If you are not new to the cryptocurrency industry, then your opinion for 2017 – from the perspective of a cryptocurrency community member – would be that it was an excellent year for the industry.
Bitcoin saw an unprecedented rise and continued to go on and achieve higher prices. Ethereum appeared to be one of the top-notch technology solutions, allowing a plethora of new ventures to be launched by its ERC20 functionality. Ripple started off as a new coin, and even with all the criticism it received, it went on to make corporate deals with the likes of Moneygram for payment transfer.
The same goes for blockchain technology, which is the very basis of cryptocurrencies. Last year, blockchain went on to become one of the breakthrough topics of the year for tech giants ranging from IBM to Microsoft. Multiple ventures were launched through the technology in the corporate sector, and financial institutions that were against cryptocurrencies, more often than not, seemed to be strong proponents of adopting blockchain technologies for their solutions.
That would seem like an excellent year to anyone because it was.
However, there was one issue that persisted throughout the year and made the industry go through significant losses, both regarding financial standing and overall credibility.
We are referring to the ever looming possibility of hacks on cryptocurrency entities that have been going on for a few years.
Multiple hacking incidents took place in 2017 as well, ranging from cryptocurrency exchanges such as Youbit to mining platforms like Nicehash. The attacks continued well into this year, with an online digital wallet called BlackWallet getting hacked recently.
In 2017, the total loss obtained by the affected entities came close to $500 million, causing a few of them to file for bankruptcy and go out of business.
This is just a year’s loss, think back to the past hacks endured by the likes of Bitfinex and the infamous incident of Mt Gox, the latter of which is something that is still affecting the attack’s victims: the exchange’s customers.
This brings the same question to one’s mind that has been plaguing the cryptocurrency industry for the past couple of years.
Can’t anything be done to make these institutions as secure as the cryptocurrencies that they handle for everyone?
The answer is right there in the question
What makes cryptocurrencies so secure? Is it the exchanges that handle them every day?
No, because if that were the case, then those exchanges would not have been that badly affected by those hacking attempts.
Is it someone that fends off the hackers actively on these cryptocurrency networks?
Not always, because most of the time, these networks have public blockchains that allow access to anyone.
It is the blockchain technology, the core of cryptocurrencies, which makes them so secure by the use of decentralized networks.
That is what needs to be adopted by organizations that manage cryptocurrencies every day.
All of these institutions that were hacked had one common factor, the aspect of centralization. While all of them reportedly took all the necessary security steps, they were compromised on the usage of centralized systems, which, even while having the utmost security solutions implemented, centralized security cannot be compared to a decentralized network by any means.
Chances are that this is not the first time that you are reading something that questions why cryptocurrency exchanges have not adopted blockchain technology themselves, whereas significant banks and stock exchanges are doing so.
It seems that the industry has been thinking about this for a while now, but the downside of this suggestion comes with the time and costs involved to develop decentralized networks for each of these existing entities. They cannot be created overnight, and they require the most efficient of people working on them to deliver the kind of security that one expects out of them.
However, with the amount of revenue that some of the most significant cryptocurrency exchanges generate every month, it will not be a preposterous suggestion to consider that maybe some of that income, even if seems too high for now, needs to be invested in solutions that could act as safeguards for the customers as well as the exchanges themselves.
Decentralized exchanges (DEX) are already in the works, and some have even started their operations. In addition to that, decentralized apps (Dapps) are also one of the major divisions of the blockchain technology.
While no one is suggesting one of these exchanges to hire the likes of IBM to develop decentralized networks for them, several new blockchain technology providers specialize in blockchain as a service. Once again, it is not crazy to advise that maybe some of the more significant exchanges such as Coinbase could very easily afford such services.
It is merely an idea for now, but it is certainly gaining traction to the point where it is evident that any of the current exchanges that adopt blockchain technology for its systems will prove to be the trendsetter in the industry.
The emphasis is being provided to older exchanges because they already have the user base and the revenue that justify investing in this technology. While other new exchanges have decentralization from the start, switching to them might not be a viable option for everyday customers, especially when these startup exchanges have a lower number of trading options as compared to more significant exchanges.
The demand for decentralized exchanges is very clearly there, along with sufficient reasons to support it. It just remains to be seen who will be acting upon this solution shortly.