Good governance is crucial if we want a reliable cryptocurrency, a team of researchers says. Clear guidelines with advice for stakeholders when software updates are beneficial would help maintain a reliable cryptocurrency.
Cryptocurrency network participants need to become better at pre-empting beneficial software changes. Participants in Bitcoin networks, for example, would end up with a more reliable cryptocurrency.
If participants were better at pre-empting beneficial updates, there would be better privacy of addresses and security of transaction. This would help maintain the value of a cryptocurrency, says Benjamin Trump, ORISE Fellow, United States Army Corps of Engineers.
Benjamin Trump, Emily Wells, Joshua Trump, and Igor Linkov wrote about their study in Environment Systems and Decisions (citation below). They all work at the US Army Engineer Research and Development Center’s Risk and Decision Science Team in Concord, USA
Their study analyzed the governance challenges that many cryptocurrencies have. It also explained why such challenges undermine the long-term usefulness of so many cryptocurrencies.
Through their use of blockchain and distributed ledger technologies, cryptocurrencies such as Bitcoin could potentially revolutionize commerce. They could also revolutionize how information is stored, secured, and safely transferred around the globe.
What is a cryptocurrency?
A cryptocurrency is a type of digital (online/electronic) currency that is encrypted, and has all transactions validated through a consensus-building mechanism known as a distributed ledger process. Cryptocurrency creators say that data encryption and consensus-driven validation makes them secure and virtually tamper-proof.
This type of currency operates without a central bank, unlike the dollar, pound, euro, and other traditional currencies.
A reliable cryptocurrency eludes us
However, we still do not have a truly reliable cryptocurrency. They are extremely volatile. Users still do not trust them as a form of financial exchange that is reliable.
The underlying technologies that drive cryptocurrencies are promising, says Trump. However, the current processes which enable software updates don’t help a truly reliable cryptocurrency establish itself.
One of the significant challenges to the success of many cryptocurrencies includes the software problem known as a ‘hard fork‘. They are splits in a cryptocurrency’s blockchain. A blockchain is a list of records that is forever growing. Each record is a ‘block.’ The blocks link to each other with special codes (cryptography). Each block has a hash point with a transaction data and a timestamp.
These splits in a cryptocurrency’s blockchain make people lose trust in it. The disruption also undermines its capacity to survive as a reliable vehicle of exchange, Trump believes.
The researchers reviewed the state of cryptocurrency ‘forks.’ They looked at over 800 publicly-acknowledged soft forks, source code forks or altcoins, and also hard forks from Bitcoin.
Their sources included the Bitcoin Exchange Guide and the Map of Coins.
The researchers’ analysis showed significant growth in the number of separate blockchains originating from initial Bitcoin software. Many of those altcoins and Bitcoin forks did not survive for longer than a few months. Others like Vertcoin, Litecoin, and Dogecoin, on the other hand, have survived for years.
Two hard forks executed at the end of 2017 beginning of 2018 paved the way for many other future forks.
Experts predict more forks
According to experts, forks will become more common. Some experts predict that in late 2018 into 2019, there will be up to fifty of them.
Trump, who was lead author, said:
“Hard forks are a threat to maintaining a stable and predictable operating platform that is essential if cryptocurrencies are to be adopted for daily financial transactions.”
Such increases in hard forks prevent people from perceiving a cryptocurrency as a reliable cryptocurrency. They hinder mainstream adoption of many cryptocurrencies.
Trump believes that if Bitcoin, in particular, is to become a reliable cryptocurrency and a predictable medium of exchange on a global scale, wallet developers, cryptocurrency miners, exchange operators, and other stakeholders need to generate more stability.
The only way to generate more stability is through good governance.
We could, for example, establish metrics for key variables that can pre-emptively identify required software changes. Specifically, this might include opportunities to improve cryptocurrency scalability such as with improved software changes to reduce transaction time and cost requirements.
Video – What is a cryptocurrency?
“Cryptocurrency: governance for what was meant to be ungovernable,” Benjamin D. Trump, Emily Wells, Joshua Trump, and Igor Linkov. Environment Systems and Decisions (2018) pp 1–5. DOI: https://doi.org/10.1007/s10669-018-9703-8. Print ISSN: 2194-5403. Online ISSN: 2194-5411.