If you have been following the news in the last two months, you’d have noticed a lot of discussion on Bitcoin’s sudden stellar rise. The price of Bitcoin (BTC) went from USD 13,000 to USD 41,000 in just three months! That is a 170% increase in three short months.
What better sales pitch than this, it has an overdose of becoming rich, easy money, quick money, no risk, getting rich overnight, winning a lottery.
This article is not against crypto currencies, blockchain or digital currencies. It is deliberating about why Bitcoin specifically cannot not end up as the currency of the future.
Bitcoin is dubbed as the currency of the future, but there are many reasons why Bitcoin has a low chance of becoming a mainstream currency. While not wholly impossible, even among cryptocurrencies there are better alternatives.
Bitcoin’s lack of suitability boils down to a few factors — Ownership, Acceptance, Security, Transaction processing Speed. These are major considerations against wider adoption and questions that don’t have a convincing answer so far.
Ownership
Ownership of bitcoin is unevenly distributed — 85 billion dollars worth of bitcoin is held by a hundred anonymous people (we don’t even know if these 100 accounts belong to a small set of people or can belong to an exchange or group of people). That means 0.5% of Bitcoin wallets own 87% of all Bitcoins that have been mined.
Source: https://bitinfocharts.com/top-100-richest-bitcoin-addresses.html
One argument for why this is ok for these 100 wallets to get a head start, let us consider these Top 100 folks as early adopters or owners of a company that is offering an IPO. Since they are early adopters and took risks, they get a lion’s share of profits. The early adopters have taken risk with their current wealth and they also are taking risk each second and minute holding on their bitcoin wallets, since they can forget the password, or some program in their computer captures their secret key, or some hacker takes control of the wallet. They live with the risk that, when they lose control of their wallet, there is literally no authority that they can appeal to, complain to, or get their wealth back. You can completely ignore this point if it is not bothering you.
Who is accepting Bitcoins ?
Today, the anonymous nature of Bitcoins makes it the preferred mode of payment for hackers and ransomware attacks, it helps hackers to be anonymous and collect payments.
Source: https://www.bbc.com/news/technology-43877677
Security
Bitcoin’s network could also be vulnerable to a “51% attack”. This means that when a single or group of entities obtains control over the majority of Bitcoin miners, the entity could have the power to approve only the transactions that it prefers and delay others. This could easily lead to fraud. There are a lot of articles that claim this cannot happen, but they forget that this happened in 2014 when Ghash.io had more than 51% control of mining power. Given the advances in Quantum computing, this makes the scenario even more possible. Bitcoin miners got together and said that they will reduce printing more coins (currencies) and throttle down.
source: https://en.wikipedia.org/wiki/Ghash.io
Transaction processing speed
Bitcoin transactions are really slow for this day and age. They take about 15 minutes to verify by independent sources. Other cryptocurrencies such as Ripple are much faster, but Ripple has its own set of regulatory issues. Bitcoin has been designed in a way to increase mathematical complexity over a period of time so that it doesn’t allow improvements in computational power to let someone take ownership by adding fake transactions to bitcoin ledger. Imagine waiting for 15 mins at payment counter, waiting for acknowledgement of payment.
Other considerations
If bitcoin becomes mainstream, hackers and terrorists will remain anonymous on the network by creating one-time use wallets, but the general public will end up storing wallet addresses of friends and family like how we store phone numbers today. There will be a TrueCaller like app that can be used to find who owns the wallet.
The impact on the environment, the amount of computation power required to keep the systems running and coping up with the increased complexity. As the world moves towards ESG investing, bitcoin is looking the other way.
With $0.04/kwh, miners based in China said that the breakeven cost to mine Bitcoin hovers in the $5,000 to $6,000 range.
Even individual miners running commercial mining equipment like the Antminer S9 is operating at a breakeven cost of $8,206.
Given these considerations, i am unable to bet money on Bitcoin. Would love to hear your thoughts on how do you convince yourself to invest in Bitcoins, or just looking at it as temporary gig, or following the crowd.
