There is no disputing that Bitcoin has perhaps been the hottest investment opportunity this decade. However, it also is no secret that the leading cryptocurrency currently has to contend with falling prices and increasing fears of a bubble. Investors have been bitten by the bitcoin bug and are unaware of some of the inefficiencies associated with Bitcoin as cryptocurrency and as a payment option.
In this article, we assess Bitcoin problems today and later look to point out what problems Bitcoin solves. As an interested investor, read on and find out more about Bitcoin problems. Many of my readers have heard about Bitcoins but haven’t gone deeper to understand what are they and how they work.
Disclaimer – I do not have this currency and perhaps will never have. I really do not understand the sky-high valuation of this. And, my philosophy is not to buy something which I do not understand.
Bitcoin is extremely difficult to Understand
Cryptocurrency in general and Bitcoin in particular, continue to be difficult to understand for many people. The fact that Bitcoin is purely digital, technically complex, and relatively still a new phenomenon, presents a challenge to many would-be users. Is difficult to understand it still a bitcoin problem today? Absolutely! A lot of folks, especially those not tech-savvy and many of the older generation find it difficult to understand how Bitcoin works. It is not easy to understand how it cannot be held like normal money, why no one controls it, and so on.
On top of that, to use Bitcoin you must be able to access a computer or such other technologically-enabled device. What these issues bring out is that even if Bitcoin was to be accepted as a mainstream currency, it would leave many with question marks about how to get it and use it.
It is also unfair to Bitcoin that there’s a lot of misinformation out there about it. This contributes to the distrust new users have developed, making it even more enigmatic.
Even though Bitcoin developers and the community is working towards making Bitcoin less mythical, the problem of being hard to understand continues to bog the cryptocurrency.
Bitcoin has become abhorrently slow
This is probably one of the main problems that Bitcoin faces today. When we look at Bitcoin as a currency meant for digital transactions, it is pretty clear that it has no way of having a better scaling. Bitcoin in its present form, even with the SegWit in place, is suited better for nothing but large transactions. However, if it’s about the retail market or microtransactions, then Bitcoin simply becomes impractical.
In short, Bitcoin is too slow when compared to other cryptocurrencies and even worse when compared to mainstream methods like Visa and MasterCard. If you have used Bitcoin to transact then I believe you know what I am talking about.
Transactions on the Bitcoin blockchain can take several minutes to finalize, even though it is visible very quickly.
The slow network causes inconveniences to traders who have to wait for the blocks to be confirmed. And what’s more, is that some scrupulous traders may use this as a window to engage in what we call ‘double-spending’.
Bitcoin is too volatile
Volatility is one of the main bitcoin problems. Cryptocurrency is generally volatile, but Bitcoin has become incredibly volatile over the last few days. Was this a bitcoin problem in 2017-2018? Yes, it was and it is. And it seems to be getting even worse.
Bitcoin’s price can rise and fall suddenly several times a day. Though the price has increased exponentially since its launch, the risk of it dropping is just as ever-present as it is for it to rise.
This scenario makes bitcoin popular with market speculators but most people prefer not to risk making plans pegged to the value of Bitcoin.
Imagine you had planned to go on a safari and had set aside $20,000 but chose to have the money saved in BTC. Now, what would happen if the value of bitcoin crashed so significantly you can’t have your money back?
That’s what we are talking about when we say Bitcoin is volatile. Of course, the price could double and you’d be richer. But that’s just an “if”…volatile!
Bitcoin offers consumers no protection
To put it simply, Bitcoin’s problem of being slow also exposes consumers to risks of double-spend transactions, conflict in transaction confirmation, and worse case scenarios, outright theft from consumers.
The anonymity of Bitcoin transactions and the absence of regulations to protect the consumer means engaging in a bitcoin transaction is a risk to the consumer.
You can alleviate this by engaging a third party. However, this brings up another issue of unregulated transaction fees. As we speak, bitcoin-related fees are skyrocketing and there is no way to protect the consumer.
For example, CNBC ran a story in which it was stated that the average fee for moving bitcoin around was $28. This apparent lack of regulations to protect consumers is a problem Bitcoin must contend with if it wants to scale and be applied and used widely.
