know how to nuke it for profit. Bitcoin is volatile, inherently deflationary and has no lender of last resort. Cornering and squeezing would work well – they use mass in a finite trading space. Modern predatory algos like bandsaw (testing markets by raising and suddenly dropping prices), Sharktooth (electronically front-running orders), and band-burst (creating self-perpetuating volatile equilibria in a leverage-sensitive trading space, e.g. an inherently deflationary one), would rapidly wreak havoc. There is also a part of me that figures regulators will turn a blind eye to Bitcoin shenanigans. – Source: https://rationalwiki.org/wiki/Bitcoin

Notably, Mark Cuban called Bitcoin a Bubble

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