This may sound strange coming from a CEO who owns and uses Bitcoin and other cryptocurrency through multiple businesses that accept Bitcoin each day. But I still really don’t understand Bitcoin on a practical level, the technical part is understandable but for how long will the current model of currencies like Bitcoin and Litecoin work? Do not get me wrong, I am long on crypto still but what that means in the coming years and decades is probably going to be vastly different than the current model of today.
What Is A Confirmation And Why Does It Take So Long?
What I’m referring to is when you send or receive currency there are varying opinions of what it means to actually “confirm” you have it. But even before that people who have sent and received cryptocurrency know it is actually quite slow. It can easily take a number of minutes and even after that point it is recommended you wait for a certain amount of confirmations.
It’s quite simple, these crypto networks with multiple nodes have to talk to each other, this takes time for them to all be in sync or agreeance with the blockchain. Once that happens you get your first confirmation, however this can be a number of minutes and still doesn’t absolutely guarantee you have the money in your wallet.
The current system is nearly impossible to use as a daily transaction/banking experience.
I’m used to using cash, debit, credit or even services like PayPal. It is all fairly instant (although sometimes it can take several seconds for debit or credit) but once the payment is approved and the merchant is notified instantly, they knew they have their money. Imagine waiting for even a single confirmation for cryptocurrency while in line at a supermarket?
Why does the problem exist?
It’s quite simple, ironically it’s the one huge negative side effect of distributed, decentralized cryptocurrencies. There are other drawbacks too such as what happens to banks if they are DOS’d but this hasn’t been a huge factor so far in crypto’s history.
What other risks exist?
My biggest fear is that in the future a powerful organization or entity may eventually be able to reverse engineer or find another way to attack the blockchain and algorithm of some cryptocurrencies. This would essentially spell disaster, chaos and the end of that currency. It would be the equivalent of the destruction or infiltration of a fiat currency’s central banking and distribution system.
One other issue with the blockchain
Everyone knows the safest way to hold crypto is with your own wallet because exchanges are routinely hacked and coins are stolen, it is more risky to keep your coins with a third party wallet (essentially the equivalent of an online crypto bank). The problem lays with the issue at this moment that those deposits are not insured (although I believe Coinbase and a few others may have some insurance). This may change in the future and exchanges and currencies that are insured will definitely rise above the rest.
What is the solution?
This may draw the ire of a lot of hardcore crypto users but there has got to be some sort of central authority, body or “top-tier” network similar to root DNS servers on the internet that can serve and validate transactions on the blockchain. There must be some sort of physical organization between the nodes on the blockchain.
Is there a current solution to this problem?
Ripple/XRP solves this problem by essentially verifying transactions instantly and keeping all the currency in essentially an online global wallet (there is no such thing as paper wallet or traditional on your computer/device wallet). The advantage is that you don’t have to store hundreds of gigabytes of blockchain data (and growing) like Bitcoin and other currencies. Ripple has the benefit of also being endorsed by major financial institutions which is a first for digital crypto that I’m aware of.
I haven’t done further research but currencies like XRP I believe are the future, things can be done anyway technically and Bitcoin, Litecoin and similar blockchained coins can do this if they change some of their decentralized model. I expect there will be more infighting and similar splits as the Bitcoin Cash that emerged from the Segwit update as the industry matures and expands.
I hold positions in multiple cryptocurrencies including Bitcoin and Ripple and have given my true opinion of both in this article.