- Encryption has come under heavy criticism from the founders of messaging app Signal.
- Swiss bank UBS mentioned the flaws in a client note, a sign that investors are taking notice.
- Technical experts said cryptocurrencies are in fact highly centralized, with their users focused on money rather than infrastructure.
The technology behind cryptocurrencies has come under heavy criticism from several prominent tech bloggers in recent weeks, and investors are starting to take notice.
Swiss bank UBS cited a blog post by Moxie Marlinspike, developer of the encrypted messaging app Signal, in a client memo last week as it considered the rationale for the sudden drop in cryptocurrency prices, noting recent critical comments from other prominent tech experts.
Marlinspike argued that contrary to what crypto advocates claim, the crypto world is in fact far from decentralized or secure. Rather, he said, very powerful organizations like NFT marketplace OpenSea have monopolized access to the crypto world.
Marlinspike criticized the idea of decentralized cryptography itself, saying people don't want to run their own servers and that upgrades are too difficult.
He said that many supposed crypto fans don't care about decentralization and are simply chasing money in the “gold rush.”
In a decentralized system, instead of relying on a single central resource to do the work, people share the activities needed to complete a process. In cryptocurrency, the distributed work is tracked on the blockchain.
For example, the Lightning Network, which powers Bitcoin payments in El Salvador and Twitter, is run primarily by people who control individual channels and nodes.
The Signal founder's comments were widely shared across tech and finance circles, but it's just one of several recent posts by tech commentators that have harshly criticized cryptocurrencies.
“The easy money from crypto speculation seems to be distracting developers and investors from the hard work of building services that have real-world utility,” Tim O'Reilly wrote in December, a tech expert who popularized the term “Web2” to describe the modern internet.
Web developer Laurie Voss concluded: “There's something here, but maybe not what people are expecting.”
read more: Bitcoin price outlook 2022: Here are the price targets set so far this year by top analysts from Goldman Sachs, JP Morgan and other major Wall Street banks.
According to James Malcolm, head of foreign exchange strategy at UBS, these and other “slowly emerging revelations” are causing growing skepticism about cryptocurrencies among investors.
He said regulation is another potential dark cloud on the horizon.
“People haven't heard this side of the story,” Malcolm told Insider. “It's important for investors to understand that there's another side to the story they're being bombarded with every day.”
Cryptocurrency prices have fallen sharply over the past two months as investors prepare for the Federal Reserve to end its stimulus program in 2022. Bitcoin fell about 2% to $41,585 on Tuesday, well below its all-time high of $68,000 hit in November.
Malcolm wrote in a client note that criticism of the technology could further weigh on Bitcoin and other cryptocurrencies, and could be one of the factors that plunges the industry into a “winter” where prices fail to recover.
But cryptocurrency supporters have defended their projects against Marlinspike and other critics.
Ethereum founder Vitalik Buterin said on Reddit that the crypto world is not as decentralized as it should be, but that critics are “missing where the blockchain ecosystem is heading.”
Buterin noted that the industry is still young and predicted that the system will become easier to use for non-experts.