Introduction to Crypto: The problems of cryptocurrencies

Let’s take a look at the five largest cryptocurrencies in the context of the issues that are giving the investors around the world sleepless nights. Let’s take the oldest cryptocurrency, Bitcoin, under the magnifying glass. It is characterized by old technology, now 13 years old, high energy consumption required for mining, expensive transactions and no significant development or friendly interface. Bitcoin has never undergone a security audit which can lead to serious errors or extortions. During its short history, there have already been two inflation bugs allowing a person who found a bug in the code to mint any quantity of Bitcoins, which would cause the collapse of the cryptocurrency, and perhaps the collapse of the entire market. In the first case, the Blockchain was rewound with the consent of the miners, thus getting rid of the illegally minted coins. In the second case, the bug discoverer reported it voluntarily and did not exploit it for disreputable purposes. While both bugs have been corrected, the question still remains: how many more of them could be in the Bitcoin code? A security audit could resolve any doubts on this point.

On the other hand Ethereum’s major problem is its low scalability, making ETH a victim of its own success. Ethereum’s overloaded network has resulted in high transaction fees that have reached thousands of dollars. Nor is there any optimism in one of the found- er’s recent interviews, Vitalik Buterin, who said that the full implementation of Ethereum 2.0, which could theoretically solve these problems, could take another six years. Ethereum’s transition from Proof of Work to Proof of Stake in September 2022, as predicted, did not raise network capacity or reduce transaction fees.

Binance Coin (BNB) is a cryptocurrency issued by the popular Binance trading platform. BNB is a utility token that can be used on the Binance exchange.
Every quarter, Binance uses one-fifth of its profits to repurchase and permanently destroy or burn the BNB coins in its vault. Initially, the coin was based on the Ethereum network. In April 2020, Binance Capital Mgmt. bought CoinMarketCap, the largest cryptocurrency ranking service, which in itself is a conflict of interest. Binance manipulates data from various Blockchains, manually setting the ranking of certain cryptocurrencies on CoinMarketCap. There is at least one class action lawsuit filed by investors, which is not a good sign neither for Binance, nor their cryptocurrency BNB.

Cardano (ADA) is one of the largest Blockchains that uses a Proof of Stake mechanism. Research shows that it is a ghostchain, meaning that regardless of its functionality, it is not actually used or developed. Cardano uses the Haskell programming language and many developers are reluctant to work on it for this reason. Another problem for Cardano is the failure to implement smart contracts in September 2021. Furthermore, the first decentralized application implemented in Cardano is criticized due to poor performance caused by network congestion.

Created in 2013, the XRP cryptocurrency gained popularity in the bull market of 2017 and 2018. This was accompanied by significant price increases for the cryptocurrency from $0.2 to $3, following the promise of its use by major banks and money transfer networks such as Western Union and Money Gram. Unfortunately, the future has shown that no major financial institution uses XRP for money transfers and, due to the activities of XRP’s founders, the value of the coins continues to fall. To make things worse, the company is entangled with legal proceedings with the US Securities and Exchange Commission, which filed a lawsuit against it in 2020. At the stake was an allegation that XRP raised $1.3 billion in unregistered securities based on digital assets by issuing XRP tokens. The prosecutors claim that XRP is not a currency, but a type of security, and is therefore subject to the strict regulations associated with it.

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