The hype surrounding Bitcoin, Ethereum and other major cryptocurrencies would cool off in the short-term if there is a major hack.
This is according to Panos Mourdoukoutas, who is the chair of the department of Economics at LIU Post in New York and professor at Columbia University. His opinion, published by Forbes, further adds that even though it will hurt them in the short-term, these cryptocurrencies would profit from it in the long run.
Hacking, the biggest menace in cryptocurrency world
The cryptocurrency world has been facing some very tough moments since Bitcoin was first created in 2008. Some of the issues they have faced range from scams, restrictions from banks, regulations and ban from some governments and many more.
However, hacking of cryptocurrency exchanges and wallets still remain the biggest menace that cryptocurrency world continues to face. The rise of cryptocurrencies, a few years ago, has got early investors and traders happy about the huge potential of Bitcoin and others. They were, however, woken to the reality of the dangers the cryptocurrency world faces from cyber criminals and hackers.
The hacking of the then biggest Bitcoin exchange shook the whole cryptocurrency world which was still in its infancy. The hackers wheeled away with a whopping $460 million worth of Bitcoin during the hack. We all know what happened to Mt Gox after that, the cryptocurrency exchange never bounced back and has now ceased to exist.
There have been other hacks on individual wallets and cryptocurrency exchanges since then but the Mt Gox hack serves as a reminder of what could happen in the world of digital currencies if security isn’t taken seriously.
Hack might reduce the hype
Even though it is bad for cryptocurrencies and exchanges, hack might be a good thing for the market in the long run. The cryptocurrency market received an unprecedented attention after the price of Bitcoin nearly reached the $20,000 mark late last year, with the market increasing in valuation as more people came into the market.
According to Bloomberg, Binance, which is considered the world’s largest cryptocurrency exchange, has quadrupled its user base to 9 million. This is astonishing considering the exchange was launched last year, showing you just how fast the cryptocurrency world has grown over the past few months.
This growth resulted from the hype around these major cryptocurrencies and has brought some weak hands into the market. However, a major hack would scare most of them away and leave only the serious investors. This was evident in the recent hack of South Korean cryptocurrency exchange, Coinrail, which sent the prices of Bitcoin and other cryptocurrencies plummeting.
After the Coinrail hack, in which the exchange reportedly lost $40 million, the Bitcoin price plummeted by 11% over the course of 24 hours, plunging from the $7,600 level to the $6,700 level within a matter of hours. Other major cryptocurrencies like Ethereum, Ripple and Bitcoin Cash all recorded losses that were even bigger than that of Bitcoin.
Amongst the top 100 cryptocurrencies, only 6 cryptocurrencies were able to trade in the green zone after the hack and subsequent market plunge. The remaining 94 all recorded losses, with the altcoins all recording massive losses.
The hack became a very big deal since the cryptocurrency exchange is based in South Korea, which is one of the largest cryptocurrency markets in the world. Any event in South Korea ultimately affects the entire cryptocurrency market.
Cryptocurrencies are very important to South Koreans who view them as vehicles to escape from the currency controls of their government and the only market where premium prices are paid for cryptocurrencies. South Korea became an even bigger player after the Chinese government placed a ban on cryptocurrency exchanges and ICOs.
Thus, the hack on Coinrail became a very big deal due to the importance of South Korea to the cryptocurrency world. However, this hack is minor compared to the Coincheck hack that occurred earlier this year.
Coincheck, a Japanese cryptocurrency exchange, experienced a hack in January that saw the hacker wheel away with $530 million worth of NEM coins which subsequently affected the entire cryptocurrency market. Blockchain expert Mary Saracco recently stated;
Hackers have always existed and the likelihood of them vanishing is very low. That said, the crypto space in particular needs to be extremely diligent in their security measures as cybersecurity plays a bigger role in the industry.
Even though hacking might be painful for the investors and traders in the short-term, it will make the market even stronger in the long run, according to some cryptocurrency experts. Christian Ferri, President and CEO of BlockStar, stated;
As in every technology, hacking will be painful for some in the short term; but it will be a major driver in strengthening the crypto ecosystem, making it more secure, which is key for mass adoption.
His point was echoed by Amy Wan, CEO and co-founder of Sagewise, who commented;
There will always be a community of crypto enthusiasts, despite all the hacks. But blockchain and crypto will not become more mainstream unless and until the space resolves these fundamental infrastructure issues and provides users with transactional confidence and certainty.
The cryptocurrency world is still in developmental stage and a lot of things are happening from multiple angles, which is why it is very important for traders and investors to remain strong and expect further turbulent times. One thing is for certain, the market will come back stronger after the weak hands have been shaken off.