I won’t argue with you that cryptocurrency is a cool technology. I also love the idea of a decentralized currency. But I’m not so sure that bitcoin is the answer. It has a lot of problems. I don’t know if it will happen next year or 10 years from now but I think bitcoin will ultimately fail.
The problems with Bitcoin
I’ve followed bitcoin off and on over the years. I even used to have a mini mining farm. So I’m not coming at this without experience. That being said I’ve seen 4 big problems that I think will kill bitcoin and a lot of other cryptocurrency if they are not somehow addressed.
Scalability issues
The amount of energy the bitcoin network uses to run surpasses that of small countries. If bitcoin keeps growing in popularity one can assume so will the energy demand. This was the reason I stop mining years ago. When I did the math it seemed like I was spending more on power then what I was making on bitcoin.
Another scalability issue is the block chain size. It’s this ever growing blob of transaction data and as far as I can tell there’s no mechanism in place to trim or compact it. Its not sustainable and the last time I checked the block chain was over 500GBs. That won’t even fit on a lot of people’s computers. Meaning if you want to use Bitcoin then you have to store your bitcoins on some online wallet.
Not so Decentralized
With everyone moving to online wallets can we still say Bitcoin is decentralized? I guess it is since more then one wallet host is out there. But it seems like over time the decentralized nature of bitcoin is coalescing into more of a centralized system. That’s undermining one of the core principles of Bitcoin.
Volatility
Because of volatility a lot of people are reluctant to use bitcoin as a day to day currency. I’m not sure what the best way would be to solve this issue. But I think a future cryptocurrency would need to be more stable if it hoped to replace cash.
Privacy
People have a misconception that Bitcoin is private. But that’s not true. Every transaction is stored on the blockchain forever. All you have to do is make one transaction that connects your identity to your wallet then all privacy is lost.
Since you can’t use bitcoin as an every day currency to buy food or whatever then at some point your probably going to want to cash out. I don’t know of a way you can do that in the US without giving up your identity. Then as soon as you do that your privacy is gone. There are even tools that can search the block chain and connect the dots.
So anything you ever do with your wallet that might connect your identity to it will throw away your privacy forever on the blockchain. Then it will be on the blockchain forever for the world to see.
Update 8-6-2024:
It seems Edward Snowden agrees with me about the bitcoin privacy problem and wants better privacy.
Bitcoin alternatives
Don’t get me wrong I’m not against cryptocurrency. I truly hope these problems are solved. I’d love to have a sustainable, decentralized and private cryptocurrency option. But I don’t think Bitcoin is it. There are other coins like Monero that try to solve the privacy issue or a number of proof-of-stake coins that try to solve the energy demand. But I have not seen anything that addresses all the issues simultaneously.
Do you know of the perfect cryptocurrency?
Maybe I missed one. I don’t follow crypto very close like I used to. If you know of some amazing coin let me know in the comments below!
