Over the years, bitcoin has enjoyed massive success both as an asset and as a blockchain asset. Its existence, highlights, and failures have birthed a global crypto industry estimated to have reached over $2 trillion this April. Yet, experts still claim the cryptocurrency is not sustainable fiat in the long term.
Without paying close enough attention, it’s easy to write off the claims that Bitcoin will fail; after all, its value is the highest it’s ever been. However, a closer look will reveal some of the reasons for those predictions.
Why Bitcoin Will Fail
There are five major arguments against the currency, and according to analysts, these are the most likely reasons why bitcoin will fail.
● Bitcoin is under constant deflation.
● Bitcoin exchange system is imperfect.
● Bitcoin is volatile
● Bitcoin encourages Black Market exchanges
● Bitcoin wastes energy
1. Bitcoin is Under Constant Deflation
Unlike most legal tenders used in countries like the U.S or China, there is a fixed amount of Bitcoin in circulation, making it unsustainable as a legal tender.
Bitcoins are stored in wallets, which are only accessible through keys. These keys cannot be redeemed once they’ve been lost, and that means the currency goes out of circulation if the user misplaces them. If this happens long enough, the currency will fail as a legal tender because there will be less and less of it every year.
This will lead to sustained deflation, which is never good for any currency.
2. Bitcoin Exchange System is Imperfect.
One of the biggest features that drew investors, miners, and business people to Bitcoin was its promise of a decentralized network. No central bodies are setting or governing its rules or banks to slow it down. It operates purely on the shared agreement and respect of its users.
Exchanges were set up to make the bitcoin more liquid-like fiat currency, and with them came larger security and cost issues.
3. Bitcoin conversion fees
It costs quite a bit to convert bitcoin to conventional money or transfer it. The conversion costs are justified considering how volatile the currency is and how important the regulatory constraints are, but they still leave the currency wholly unsuited for large-scale transactions.
The cost of higher transaction costs adds up with both miners and bitcoin exchanges taking their cuts. Sometimes it ranges in the hundreds of thousands of dollars, depending on the volume. When compared to traditional fiat, it seems like the less cost-effective method of currency transfer.
4. Bitcoin Security Flaws
The Bitcoin blockchain is arguably uncrackable. It has layers upon layers of security measures, but it’s not untouchable. The exchanges and the people who process transactions through them are weaknesses that most hackers and scammers take advantage of. This has led to the rise of ID tag theft and massive exchange hacks.
There have been recorded cases of massive hack attacks that robbed large exchanges of their bitcoin, leaving tons of users with no recourse or compensation. Flexcoin is one such example. The exchange was attacked on March 14, 2014, and it lost 896 bitcoins.
Although the hackers were never caught, even if they’d been, Bitcoin regulation does not acknowledge the transfer of currency unless both parties agree to it.
It will be more or less impossible to reacquire the Bitcoin without questioning the coin’s regulations realistically. These questionable security policies leave much to be desired and are among the major reasons people think bitcoin will fail.
5. Bitcoin encourages Black market Exchanges.
Bitcoin is untraceable on the open market. They leave no obvious transactional records that can be easily tracked or pieced together by law enforcement and other policing bodies. This makes it the ideal currency for shady businesses and illegal activities.
Without a central regulatory body, there’s no way to actively track the criminal activities of black-market sites, transactions, and criminal elements. Only a few criminals and sites that trade in bitcoin have ever
been apprehended, which is grounds for significant concern. Local government law and enforcement worldwide have cracked down on exchanges, pressing them to give up their criminal users, but very few have ever been apprehended.
This massive security flaw has naysayers think that the world government might eventually gather to end the currency.
6. Bitcoin is too Volatile.
Bitcoin has failed to catch on as a Fiat currency, and it never may. For most investors in the field, the currency is nothing more than volatile crypto that might invariably triple their investment or cause them to lose everything.
Bitcoin hasn’t been stable for the longest time now, and that has naysayers thinking it might fail in 2021 or any other year. It has no set floor or ceiling value, and it has been known to rise above and sometimes drastically fall below all predictions.
It is not stable enough to conduct business because business owners and traders can’t rely on it to remain stable long enough to business. It only serves as a lesson or model that other stable coin cryptos that come after it will try to beat and improve upon.
Project Libra and other promising stable coins were created with countermeasures to keep the coin value relatively stable. Libra, in particular, draws from a basket of other coins to keep its base value relatively stable.
7. Bitcoin Mining Wastes Energy
On a planet fighting a losing war with Global warming, C02 Emissions, and energy scarcities, the complicated job of mining Bitcoin and continuously updating its ledgers seems incredibly wasteful.
In 2018 alone, Bitcoin burned through over two Gigawatts of electricity. This cost seems wholly unreasonable when you argue that proof of stake and other safe ledger techniques can easily replace the Bitcoin ledger system.
As the world invariably pushes towards green energy, a coin that relies on massive computations and calculations might be deemed as wasteful and wholly unnecessary. It wouldn’t be too much of a stretch to think that bitcoin will fail in 2021 or the years or decades following after.