Bitcoin and blockchain technology use raise cybersecurity questions

In recent years, technology companies and even national governments have started focusing on the use of Bitcoin and cryptocurrencies. The main reasons why this is the case is not difficult to determine: Bitcoin has potentially huge valuations (the current exchange rate is somewhere roughly around 1 Bitcoin = $450 U.S.) and is increasing in popularity as a means of exchange. As a result, all signs point to a future in which blockchain, the public ledger that serves as a record of all Bitcoin transactions, will play a large part in monetary exchanges all over the globe.

Now that the European Union is sponsoring trade regulation forums that deal with virtual currency, it’s clear that countries have started to take a very close look at how virtual currency exchanges will integrate into society’s current economic exchange structure. Additionally, major American companies like Microsoft and IBM are now exploring ways to use blockchain technology in their own services. These factors will likely soon result in the U.S. government taking a serious look at the Bitcoin trade and blockchain technology to implement relevant policy decisions in the not-too-distant future.

Regulating Bitcoin and blockchain technology presents a bit of a conundrum for companies and policymakers, however. On one hand, regulating this market would be necessary if it were to enter the mass consumer sphere to protect customers and their data, as well as to prevent crimes like money laundering. This could be an especially difficult endeavor: While blockchain technology serves as a public ledger for all Bitcoin transactions, the decentralized trust that makes up blockchain technology means that the sources and destinations of cryptocurrency transactions are extremely difficult to trace. The cryptography in each transaction is great for the consumer’s protection during Bitcoin exchanges, but it would make things like imposing income taxes on virtual currency quite tough and thus give policymakers reason to sweat.

On the other hand, what makes blockchain technology so effective and innovative in its current form is its decentralized trust that allows for unparalleled security during peer-to-peer sharing. Currently, there is a fear that mandates would hinder the growth of this industry if regulators went too far. For example, policies regulating the blockchain could potentially compromise this decentralized trust if there were some institution of oversight that kept track of all the blockchain traffic. It creates the need for an interesting balancing act: Regulation of virtual currency would be necessary if Bitcoin were to enter the mass market as a means of economic exchange. However, these regulations could also compromise the freedom created by blockchain’s decentralized, peer-to-peer structure and limit the scope of its most attractive functions.

In its current form, the world of blockchain technology is something of a vast unknown frontier with unchecked growth. Still, many major players in the tech world are exploring its many potentially disruptive uses and revealing the possibilities that lie ahead. Nermin Hajdarbegovic, the technical editor of the Toptal engineering blog, likens the use of Bitcoin and blockchain technology to the Wild West:

“Blockchain technology has countless potential applications,” Hajdarbegovic said, “but that’s the problem — the potential has yet to be realized. Accepting Bitcoin payments for Xbox in-game content or a notebook battery doesn’t even come close.”

It certainly seems we’re only just now touching the tip of the iceberg as far as the many potential uses for blockchain technology. These possibilities are vast and multiplying, including improved communication between IoT devices and fully encrypted peer-to-peer cloud-based storage.

Some experts are advising regulators to abide by the “do no harm” rule for regulating virtual currency and allow the private sector to police itself when it comes to blockchain compliance and cybersecurity. But as it continues to grow in popularity, policymakers will likely soon have to instate some governing body to oversee blockchain technology. Whether those regulations are minimal in order to encourage innovation of blockchain applications or are designed strictly with consumer financial protection in mind, companies in the e-commerce world and beyond would be very wise to explore applications of the potentially lucrative blockchain market for their own businesses.

Whether it’s revolutionizing payment exchanges or vastly improving communication between devices and peer-to-peer services, blockchain technology is poised to become a major fixture in the tech world. The technology may have seemed a mythical cyber-phenomenon for a while, but it’s likely only a matter of time before security and compliance questions will have to be raised, and answered, as it becomes increasingly commonplace. 

Drew Hendricks is an entrepreneur, writer and business advisor living in the San Francisco Bay Area. He regularly contributes to Entrepreneur, Inc. and Business Insider.