5 Foolish Flaws That Make Crypto Total Trash

It's true that you can call up a professional to use brute force attacks on a crypto wallet to try and unlock it if you want to put your economic future in the hands of Dave Bitcoin. But even the illustrious Dave Bitcoin can't save you if you've set up protections from a brute-force attack.

One trader used a program called IronKey for this protection, then promptly lost the paper onto which he wrote his password. Enter in too many passwords, and the wallet gets encrypted into incomprehensible gibberish. His wallet has 7,002 full-on Bitcoins. They're worth $220 million. He's reportedly "made peace" with his loss, which is a pretty sober way to describe losing your password to the lottery. We suppose that's better than throwing away the hard drive with your Bitcoins on it, but barely.

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In the world of crypto exchanges, there have been some, well, hiccups. One exchange in Canada had a bunch of Bitcoins in "cold storage," meaning they weren't accessible online. They were still password-protected, which should've been fine because this was an exchange. Surely they would've kept the passwords in more than one place, right?

There was one sole holder of the cold storage password. That guy died suddenly. Boom, access to the cold storage crypto horde was immediately lost like it was protected by the dumbest Smaug imaginable. That horde included 26,000 Bitcoins, which are worth... *checks notes* ... a metric shit-ton of money. (It was a Canadian exchange, so we go with the metric unit.)

That's nothing compared to the insanity of Mt. Gox, formerly the trader of 80% of all Bitcoins around the world. It was also revealed to be a giant Ponzi scheme, the preferred scheme of the 21st Century. 

Mark Karpeles, the head of the exchange, originally claimed that he 'misplaced' 850,000 Bitcoins but then miraculously recovered 200,000 of them in time to try and convince Japanese regulators that he was on the up-and-up. Of course, being even half-heartedly interested in their jobs, they promptly shut him down. It was a completely unforeseen end to what started as a Magic: The Gathering exchange because history is way, way dumber than we'd like to admit.

Now, if these coins had been held by a bank, a government could step in and make customers whole, especially in the case of such massive fraud. But that's not how this works because, again, crypto doesn't have a government behind it. There's no structure to make people whole for lost crypto. 

You could have one, sure, but that would require, you know, a government. The thing crypto is specifically built to circumvent.

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Of course, they're both right. Anything, technically, can be useful for crime, given the circumstance. Crypto, though, has become less and less useful for crimes. It's becoming safer for investors, so much that big heavyweights are investing in the stuff just like any other asset. 

What people are realizing is that crypto is pseudonymous, not necessarily anonymous. That is, if you know somebody's web address and other basic information, you can trace the ownership of cryptocurrency. After all, a blockchain is a digital contract that everybody can see. With some advanced know-how and elbow grease (or niche crypto specifically geared toward anonymity), a user can protect their identity, but it's difficult to do and a little beyond the ken of dudes who run their criminal empires out of public libraries.

Police are actually getting pretty good at tracing and seizing the stuff.

Huge national law enforcement agencies are already on the case, so to speak. At one point in 2020, the owner of fully 1% of all Bitcoins was the Chinese police. Over in the States, the FBI has gotten in on the action. In addition to tracking and shutting down Silk Road, they've disrupted terrorist-funding operations and seized a bunch of Bitcoins associated with North Korean hackers. They're able to do this with consulting firms with the know-how and the not-digital money to hire really, really advanced researchers and programmers. 

But this tech isn't relegated to the G-Men anymore; Vendors are already selling sophisticated crypto tracing systems that can be used to track cryptocurrencies for your local state, county, and city cops as well, which we're just absolutely sure is going to end just great.

That's not all governments are doing to make crypto more palatable to the states cryptocurrency is set to destroy. The EU has already published new regulations earlier this year. In the good ol' USA, they're pushing legislation that would require crypto exchanges to collect data to identify their users. 

Related: The End of Online Anonymity: Why Will You Be Freaking Out?

Now, not a ton of people are using crypto yet. That's the nature of cutting-edge tech. But those transactions, even without a ton of people using them, are much, much slower than the normal ways we spend. That would become even more of a problem the bigger crypto gets.

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All that work takes a ton of energy. For example, there's been a lot of hay made recently about Grimes's husband's decision to buy 1.5 billion worth of Bitcoin to diversify its assets. Whether or not this is a good move on Tesla's part, the purchase has the power to erase all the carbon emission benefits of every Tesla ever made. Bitcoin alone devours energy on a country level every year. It went from a Switzerland level of electricity consumption in 2019 to a Ukraine in 2021, more than doubling while doing so. The Bitcoin network consumes more energy than 150 nations do annually. 

And that's just Bitcoin; there are a ton of other coins out there that do the exact same thing, and of course, belch similar amounts of carbon into the air. We mean this literally: the use, mining, and trading of all other coins amount to doubling that already Sarah-McLachlan-puppy-ad-level sad.

There are crypto operations trying to put a band-aid on their gushing wound of carbon emissions, but even that's a stretch. Some researchers claim coin mining is fueled mostly with renewables, but they're doing so by soaking up already existing capacity, not building it themselves, or paying for it to be built. Further, sources that aren't digital-money advocates peg their renewables use at 28%, rather than the 70% claimed.

Hell, for that kind of energy, you could just go mine gold. Like, out of the ground and everything.

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This is where the whales come in. And like real whales, they are coming for your children.

Whales are just wallets that hold a lot of cryptocurrency. In Bitcoin, a whale usually has over a thousand Bitcoin under its control. That's nothing special. What is special is just how few wallets control majorities of each currency. But while it's true that cryptocurrencies aren't controlled by a single Monopoly Man, it's more like they're controlled by Oligarchy Man, Monopoly Man's twisted cousin.

1,000 individuals own 40% of the market in Bitcoins; 1,100 will give you a majority of all Bitcoins. According to research, there are a little above 2000 such wallets in existence. Yet, the number of wallets that own less than .001 Bitcoins number in the millions. But Bitcoin, weirdly, was one of the least centralized of all major cryptocurrencies; 147 addresses control the majority of Ether in circulation, and only 128 addresses control all Litecoins.

Want to get out of those heavily traded coins and go for something totally new? Good luck because 1 in 4 cryptocurrencies have a majority of their tokens owned by the founder of the currency itself.

This poses a real problem because whales can manipulate the market based on the sheer number of coins they have, flooding the market, driving down prices, and buying back their coins more cheaply. Whether they're throwing their weight around or creating possibly fraudulent coins to control prices, they've already been recorded doing all sorts of market-manuiplatey type stuff. That's not going to get better in the future because of who's buying crypto now: regular old investors, banks, and traders.

When rich investors get into any asset (remember: Bitcoins alone are worth over a trillion), they'll want to make their assets as safe and consistently more valuable as they can. That will likely mean governance changes that will destroy the things that make crypto an interesting alternative financial tool, changes that we're already seeing. 

Now that the whales are increasingly becoming corporations, we're about to see how dark the ocean can get.

And call us crazy, but that's probably, uh, not good.

Top image: 3D Sculptor, TR Stok/Shutterstock