Why doesn’t your grandma use bitcoins ?
Cryptocurrencies’ problems and potential solutions
Bitcoin’s whitepaper brought by Satoshi Nakamoto celebrates its 9th anniversary this month. The blockchain technologies’ hype is at its highest, many say that blockchain is the next big thing, dozens of ICOs are launched each month... Still, holding and using bitcoins, ethers or any cryptocoin today isn’t something that your grandma does. In this article, I will give my point of view from a product perspective on what prevents blockchain applications from hitting the general public.
Negative image
Your grandma has probably heard the word “bitcoin” for the first time in the news talking about ransomwares such as WannaCry that has infected hundred of thousands of computers around the globe, encrypting victims’ personal data and demanding money in bitcoins in exchange of the decryption key. She might also have heard that, due to the pseudo anonymity they provide, bitcoins were mostly used in their early years to buy or sell drugs, weapons etc. Yet, if the darknet and malwares have contributed to get cryptocurrencies off the ground, they certainly haven’t helped to present a good image of them.
What could we do to free cryptocurrencies from these negative perceptions ? As cryptocurrencies are somewhat new to the outside world, people need time to understand and use them for what they are, rather than seeing them as an obscure tool for hackers to extort money. This perception varies greatly whether you live in a country enjoying a stable economy or in a country such as Venezuela with a 3 digits inflation’s rate. People in these countries couldn’t care less about bitcoin’s reputation. They use it as it solves a problem for them, namely the impossibility to access foreign currencies whilst their national’s one gets strongly devalued.
Not stable enough (yet)
Taking advantage of its high volatility, speculators and traders have started playing around early with bitcoins to make (or lose) big amount of money in very short time frames.. The reason of this volatility is quite simple. Unlike national currencies, Bitcoins and other cryptocurrencies aren’t regulated by a central system ready to pump money in or out to regulate the market. As the total amount of bitcoins in circulation isn’t big compared to the amount of euros or US dollars for example, massive sell/buy of bitcoins can have a significant impact on its price. The same happens when a major announcement is made such as a technical decisions on the bitcoin underlying blockchain protocol. If bitcoin has been particularly volatile in 2017, it does not necessarily mean that it will never stabilize.
How could this lack of stability be countered? Bitcoin is currently the cryptocurrency with the highest market valuation. It has increased by more than 800% year over year at the time of writing this article. Many describe it as a bubble, no matter if it is true or not, this volatility makes it not suitable for daily use. There are cryprocurrencies out there called stablecoins that are built to remain as their name suggest.. stable. Watch out for the DAI token created by Makerdao. These guys built a very interesting system linking another currency called MKR that absorbs the DAI’s fluctuations.
Better UX shouldn’t mean less secure
To hold and manage your cryptocurrencies, you need a wallet. Coinbase has done a great job by making the buying process of main cryptocurrencies quite simple and user-friendly. Yet, the simplicity comes at a cost, the buyer’s private key will be held on Coinbase’s servers if the money is kept on the platform. While this certainly improves the UX, Coinbase could run away with the money (some did it in the past). The very essence of decentralized products based on a blockchain such as bitcoin is to avoid the need and the inherent risk of middlemen. Entering the decentralized world by buying a cryptocurrency and letting a company hold it for you — just as a bank — is not what I’d call consistant.
What options are we left with here ? There are many wallets available depending on the cryptocurrency you have. On one side you have core wallets fully featured that are for most of them UX atrocities. When you will find out that the Ethereum official wallet — Mist, will transform your computer in a full node, downloading the entire blockchain, using dozens of Gb on your hard drive and taking several hours to launch the first time… You’ll probably not download it ! On the other side, there are plenty of light wallets, some of them being open source. I use Jaxx, it’s a light wallet supporting most of the well-known cryptocurrencies, it’s open-source and it has smartphone, desktop and browser clients. Despite the pretty and simple interface, the app takes more than 10s to launch on a recent smartphone. In fact, the app needs to do some heavy calculations at each startup for security reasons. It’s not a showstopper, but you can not let users wait this long if you expect them to buy a coffee with your app.
Addresses must disappear
Sending money to someone is dead simple once you own coins and you know the address of the receiver. Yet, sending money to the wrong person without noticing it is just as trivial. Hackers and scammers have long understood it. Numbers of scam campaigns use the fact that people will not pay much attention to the recipient’s address. See how $7 million where stolen during CoinDash ICO. A new type of malwares have recently appeared. They are conceived to detect when a user copies a cryptocurrency address in its clipboard, and replace it with the attacker’s address. If a user willing to send money to a friend copies his friend’s address to its clipboard and paste it in the send field of his wallet, he will most likely not notice that the address he pasted has changed, thereby sending the money to the attacker.
How can we counter this ? There are no human readable names attached to the address and no mechanism yet to prevent this kind of attack / error. Just like DNS helps the world access IPs using human readable domains, blockchain addresses should have names. Some companies like Netki have been working on it. This represents a tough technical challenge and also raises questions about privacy. If names are linked to addresses, it also means that tracking users’ transactions will be easier, no doubt that this concern needs to be addressed while solving the issue previously mentioned.
It’s too expensive my friend
Focusing on bitcoin as a product, it used to be quite cheap to send some money. Unfortunately for your gransma, the blockchain model doesn’t scale well. As bitcoin is getting more popular every day, transactions fees have dramatically increased in the past months. It would have cost your grandma on average more than 3$ regardless of the amount she wishes to transfer if she did so in the past months. This is simply insane. Using Paypal to send money to a friend costs 0$. Sure, they can decide to freeze your account for whatever reason. But I am talking about your grandma here. Sending 100$ to a friend is just a lot cheaper, safer and simpler using the competitor’s products today.
A chain is only as strong as its weakest link
Before talking about potential solutions it is important to understand why bitcoin’s transaction fees have increased lately. The protocol on top of which bitcoin is built on restricts the network from handling more than 7 transactions per second. Meaning that if the transaction creation rate is higher, the transactions will be enqueued. Now, the order of the queue is directly correlated to the fee the creator of the transaction is ready to pay. If the queue is too long and the fee too low, a transaction might never be part of a block and therefore never be processed. As the amount of transactions has increased lately, transaction creators tend to pay more to make sure their transaction will get through. This 7tps (transactions per second) limitation is meant to preserve a wide network of miners, whose computer need to keep up with the number of transactions per second. Increasing this limit would oblige the members of this network to get more computing power, faster internet connections, higher storage capacity... to be able to remain part of the network. As miners might choose not to pay to improve their computer’s performance, they would therefore not be able to take part in the network anymore. Reducing the amount of nodes on a network could damage the decentralized aspect of bitcoin. Giving the power to a few supercomputers able to handle 1000s of transaction per second is no different than having a central organization rule the game.
What could be a solution ? You might have heard that the bitcoin blockchain hardfork called Segwit2x will not happen soon. The idea was to double the block capacity resulting in the ability to handle more transactions per second. If the network’s capacity is doubled, it’s congestion should decrease as well as the transaction fees. Even though the decision has been made not to implement this change for now, it might happen in the future. There are other projects with promising ideas to solve the bitcoin blockchain’s scalability issues. One of them is Lightning Network. It proposes to move most of the transactions off the main blockchain using peer to peer channels. This would pave the way for micro-transaction, help to drastically reduce the transaction costs while increasing the network’s capacity. Going even further, IOTA is a protocol similar to the blockchain based on a distributed ledger called the Tangle. It has been built with IoT in mind to enable machine to machine micro-payments, all of these without any fee. This technology is truly disruptive and solves most of the problems mentioned in this article. Make sure to check it out.
