Why The Proposed Security Certification For Bitcoin Matters

I have said before on these pages that if Bitcoin is to fulfill its potential of shaking up payment and exchange systems in a manner that benefits the consumer and entrepreneur over existing financial institutions and practices, then some form of universal regulation of the businesses surrounding it must evolve. I understand the opposition to that concept voiced by many Bitcoin enthusiasts and early adopters; after all, regulation by central governments, by definition, puts the decentralized nature which is at the core of the concept of a peer to peer currency at risk.

The fact remains, though, that for the vast majority of people the stories of theft and deception related to digital currencies are what they most often see, hear and read. That may be unfair given that cyber crime in the realm of conventional currency is much more common and yet much less reported, but it is also undeniable. In those circumstances the wider use of Bitcoin that most desire simply will not happen. It is fine to say that individuals should do their own due diligence when dealing with companies in the alternative currency world, but the reality is that for most the issues surrounding cyber security are far too complex for them to understand or, at the very least the they are not motivated to allocate the time that such an understanding would demand.

Given that, the answer had to come from within the Bitcoin community in the form of some kind of security standard and certification that people could view as a reassurance that at least some minimum standard of security had been met. If the community shows a willingness and ability to self regulate the prospects of truly restrictive, even destructive, regulations by central governments around the world will be reduced. Two weeks ago, when the Cryptocurrency Certification Consortium(C4) unveiled their draft proposal for a set of standard rules covering key and seed generation and proof of reserve along with most other areas of security, Bitcoin moved a step closer to that goal. The full draft of the proposal can be found here.

I make no claim to be an expert on cyber security, so I do not have an opinion on the technical aspects of these proposals, or at least not one that counts for anything, but this is a start. It is in the nature of Bitcoin that any standard that is eventually decided on cannot be imposed on companies in the field. It must be voluntary and would likely not be universal, but anything that gives potential holders of Bitcoin a sense of security is surely a good thing. There is a reason that the Certified Financial Planner (CFP) designation exists. It doesn't mean that your advisor is any smarter, nor does it guarantee that he or she is 100% honest and will put your interests first, but it does mean that they have met a certain minimum standard. When it comes to reassuring consumers, perception is reality.

Of course, creating a warm and fuzzy feeling isn't the only thing needed if Bitcoin adoption is to grow. The extreme volatility that has been experienced this last couple of years is also a problem. To some extent though, if security concerns can be reduced and thus more people become regular users of Bitcoin, that volatility will inevitably decline. Liquidity enhances stability.

The words regulation and even standard seem to produce a visceral response from some cryptocurrency enthusiasts, but in this instance, when the proposal comes from within the community, and adherence to a set of standards would be voluntary, it is possible that it could be a solution to Bitcoins two biggest problems. These proposals may not be perfect and no doubt some refinement will take place before anything is adopted, but to dismiss the concept of standardized security protocols is a short sighted mistake as this could be an important step towards the wider adoption of Bitcoin.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

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Why The Proposed Security Certification For Bitcoin Matters