Security vulnerability and the threat of Bugs
Bitcoin is a robust technology, but there’s still a possibility that it faces a considerable vulnerability and threat of a bug attack. Malicious elements have the capability to discover or develop a bug that could interfere with the standard client and lead to a split in the blockchain. Another security worry would be if every node would be forced into an upgrade.
How would this be a Bitcoin problem? Imagine if there is a malformed message that spreads from one node to the other and before long, throughout the entire network. If it happens, the Bitcoin network would collapse within moments.
There is also the known problem of bugs being able to tamper with user anonymity exploiting Bitcoin’s pseudo-anonymity feature. Though it remains an “if” problem, the effect could be massive.
Bitcoin Blockchain Problems
Bitcoin’s blockchain problems are a result of scalability and an unavoidable flaw in the security protocol of the blockchain.
The bitcoin blockchain technology has scalability issues due to the limitation of its in-built 1MB data size.
This limitation has affected the capacity of Bitcoin’s network to a point it can only allow a total of just 3 transactions per second.
- Bitcoin also takes about 10 minutes to secure and verify a new block before it is added to the blockchain. This is a problem because other cryptocurrencies like Ethereum take just 2.5 seconds to do so.
- Simply put, as more and more transactions are added to the network, the blockchain becomes slow, leading to massive delays.
- The amount of time it now takes to create the hashes necessary to validate a transaction has increased so significantly that it makes Bitcoin slow.
- For example, a transaction of $100 at an exchange site takes almost 30 minutes to complete. This is too slow compared to the millisecond it takes Visa, for instance.
Below is a summary of the challenges and problems that the Bitcoin Blockchain has.
- Scalability – You can’t produce any more than 21M bitcoins
- Network size- Bitcoin’s blockchain is growing in size which might make it unattractive to companies wishing to store their data on its blockchain.
- Increasing transaction costs- transaction costs have increased massively over the years.
- Unavoidable security flaw- the bitcoin blockchain is vulnerable to a 51% attack due to a flaw in its mining protocol.
Although the Bitcoin network may be facing these problems, the cryptocurrency has adopted several measures to make the blockchain scalable and fast. These strategies are
SegWit (Segregated Witness) – this update was aimed at providing a solution to Bitcoin’s malleability to improve the blockchain’s overall security. It is a possible solution to issues of scale.
Lightning network– this is a network protocol developed to work on fixing Bitcoin’s scalability.
Sharding– the blocks on the network are partitioned into smaller blocks for faster transactions.
Still, I feel Bitcoins allows us to look at the drawbacks of traditional currencies. These features I like in all cryptocurrencies, even if I’d probably never invest in them.
What problems do Bitcoin Solve?
Despite the problems Bitcoin faces or has as a cryptocurrency/ blockchain, it is only fair to say that as an innovation, it has the potential to change the world. If the technology is used well and inherent flaws fixed, then we could see it solve many problems around the world.
If you are wondering what problems bitcoin solves, find out below.
- Decentralization: – the Bitcoin network is a fully decentralized public entity, meaning that there is no single person, institution, government, or whoever that it is, that can control or interfere with it. What this solves is the issue of bureaucracies from monetary policymakers and financial institutions. With bitcoin, everybody, including those from remote or underdeveloped countries, has a chance to use it anywhere and equally without government control.
- Inflation: – the Bitcoin cryptocurrency is going to have a total of 21million Bitcoins in circulation. There will be no more or less after that. Bitcoin will eventually be able to solve the problem of inflation.
- Immutable and infallible economic record: – the bitcoin blockchain is never going to be broken whatever happens or whichever world leader takes over. In case of an apocalyptic event, when not even our banks can be trusted, Bitcoin will be a guarantee of economic infallibility. All transactions and information/history on the bitcoin blockchain is going to exist forever. A generation 300 years from now could just as easily retrieve data from our era.
What the other problem bitcoin solves?
- Reshaping international finance relations: – Bitcoin once accepted as a mainstream digital currency will re-imagine international finance. No country will be in control of Bitcoin as a currency and therefore barriers will be broken down. As a world currency, bitcoin will have the same value around the world.
Bitcoin and blockchain technology has problems that must be addressed for it to truly become a world currency. However, Bitcoin and cryptocurrency, in general, is still a relatively new idea that will take a few years to have everything right.
Readers, are you invested in bitcoin? Let us know your opinion about them