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All the risks associated with Bitcoin's electronic money system can be conditionally divided into two large groups:
1) Risks of the system itself.
2) Risks of using the system.
Let's start with the second one, since the average user often faces this.
Risks of using the system
As is known, Bitcoin is a completely decentralized system that does not have a single control center. The entire responsibility for security access to the bitcoin-addresses on which the actual bitons (crypto currency) are stored lies with users. Only they have (must have) access to private keys associated with the corresponding bitcoins-addresses.
Therefore, the safety of using Bitcoin as a system is security of storage and strictly limited access to private keys. The loss of private keys as a result of their loss or theft leads to the loss of control by bitcoins and, consequently, to the loss of the crypto currency stored at these addresses.
The Bitcoin system itself is robust against hacking thanks to cryptographic protection algorithms. Theoretically, with the current state of technology, this system can not be hacked for a very long, almost unlimited time and for the time of its existence (since 2009) demonstrated its security and reliability.
But, various third-party online services that serve this system - exchange offices, online wallets, crypto-exchanges, etc. - can become and repeatedly became the target of hacker attacks as a result of which users lost their money. Therefore, storing crypto currency on all sorts of online services carries the risks of their loss in case of hacking of these services, as well as dishonesty of their owners.
Another danger of using the Bitcoin system is due to the fact that transactions can not be canceled in it. You can not also make a change to an already sent order for transfer. In case of an error, you can only make a refund from the bitcoin address to which they were sent, and then by agreement of the owner of that address.
This means that if the correct bitcoin address of the recipient is incorrect, the funds transferred will not go there and it will be very problematic, and more often it is impossible to return them. Moreover, in case of an error in the address of the recipient, these funds can be irretrievably lost as a whole for the system, i.e. actually withdrawn from circulation.
Risks of Bitcoin
The dangers and threats associated with the system itself are much greater and can be divided into three groups:
1) Technological risks.
2) Legal and regulatory risks.
3) Social risks or risks of adoption.
Technological risks are the risks associated with the very technology of Bitcoin. They, in turn, are divided into risks of vulnerability and code errors, breaking and imperfections.
Serious vulnerabilities associated with errors in the code that would lead to irreparable and catastrophic consequences have not been found to date. Bitcoin, as the system has shown its stability for almost 9 years of its existence. It should be noted that this is a constantly evolving platform that can have technological add-ins and extensions. It was created and continues to improve one of the best programmers of the planet. Bitcoin's code is open and this not only adds credibility to the system, but also allows any person to analyze, look for errors and vulnerabilities and make development proposals.
But, nevertheless, this does not mean that some serious vulnerabilities and errors in the code that could undermine the system's performance can not already be detected, and also intentionally or unintentionally made later. These can be system or software errors that will significantly undermine belief in bitcoin.
Bitcoin also has problems with scalability (stable operation with a large number of transactions per unit of time). But there are ways to solve them. The way in which this is done will affect the further development of Bitcoin as a system.
As noted above, Bitcoin is a sufficiently robust and burglar-resistant system. One of the possible attacks - the selection of private keys to the bitcoin address - is currently virtually impossible at the current technological level of human development.
To break the algorithm SHA256, which underlies the creation of bitcoins and private keys to them, you will need to commit 16 to the 32nd degree of iteration. The possibilities of modern computer technology do not allow performing calculations of this volume in any real time.
But, the development of technology does not stand still. Great expectations in the performance of this kind of operations are vested in the so-called. quantum computers and quantum computing. However, it is not known when a quantum computer of the required capacity will be created and what the energy costs for such calculations will be. Nevertheless, at least theoretically, the possibility of breaking Bitcoin exists in the future. The only question is how remote will this future be? 10 years, 10 centuries or 10 millennia?
Another known attack on Bitcoin is the so-called. "51% attack". But, this is a very expensive pleasure, which is now meaningless commercially. Currently, in order to carry out such an attack, it is necessary to purchase equipment worth more than $ 4.4 billion plus to bear electricity costs of about $ 8 million per day.
Naturally, the network and the market will instantly react to this attack and the bitcoin rate will collapse, which makes such an event, as noted above, absolutely pointless in the commercial sense.
