Bitcoin’s Achilles Heel: Why Bitcoin Needs Insurance Policy
Exchanges seem to be emerging as a weak point of Bitcoin. As recently as August 3, 2016 The Guardian reported that 120,000 Bitcoin worth US$ 78 million were stolen from Bitfinex, a Hong Kong based exchange.
Back in 2014 Mt. Gox, a Tokyo based Bitcoin exchange responsible for handling as much as 70 per cent of Bitcoin transactions went under. The reasons for Mt. Gox’s winding up – mismanagement, neglect and ‘raw inexperience’ according to wired.com.
That disappearance of a major exchange also made US$ 460 million vanish in a puff of air.
Bitcoin should have been empowering but…
The idea of Bitcoin is that anyone who has access to basic technology such as a mobile phone would also have access to a fully functional bank account by default. However, unlike a traditional bank account there are some differences.
With Bitcoin, you are ultimately responsible for your money. You need to keep it safe and secure and you need to make sure that there are no mistakes made in the transfer of money from Point A to Point B, because there is no going back.
This immutability, which is typically considered a strength is perhaps also the achilles heel of the Bitcoin system.
As an example, if you pay with a credit card and you are victim of a fraud, you might be able to initiate a chargeback and the ‘bad’ transaction will go away. This is much more complicated when you use a Bitcoin-like system.
This post was published at Coin Telegraph on 2016-08-13.