Bitcoin did not make such a great start in 2015 as some of us might have hoped. Bitcoin wasn’t doing so hot at the end of 2014 and to date in 2015 , it got worse after Bitstamp, one of the major exchanges out there, announced that their hot wallet was hacked. According to the latest reports Bitstamp lost around US$5 million, which is around 18,668 BTC.
This in turn caused a huge uproar with the digital currency communities. “Exchanges should be under some kind of control and must have some “checks and balances” so they can be held accountable if something, like hacks, occurs” says a very angry Bitstamp user to CryptoArticles. The media is also picking in on that sentiment. Some journalists are calling 2015 “the end of all exchanges” which is just a utopian dream.
However most of us old scallywags sailing on the crypto sea have seen this before with Mt Gox and the drama that was caused. “You can’t blame people for comparing Bitstamp with Mr. Gox. People have a need to compare certain actions to make sense of it all. I’ve read the questions that are raised about how this could happen and who is to blame,” said a commentator on a discussion forum.
Serious questions are being asked by the community about security and the effectiveness of said security systems. This puts the digital currency exchanges in “hot water”. Though the digital currency exchanges are in troubled waters, there is an opportunity here for the exchanges to explain their security measures, to certain extend of course.
This will be a win-win-win for everyone. It will be good to see the exchanges perspectives on security and what they are actually doing to protect their customers from those pesky hackers. It will also generate awareness about “the security issue” and this allows the community to put all its might (or wrath) down on an exchange if the community feels that security isn’t as good as it could be.
The community’s reaction to certain security measures can be a great indicator for the exchange if its measures are good or not and what the community thinks about them. It will be invaluable feedback for the current crypto exchanges to see what needs to be changed and what modifications should be applied to their current security systems. Some exchanges like Huobi have already issued statements and clarifications about their security systems that are in place.
Now Bitstamp is not the only company that is being affected by the hackers’ actions. Bitpay is issuing statements and giving interviews to calm people by informing them if Bitstamp should go “belly up”. Another casualty in this whole mess is the Bitcoin price and the Bitcoin community. The damage to the Bitcoin image has received another serious blow.
Some writers and bloggers are suggesting that the “end is nigh” for the digital currency exchanges because “they are being hacked constantly”. Personally I understand where they are coming from. It does seem that every year some rather large digital currency exchange is being hacked. (However it has been suggested that Mt. Gox was an inside job). So what will the future hold? Let us see what could possibly happen and what it could mean for the Crypto community.
Potential Outcomes of These Events
First option: Every exchange invests in way better security than they currently have. This may result in Bitcoin being linked to a precious metal or precious commodity, on top of the already improved “digital security measures” and cold storage possibilities.
This could be a stabilizing factor for the Bitcoin price and could potentially generate more trust in digital currency and in crypto exchanges. That trust is generated because if Bitcoin is stolen the exchange has enough precious metal/commodities to pay out the lost/hacked/stolen BTC’s.
Second option: Most exchanges are exposed in having faulty security which creates such a fear reaction that everyone is going to withdraw every single Bitcoin and other digital currency they have on the affected exchanges.
This might result in some exchanges that are going belly up. If this happens the scarce and fragile trust that existed will be completely eroded. This might even create a chain reaction where everyone is withdrawing Bitcoin from every exchange out there where the users have accounts on. This might instigate a full collapse of nearly all, if not all exchanges. However this might prove an utopian possibility. Personally I think this will not be the case.
Third option: Some exchanges, though having good technology and structurally sound but sorely lacking in security might be bought out by banks or investment firms. This might even happen with a lesser exchange. The banks are looking toward Bitcoin and the Blockchain technology and how it works. In the Netherlands 3 big banks have confessed that they are looking for ways to test Bitcoin and blockchain.
During the Coinsummit that was held last year in London’s financial district, we talked to a couple of bankers that told us basically that “ We are currently learning everything we can about Bitcoin. If we see a company that can make us a good return we are prepared to throw down a certain amount of pounds. If the banks want something we usually get it either way”.
So the possibility that banks or someone from the banks is going to buy up/out some exchanges is very likely. If an exchange is in trouble then it would be an opportune moment for a bank to step in. the costs would be lower than it would be of the exchange is successful. This is provided no serious troubles are popping up of course.
This might do wonders for the popularity of digital currency in the long run but nearly every crypto user out there is a bit wary when big banks are getting involved. The bitcoin price might also stabilise and this could be beneficial in the long run.
The fourth and last option we will discuss will be that the governments will get involved. They see the faulty security as an excuse to create laws about creating digital currency exchanges. This may be in the form of regulatory actions or in inspections of online and offline facilities.
This can have both posit
ive and negative repercussions to the Bitcoin price and the whole community in the short term. It all depends on other factors and how it is presented in the media.
Whatever the case may be, the ball is in the digital currency exchanges court now. We will wait and see how it will unfold. How the future will be, that will depend on a lot of factors. All of the aforementioned options can come to pass, or maybe not. Only time will tell how the landscape of the digital exchanges will look like.