Sanjeev Sabhlok's notes on technology, hardware, gardening

The problems with Bitcoin

Most people don’t understand it or how to get it

Unlike ordinary currency, it is very difficult to buy Bitcoin and understand how to secure it and to use it.

Bitcoin is not unique and can be easily replaced by a competitor

There are nearly 1000 cryptocurrencies already in circulation

Bitcoin is notoriously volatile

It varies in value quite dramatically in any given day or year.

Bitcoin is used mostly as investment, not as currency

Bitcoin users who have seen the currency go from 1 Bitcoin = $5 (in 2011) to 1 Bitcoin = $445 (as it currently is) don’t think “Great, the price of a Coke is falling in terms of Bitcoin”. Instead they think, “If I sit on the Bitcoins that I own, in 1 year they might be worth 10 times more. So I won’t spend them.” This means that Bitcoin users don’t want to pay using Bitcoin. In other words, they want to use Bitcoin as a speculative investment, rather than as a means of payment. [Source]

Bitcoin is slow (“the scaling problem”)

Bitcoin can’t process more than seven transactions a second. That’s a tiny volume compared to the tens of thousands per second that payment systems like Visa can handle—and a limit he expects to start crippling Bitcoin early in 2016.” ” there’ll be no critical event that causes people to react—Bitcoin just kind of has a long slow death. ” [Source]

“Visa says its payment system processes 2,000 transactions per second on average and can handle up to 56,000 transactions per second if needed.” [Source]

The size of blocks being added to the blockchain has been increasing steadily with the rise of Bitcoin. As a result, the rate at which transactions can be processed has been slowing. Indeed, some transactions face significant delays, hampering payments. Some fear the network will eventually become oversaturated and cease to be usable. [source]

counterpoint: “The Bitcoin network has been updated safely dozens of times and will continue to be the most reliable, affordable, and efficient way to send value around the world.” [source]

Bitcoin has poor liquidity

“the marketplace is too small, hence only the investment makes sense”. [Source]

the amount of bitcoin available on the specific exchange at or even close to the market price when the buyer made the decision to buy will run out, leaving the transaction to be completed at a price 1 to 10 percent higher than expected. This will cost the buyer of bitcoin between $10,000 and $100,000 more than the original price to make the $1 million trade, and that liquidity cost alone could be enough to discourage trading. [Source]

Omega One is trying to fix this problem – it intends to aggregate liquidity across all exchanges.

Bitcoin is not safe – and needs to be well secured

“anyone who gets access to your password (‘private key’) has access to all your funds, and the authority to spend them. In the same way that a house burglar could steal gold coins (which I’m sure you have lying around the house), a computer hacker can steal your password and use it to spend your Bitcoins.” [source]

There is a huge problem in storing it in hard disk/ drive. So it is safer to store in the cloud, in exchanges. But exchanges can go bust. [Tokyo-based Bitcoin exchange MtGox filed for bankruptcy in 2014.]

e..g.

Bitcoin has also suffered from a litany of cases in which bitcoins have been stolen from online exchanges in which they were stored, in some cases due to negligence or poor security. [source]

further

using these services still requires a basic understanding of computer security, like using strong passwords and two-factor authentication to prevent unauthorized account access. Additionally, these private sector services are constantly targeted by attackers, and some have been successfully hacked and had user deposited bitcoins stolen. The primary issue with these services is trust: if depositing bitcoins with someone else, you must trust them to securely hold your funds (much like a bank). Unfortunately, there have already been many instances of Bitcoin service operators running off with depositors’ bitcoins. [Source]

So people can store it in multiple exchanges.

No longer as decentralised as it once was

“bitcoin’s confirmation power, leaving it in the hands of only those who can afford thousands of dollars of ASIC hardware.” [Source]

Governments can’t stop bitcoin, but sure can disrupt it

“many financial systems don’t want to compete with bitcoin; they would rather regulate it out of existence.” [Source]

Not enough people who sell products for Bitcoin

This is the list of businesses that use bitcoin

OTHER ISSUES IDENTIFIED BY THE MOTLEY FOOL

Don’t Sell Me Bitcoin, Ripple or Ether

Note: I agree with some of these limitations, but consider Bitcoin to be a robust and legitimate form of money.

Keywords

Why Bitcoin will fail

The shortcomings of bitcoin

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