The good thing about blockchain technology is that it eliminates intermediaries, eliminates the need to trust third parties, and gives users full control over their finances or true ownership of their fortune. From Bitcoin (BTC) to decentralized financing, blockchain technology has fulfilled this promise for quite some time, but how reliable is cryptocurrency really?
Cryptocurrency was created as a result of a lack of trust in the old economic system, but as cryptocurrencies continue to evolve and change, more trust is required: among developers, miners, exchange operators and other network participants. To some extent, encryption alters trusted receivers, rather than eliminating the need for it.
Ilya Abogov, senior analyst at DappRadar, told the Cointelegraph: “There are still many key elements where users have to rely on a particular object or group of objects. Even things like delegated voting depend on delegates working in the public interest. The following is therefore a brief description of the various areas and examples where cryptography can not fulfill the promise of “unreliable” technology.
Developers and companies
Satoshi Nakamoto created Bitcoin as a developer under a pseudonym and launched it virtually worldwide. Today, Bitcoin is supported by millions of users, thousands of miners and more. To some extent, Bitcoin is the closest thing to the “mistrust” that cryptocurrency has to offer, since no device has “too much power” and the code has been tested and used countless times.
There are also thousands of different cryptocurrency projects. From altcoins to first coin offerings and decentralized financial protocols, cryptography comes in all shapes and sizes. Complex smart contracts are the name of the game, in which case users must trust the developers who build the apps.
Incorrectly smart contracts have resulted in many losses, including the DAO breach in 2016 and the recent hacking of André Cronier’s Eminence Project. Users can always trust that auditors provide extra security, but again, trust is required from both developers and auditors. Abuogoff told the Cointelegraph:
Users and complex objects can revise the code. Otherwise, the user only assumes the risk. Trust is an incomplete concept here. The developer can try in good faith, but still does not have vulnerabilities that are then exploited and lead to loss of the user. ”
The same can be the case when updates or changes are made to the code, and users cannot be 100% sure that the update will not crash or change the project completely. In the past, this has led to forks such as Bitcoin Cash (BCH), which was designed to protect SegWit from Bitcoin, or Ethereum Classic (ETC), which was created to protest the DAO hack and the subsequent tip to recover stolen funds. …
Therefore, even if some trust is required, it can be added to some degree through trust. When you use Bitcoin, there is confidence that it only works because of the amount of peer review received by the community and code developers. The same can be said about other crypto projects; However, the effort and time spent evaluating new projects will be significantly less than the time spent on Bitcoin.
However, it is worth considering that while most people cannot see the code on their own, open source crypto projects offer this opportunity because the underlying technology is completely transparent. Jordan Lazaro Gustav, Aave’s CEO of DeFi at Ethereum, told Cointelegraph:
“Users and developers must fully and always trust programmers when it comes to everything they communicate with on a daily basis. The difference with DeFi, however, is that everything is revised and open source, in contrast to traditional economics. ”
Exchange and coding
Perhaps the biggest focus for crypto is popular exchanges. They explain the most important methods that people acquire and exchange cryptocurrencies, which is why they are an important part of the cryptocurrency ecosystem. However, this is reminiscent of banking, since you have to trust the exchange operators who keep their money while they trade. Furthermore, users must also rely on the exchange of documents and personal information after completing the KYC verification process.
Needless to say, there have been a few instances where users would rather not trust a stock exchange – such as Mt. Gox crashes, resulting in hundreds of millions of dollars in losses. Since then, there have also been countless exchanges, hacks and counterfeit businesses.
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While people need trust for exchange, that trust has weakened as the public constantly monitors the exchange of wallets to track suspicious activity. The same applies to other parts of the coding ecosystem, including coding.