But such an attack can be decided by governments and central banks, who will see Bitcoin as a real threat to the monetary systems that they manage. In the democratic countries of the West, this is hardly possible, since voters will not forgive such actions to their authorities, and the latter understand this perfectly, but it is quite possible in the DPRK, China or even Russia.
Other kinds of technological threats Bitcoin come from the more advanced in terms of technology crypto currency, which appear and may appear in the future. But for the success of these new crypto-currencies it is not enough to have a technological advantage, it is necessary to create a network of sufficient sizes, community (users, miners) and infrastructure (exchangers, exchanges, services, etc.), and get recognition of the society.
In any case, Bitcoin's threat from a new, technologically more sophisticated crypto currency will proceed gradually, with an increase in the network, and also users will be able to react to it in time.
Legal and regulatory risks for Bitcoin come from the actions of state authorities, which will seek to establish the legal status of the crypto currency and the rules for its use.
The states of the world for the first time faced such a large-scale decentralization, as crypto-currencies. Being inherently a technology of transferring value that is not controlled by a single financial center, crypto-currencies based on public blockage, such as Bitcoin, can in the long run replace national money and the usual financial intermediation of banks. This creates a threat to the state monopoly on money and their circulation.
Since Bitcoin is a completely decentralized peer-to-peer system that does not have a single control and denial center, states do not have a mechanism to influence its performance (except for the "51% attack" as discussed above). You can not just go and prohibit crypto-currencies! To do this, at least, to disconnect all over the world in the Internet and (or) electricity.
Therefore, any attempts on the part of the states to regulate the actual crypto-currencies, their issue and their transactions, are doomed to failure.
But, the state can regulate the sphere in which the crypto-currencies are in contact with fiat money, namely, crypto-exchange exchanges, exchange offices, investment funds and other financial institutions that provide services in the crypto-currency market. States can also prohibit enterprises and organizations from taking bitcoin as payment for goods and services, and for citizens to pay with bitcoins.
Some states, especially authoritarian and totalitarian ones, can even criminalize operations with crypto-currencies and their mining.
These threats, coming from governments, will most likely be local and will spread to individual countries.
The civilized world will follow a different path - governments and central banks of Western countries will create their own, alternative to Bitcoin, crypto-currencies. Therefore Bitcoin is expected not to ban, but to compete in money markets.
Social risks or risks of acceptance emanate from the public. This is a kind of risk of trust - how massive will the public trust in a new kind of money.
These risks largely depend on the successes and failures of the crypto currency itself, as well as on the mass media, which are able to hide something and something to inflate.
The process of acceptance and penetration of the Crypto-currency will be difficult and time-consuming - paper fiat money also did not immediately replace gold and silver coins. But, the time here is working on Bitcoin - a new generation is coming, loyal to new technologies, and the old one, used to trust the state and banks, is leaving.
Obviously, the acceptance of the population by crypto currency will be more in countries where confidence in local currency falls, where inflation is high and whose governments do not cope with financial crises. For example, it is already happening in Venezuela and Zimbabwe.
These risks will decrease as global recognition and adoption of Bitcoin grow. But, they are also related to technological and especially legal risks. Any technological problem Bitcoin will increase and social risks, as well as various prohibitions and restrictions kriptovalyut introduced by the authorities at the legislative level.
I did not mention the so-called. investment risks Bitcoin, because this is another topic. Undoubtedly, users of bitcoins can be targets for fraudulent or high-risk investment schemes. But, it is applicable to any assets, including fiat money. These are not Bitcoin's problems, as systems, these are the problems of people who rely on various kinds of scammers who play on greed and create financial pyramids in order to lure money from a gullible philistine.
I also did not address the risks associated with stock trading with bitcoin. This is also another topic, not directly related to Bitcoin, as a system. These risks differ little from similar risks when trading in the stock market or in the FOREX market.
The risks associated with the mining of bitcoin were not affected. This is a separate topic for the article.
Bitcoin, as a system of electronic cash, was created as an alternative to the current monetary and financial system, which is monopolized and controlled by the state.
For 9 years of its existence, this first (in all senses) Critical Exchange has come a long way - from uncertainty, mistrust and non-acceptance to penetration into the minds and impressive growth of capitalization, which is already ahead of the circulation of many national currencies.
Whether Bitcoin can become a new kind of money, and society will accept this new monetary paradigm, time will tell.
