The other week we looked at bitcoins flaws, its lack of Fungibility and incoming global identification requirements. Now let’s look at the potential issues this likely pathway for bitcoin will bring.
A technology can be used for good or bad, look at the internet; it has liberated information, empowering its users to be the most informed to ever walk the earth. But it has also been used for bad. It has created the world’s largest spying agencies and has empowered drug dealers and other illegal pursuers. Seeing as the analogy to the internet is a frequent Bitcoin statement, let’s investigate the negatives that Bitcoin could bring.
Companies and data centers are frequently hacked. If a Bitcoin exchange is hacked it only takes your identity information associated with your bitcoin address to know who exactly has how much money.
“It would maybe be a different story if, you know, companies and governments were able to retain secure records of things. But just last week, there were 4 million accounts[compromised] on several computers – it’s every couple of weeks there’s a big data breach somewhere.” – Eric Voorhees
If nefarious players could get ahold of your identity associated with your bitcoin address it wouldn’t take long for them to have a ‘hit-list’ of who to blackmail, extort and hold ransom. Seeing as one bitcoin puts you in the top 0.3 percentile of Bitcoin owners in the future, one Bitcoin could be worth a small fortune making you a very valuable target.
Is Bitcoin is on a path to become the best assets for private metadata retention?
Beyond scammers and criminals, imagine your transaction details being available for sale, every private company having access to every bitcoin transaction you make. Your entire account history and everyone you deal with could become public knowledge. Don’t discount this idea as being outlandish or irrelevant, companies with this information will have new revenue streams to explore and likely will. E.g. you’re buying a car, if that company had records of your income and expenses they could offer you a price which fits within your purchasing power (their aim is get as much money as possible out of you), Or your groceries could be priced at the checkout according to your income.
Don’t discount these ideas as ‘fringe’, the technology now exists, and so does the motive. I can guarantee you that companies will implement this type of meta-data to profiteer and you will be their target, just like the internet, Facebook, Google and other agencies which sell your meta-data to the highest bidder. How long do you think it will take for these ideas to migrate from browsing habits to transaction records?
How long till companies are doing this to know exactly where, what, when and how you spend your income to better analyse their consumers?
Guilt by association
Guilt by association is a key problem with a lack of Fungibility and a future downside of Bitcoin. This is when someone is accused as ‘guilty’ for not committing a wrongdoing but by falsely being associated with that wrong doing.
It is entirely possible that in the future, your Bitcoins could be confiscated because they were stolen many years ago, sold on an exchange which you then purchased them from. This cannot happen with cash, because it is fungible, but with Bitcoin it is entirely possible and with 1 in 16 bitcoins being reportedly stolen there’s a rather large avenue for ‘justifiable’ confiscation.
Luckily there is a silver lining, although there is no inherent fungibility within Bitcoin, Greg Maxwell recently proposed a method of adding confidential transactions within Bitcoin. The process can be found here in detail. To put it simply it obscures the value of a transaction through a processed called Homomorphic Encryption (HE).
Dark wallet is a Bitcoin wallet that has built-in security measure, when you make a transaction using this wallet it allows the sender to generate new addresses for the receiver, and sending without anyone watching the blockchain knowing the receiver is the owner of the original stealth address. This product is currently in Alpha and is not stable, using it comes at your own risk.
Bitcoin is still better than any alternative, although the problem of fungibility is pertinent to Bitcoins success as a global currency, its success as a technology is not. It can be used for many different functions beyond a replication of cash; other functions don’t require fungibility. The bottom line is that ‘Digital Currencies’ are here to stay. What purpose Bitcoin will serve is still unclear but it’s undeniably a massive improvement on the currencies we currently have in our ‘back pocket’.