What are the disadvantages of bitcoin over fiat?
In my last article I covered some of the benefits that bitcoin has to offer compared to fiat, however it isn’t all sunshine and butterflies. There are several factors as to why bitcoin is yet to be seen as the superior currency by everyone.
1. Volatility
Looking at the current state of bitcoin, it’s way too volatile to be used in a day-to-day basis. In just the last couple of months it has decreased 60%. And since the whole market is pegged to the effects of Bitcoin, the whole sphere is seen as a risky investment by a lot of people. As of writing this article, the whole market has increased by 30% in the last 24 hours.
2. Black market
Unfortunately Bitcoin has lead to a boom in the blackmarket which has resulted a lot of negative opinions regarding the cryptocurrency and its environment. There are certain issues with making a currency that is hard to track and this has resulted in the decrease in barriers of entry to the online market of drugs and other illegal products. Since Bitcoin is not completely anonymous, certain black markets have now moved onto other cryptocurrencies such as Zcash and Monero (Two well known privacy coins).
3. Environmental effects
As crazy as it sounds, one of Bitcoins biggest faults is its energy usage. Mining is the process that is essential in the current Bitcoin protocol using Proof of Work (POW) in which transactions are verified in exchange for new bitcoins and this has serious environmental effects. According to Digiconomist, keeping Bitcoin running requires 32 terawatts of energy a year which is enough to power 3 million American homes.They also deducted that at the current state of Bitcoin during the study (In early December 2016), just one transaction could use as much energy as an entire American household would in a week which is worrying since there were around 300,000 transactions every day. If Bitcoin was to be used even more, the negative effects of mining would increase. To conclude, these mining issues could result in a catastrophical increase in output towards global warming. On the positive side, there are other cryptocurrencies working on different solutions to target this issue and one way is to switch to a different system of completing transactions such as “Proof of Stake” (Will be posting an article on this soon).
4. Security
Since Bitcoin is something stored on computers/web-based wallets, etc. There is a risk of hacking/stealing of one's coins if precautions are not taking seriously. Some people will always take the easier way and in Bitcoin this means storing their currency on an unsafe location or getting scammed. We have all read the countless stories of people whom have lost their wallets or their passwords and hence lost thousands or even millions of dollars worth of bitcoin. Companies and wallet developers are building new and safe ways to target these issues however since Bitcoin is not physical it does make it easier for people to lose their money. I strongly recommend you read my earlier article on wallets to counter most of these risks.
5. Difficulty to comprehend
Simply stated, understanding and using Bitcoin, at the current state in which it resides, is simply too difficult for most people to comprehend at first sight. It’s a lot simpler to send $10 over paypal to an email address than sending 0.001206BTC to an encrypted address like 0x6A8Aed6f81aA5e210B276B80F1295b48b848CBaa. It’s going to take heavy development of both the environment in which we use Bitcoin and time in order to familiarize people with the process of using cryptocurrencies.
Conclusion
As much as I admire Bitcoin it’s important to look at all these cryptocurrencies and ICOs objectively and to understand the downsides. Transforming and changing the way the world works with fiat into a cryptocurrency-based environment won’t happen overnight and there are many obstacles in the way. But with that said I look forward to meeting those obstacles and seeing the space change and evolve to succeed above them.
Legal disclaimer: This is only my personal opinion, make of it what you wish. What does this mean? It means it's not advice nor recommendation to either buy or sell anything! It's only meant for informative and entertainment purposes.
Best regards,
NIcholas Stael von Holstein
Starflow