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Why Can Cryptocurrency Become A Thing Of The Past? (Article and Video)

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Why Can Cryptocurrency Become A Thing Of The Past?



Why can cryptocurrency become a thing of the past?

Can severe sums of money be trusted in a system where the minimum error cost is so high?

Content

Blocking is forever
Who are you, mask?
Pay your taxes and live ... restlessly

In November 2017, there was an instructive case in the world of cryptocurrencies. As a result of a previously unknown vulnerability in the source code of the Ethereum wallet of the British software developer Parity Technologies, about $ 280 million frozen in customer accounts. The newbie programmer experimented with a public API (Application Programming Interface) and, according to the company, accidentally locked other users' wallets due to a bug in the code.

It reveals the potential problem of blockchain technologies: in ordinary banks, this situation can correct manually, while in the blockchain, contracts and their logic are immutable. In any case, such a possibility is not explicitly provided. Can serious sums of money be trusted in a system where the minimum error cost is so high? Let's take a look at the main questions about cryptocurrencies. We also recommend reading Prospects for the development of blockchain in the field of finance.

Blocking is forever

When it comes to the state's currency, control over it carried out by the state itself: it controls the emission, the degree of protection, is responsible for this money with gold and foreign exchange reserves, debt obligations, etc. an unregulated international system for computing work. Let's imagine a situation: you exchanged computing power for cryptocurrency and cryptocurrency for goods. Later it turned out that the goods you bought were stolen. However, the block on the facts of the transfer of goods and money is written down. It is impossible to change it. Only the following transaction is possible: transfer the coin back, but on a purely voluntary basis. Because, according to a court order, this is impossible to do!

Let's consider another situation. How can a system that has appropriated a coin to a person react to all subsequent transactions, if the first one seemed suspicious? The first correct action coming from the banking system is to block the transaction. However, if the system has blocked the first transaction, all subsequent ones originated from it are blocked. What to do next is not clear. Banks have the technology for unblocking by court order. Who will make this decision in a distributed system? There are no decisive ones, and it is specially made as a technology "everyone does not trust everyone." And if there was a blockage, then this is forever.

None of the system participants can decide to block; only the system itself can do it. However, the system written by people who may have malicious intent: they are in a gray zone, conventionally unregulated, where users voluntarily brought money and exchanged it for coins. The system owner can make money and not return it to users in the form of cryptocurrency. Or accidentally reset accounts. The system is believed to be completely honest and has no room for fraud. However, we do not know what opportunities the system owner left for himself in its code. The first time left the opportunity to borrow someone else's funds in a legal way, transferring to ourselves, and we remember this story. The second time - I left for myself the opportunity to block a participant in the system. How many more precedents will it take to illustrate the insecurity of cryptocurrency?

Let's assume there are opportunities for fraud. But there are no regulatory mechanisms and the regulator itself. And there are no people who could understand the crimes in this system. We can contact the police with a statement about the system's violations, but there will be no investigative actions. Why? Because when the conditional state of Schwambrania issued a coin, it is the national currency, and its counterfeiting, falsification, illegal transactions with it are punishable by the criminal code of Schwambrania. When it comes to an international distributed system in which citizens of any state take part, no such economic police can turn.

Who are you, mask?

In the cryptocurrency situation, it is almost impossible to prove who owns the wallet. The main postulate of cryptocurrency systems is the anonymity of the wallet owner. If you have lost the key to the wallet, it is impossible to recover it - the system has no administrators, there is no one to send a password recovery request.

However, the anonymity and absolute distrust between the system's participants already imply that this is not a business environment. There is no anonymous business environment. The buyer studies his supplier: what he produces, what quality, evaluates the supplier's ability to produce the required number of products, and deliver on time. When choosing a supplier, trust is inevitable, because if there is no trust, and there is no control mechanism, the contract has great risks. Thus, cryptocurrency is ideologically not created for commerce in any industry.

For the settlements of individuals and the purchase of goods, it is more suitable. However, in this situation, the question of the quality of the goods with the help of a distributed register is also not removed. The registry reliably provides half of the transaction - the guarantee that the money has reached. The second half of the deal - did the goods arrive? You can confirm the fact of shipment, the fact of the transshipment of goods at different stages of transport, take into account in the distributed ledger, and put it against payments. You can make it so that this register records, for example, the customs frame that scanned the container, read the tag. This tag is not this product, mind you, but a tag that corresponds to the product - passed such and such a gate at such and a stage of transportation. But what is the quality of the product in the box with the tag supplied to you by an anonymous supplier?

You are researching a supplier if you are running a real business. But you research the supplier and as an individual when you order pizza over the phone. You know who makes it, and you know that a week, a month ago, the pizza was good. If this time they bring a bad one, you will ask for a refund and you will not order pizza here again. We are issuing a refund request. Where is the refund request in cryptocurrency? Where is the return technology? Yes, this can be done with a counter transaction: A transferred to B, B gave to A. But this is already another transaction, it not tied to the original one, it is not indicated anywhere that this is a refund.

With ICO, the situation is simpler: the issue takes place on a specific country's territory, is carried out on behalf of a company. This legal entity is a tax resident of a specific country. For example, accusing her of fraud, as was recently done, can be done under the laws of this country. And at the same time, a company can be a fraud in both an IPO and an ICO, and simply by attracting money from investors in a corporate loan mode. A respectable investor will always go to court to defend his rights, and it is likely that he will succeed because the ICO is not anonymous.

Simultaneously, a distributed ledger may well be used for netting within the framework of intra-corporate settlements. What did I mean? There is an international corporation, and it has companies in different jurisdictions that provide each other with services. As a result, many pairs of reciprocal obligations appear. It is where both the blockchain and the coins come in handy: there is no need to divert liquidity, which will come back after going through the chain of mutual debts. But that's another story.

Pay your taxes and live ... restlessly

The cryptocurrency is rapidly growing in the price: you bought a coin for 100 rubles, in a month it costs 1000 rubles. You have earned 900 rubles, and 13% must be given to the state. But the owner of the wallet is unknown! In the coming years, the Federal Tax Service will most likely undertake a crusade of the system itself and anonymous wallets, banning them at the level of law. Today all financial institutions in the country are agents of the Federal Tax Service. You can work out the registration of cryptocurrency wallets through banks, through mobile phones, e-mail. You can pay taxes through your bank's mobile app or government services website.

But then an incident arises. You are registered; you are no longer anonymous. But here you are, transferring money to someone who is still anonymous. And the FTS will certainly ask you to whom you are transferring money. Maybe in this way, you transfer the employee's salary, avoiding taxes? You will have to tell to whom and for what you are transferring money, or you will be subject to sanctions: for example, to receive additional charges for the amount that the tax authorities consider fair.

That is why all the talk about the fact that we will only use cryptocurrency in the future and, apart from a smartphone, we will not need anything - this is a utopia. Cryptocurrency will become one of the tools that will be quite difficult to use due to government agencies' numerous questions.

I wouldn't be surprised if somewhere in China, Singapore, or the United States such a law against cryptocurrencies has already been written. Perhaps such a law will be announced when the cryptocurrency bubble gets very large. Once the crypto bubble reaches its maximum size, it will collapse. After all, no state has ever guaranteed the reliability of such a high-risk investment as cryptocurrency.

Article and video on the topic: Why Can Cryptocurrency Become A Thing Of The Past?.

Author: Jonathan Burroughs

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