Cryptocurrency’s Downside

Digital currencies were originally conceived to decentralize control of money and give users the power to authenticate transactions. But a closer look reveals that they may not be as different from traditional institutions as they claim – and could be worse.

Monitoring of two well-established networks over a period of two years, from 2015 to 2017, revealed that their computational power is actually controlled by a very small number of “miners.” For example, more than half of bitcoin’s computational power is controlled by the top four “miners,” while over 60 percent of ethereum’s is controlled by only three. Whether these “miners” are individuals or groups of individuals who share processing power doesn’t really matter. The danger is that any person or group who controls more than 51 percent could potentially prevent other users from spending or receiving currency, or give themselves more purchasing power by double-spending their own.

As a result, instead of a government-regulated bank you now have a currency system controlled by a small yet anonymous group of strangers. This may be one of the reasons cryptocurrencies are seeing a decline in value in recent weeks.