Bitcoin exchanges convert the well-liked digital currency into national currencies in keeping with fluctuating rates. However the exchanges pose potential risk to users, a study finds.
A recent paper by researchers at Southern Methodist and Carnegie Mellon universities (PDF) says that 45 percent of the exchanges fail. The paper also says most close their doors without refunding users’ money.
Bitcoins have captured the interest of entrepreneurs worldwide. They’re well liked by businesses operating online and across International borders. Portion of this appeal is they don’t seem to be regulated by any bank or country.
Researcher Tyler Moore, of the Lyle School of Engineering, Southern Methodist University, Dallas, explains his team’s findings during this video.
Researchers studied 40 Bitcoin exchanges on the net offering to transform Bitcoins into other currencies or back again, in line with a summary of the report in Wired.
Of those, 18 have closed, 13 of them by surprise, and only six have made an effort to refund the cash deposited by users. The study also found that cyber attacks weren’t the most explanation for Bitcoin exchanges closing. Only five of the exchanges the report studied shut down as a consequence of an attack from cyber criminals.
Moore avoids specifics in regards to the major cause for exchange failure in his video explanation. But he says that companies fail for a considerable number of reasons, including loss of interest of their services or products.
The study determined that smaller exchanges were more likely to fail than their busier rivals. Conversely, larger exchanges were likely to be victims of cyber attacks, Moore explained.
For example, researchers found exchanges handling 275 Bitcoins worth of transactions daily have a 20 percent chance of being breached. Compare that to exchanges handling daily exchanges of five,570 Bitcoins. These exchanges face a 70 percent chance of successful attack.
The projected lifespan of Bitcoin exchanges may be cause for worry. The study predicts the median lifespan of a Bitcoin exchange at 381 days with a 29.9 percent chance that a brand new exchange will close inside the first year.
Bitcoin Photo via Shutterstock