The co-founder of Ethereum, Vitalik Buterin, has published a post that is outlining so
much about cryptocurrencies and what the crypto community needs to still solve. In the
same post, he explained the most recent and common challenges facing the
cryptocurrency market as of 2019.
- Concerns Regarding Post-quantum Cryptography
The Elliptic curve cryptography is among the few things that are protecting the whole
Bitcoin network. It is designed to ensure that no one steals Bitcoins from others. One of
the main reasons that this cryptography is so secure is the fact that in order to hack it,
one would need an extremely powerful computer to crack the encryption.
The big problem is that recently, Google has now developed a quantum computer, also
referred to as Sycamore. The computer operates on 53 quantum bits, or qubits. To put it
into perspective, Sycamore can work on calculations that would normally require 10,000
years to perform but instead can complete these calculations in just 200 seconds. As a
result, it is now posing a worry about what will happen to cryptography which underlies
most cryptos. Will this computing capability affect cryptocurrencies?
- Creating Unique Human Identities
Blockchain technology is projected to be used one day in voting. The biggest challenge
with this lies in vote-rigging. The voting system, so far, is designed with one account
having a single vote. However, it also means that it will be difficult to determine when
someone has more than one account and is voting more than once.
Buterin highlighted that although there is one unique identity for each person on
blockchain technology, it could be linked to many accounts. While you could create
unique human identity that is linked to only one person and account, this would be hard
to put into practice as it would involve human verification.
- Building Decentralized Governance Mechanisms
Over the last few months, Decentralized Autonomous Organizations (DAOs) have
witnessed some comeback. The recent DAO shock, which led to Ethereum losing $50
million, made DAOs a sore topic for a while. However now, new efforts by Ameen
Soleimani, the CEO of Spankchain, has seen fresh DAOs being developed.
Despite this, Buterin feels that there is a need for more progress on the same matter.
He believes the DAOs are still primitive in their current form and need to be quickly
- Proof-of-stake in Networks
Buterin stated that this is a problem that has existed since the launch of Bitcoin. This
involves the concerns regarding a 51% attack. This means that in the case that one
person can produce the highest number of blocks in the chain, they will then be in a
position to act against the system and can even censor transactions.
As a result of this, some coins, including Ethereum, are moving to the proof-of-stake
mechanism. This means that miners will not have to use computer energy to create the
next block. Instead, blocks will be created proportionally based on how much of the
cryptocurrency each participant has staked or put up as collateral.
For someone to do a 51% attack on a proof-of-stake network, they will need to stake
more than half of the combined coins staked by the rest of the players.
- Oracle Problem
This challenge arises from the fact that cryptocurrencies are decentralized. Still,
whenever blockchains need to interact with real-world data, like to obtain price
information on coins, they have to deal with the centralized services. How can one
ensure that this data has not been manipulated?
The answer to this problem is decentralized finance (DeFi). That is, the use of
decentralized oracle providers will be the solution. This is because they make use of
financial incentives to come up with data collection solutions in a decentralized manner.
As a result, they are also not dependent on any single third party.
With so many issues and challenges facing the cryptocurrency space today, the big
question is will we be able to solve many of these challenges as we move into 2020?