10 SERIOUS DISADVANATGES OF BITCOINS
May 22, 2017 Posted / 4013 Views
No one knows who created Bitcoins, although some writers have made very educated guesses about the identity of the pseudonymous creator. I wonder whether Bitcoin is the product of some transnational criminal organization or rogue state that wants to undermine developed economies by casting their payment systems into doubt. I am less concerned with Bitcoin’s origin than with its flaws. I shall enumerate those flaws forthwith. Like any currency, there are disadvantages associated with using Bitcoin:
1) BITCOINS ARE NOT WIDELY ACCEPTED
Bitcoins are still only accepted by a very small group of online merchants. This makes it unfeasible to completely rely on Bitcoins as a currency. There is also a possibility that governments might force merchants to not use Bitcoins to ensure that users’ transactions can be tracked.
2) WALLETS CAN BE LOST
If a hard drive crashes, or a virus corrupts data, and the wallet file is corrupted, Bitcoins have essentially been “lost”. There is nothing that can done to recover it. These coins will be forever orphaned in the system. This can bankrupt a wealthy Bitcoin investor within seconds with no way form of recovery. The coins the investor owned will also be permanently orphaned.
3) BITCOIN VALUATION FLUCTUATES
The value of Bitcoins is constantly fluctuating according to demand. As of June 2nd 2011, one Bitcoins was valued at $9.9 on a popular bitcoin exchange site. It was valued to be less than $1 just 6 months ago. This constant fluctuation will cause Bitcoin accepting sites to continually change prices. It will also cause a lot of confusion if a refund for a product is being made. For example, if a shirt was initially bought for 1.5 BTC, and returned a week later, should 1.5 BTC be returned, even though the valuation has gone up, or should the new amount (calculated according to current valuation) be sent? Which currency should BTC tied to when comparing valuation? These are still important questions that the Bitcoin community still has no consensus over.
4) NO BUYER PROTECTION
When goods are bought using Bitcoins, and the seller doesn’t send the promised goods, nothing can be done to reverse the transaction. This problem can be solved using a third-party escrow service like ClearCoin, but then, escrow services would assume the role of banks, which would cause Bitcoins to be similar to a more traditional currency.
5) RISK OF UNKNOWN TECHNICAL FLAWS AND VOLATILITY
The Bitcoin system could contain unexploited flaws. As this is a fairly new system, if Bitcoins were adopted widely, and a flaw was found, it could give tremendous wealth to the exploiter at the expense of destroying the Bitcoin economy. Bitcoin has volatility mainly due to the fact that there is a limited amount of coins and the demand for them increases by each passing day. However, it is expected that the volatility will decrease as more time goes on. As more businesses, medias, and trading centers begin to accept Bitcoin, its' price will eventually settle down. Currently, Bitcoin's price bounces everyday mainly due to current events that are related to digital currencies.
6) BUILT IN DEFLATION
Since the total number of bitcoins is capped at 21 million, it will cause deflation. Each bitcoin will be worth more and more as the total number of Bitcoins maxes out. This system is designed to reward early adopters. Since each bitcoin will be valued higher with each passing day, the question of when to spend becomes important. This might cause spending surges which will cause the Bitcoin economy to fluctuate very rapidly, and unpredictably.
7) NO PHYSICAL FORM
Since Bitcoins do not have a physical form, it cannot be used in physical stores. It would always have to be converted to other currencies. Cards with Bitcoin wallet information stored in them have been proposed, but there is no consensus on a particular system. Since there would be multiple competing systems, merchants would find it unfeasible to support all Bitcoin cards, and therefore users would be forced to convert Bitcoins anyway, unless a universal system is proposed and implemented.
8) NO VALUATION GUARANTEE
Since there is no central authority governing Bitcoins, no one can guarantee its minimum valuation. If a large group of merchants decide to “dump” Bitcoins and leave the system, its valuation will decrease greatly which will immensely hurt users who have a large amount of wealth invested in Bitcoins. The decentralized nature of bitcoin is both a curse and blessing.
9) LACK OF AWARENESS & UNDERSTANDING
Fact is many people are still unaware of digital currencies and Bitcoin. People need to be educated about Bitcoin to be able to apply it to their lives. Networking is a must to spread the word on Bitcoin. Businesses are accepting bitcoins because of the advantages, but the list is relatively small compared to physical currencies.
Companies like Tigerdirect and Overstock accepting Bitcoin as payment is great. However, if they do not have a knowledgeable staff that understands digital currencies, how will they help customers understand and use Bitcoin for transactions? The workers need to be educated on Bitcoin so that they can help the customers. This will definitely take some time and effort. Otherwise, what is the benefit of such large companies accepting Bitcoin if its staff doesn’t even know what digital currencies are?
10) STILL DEVELOPING
Bitcoin is still at its infancy stage with incomplete features that are in development.
To make the digital currency more secure and accessible, new features, tools, and services are currently being developed. Bitcoin has some growth to do before it comes to its full and final potential. This is because Bitcoin is just starting out, and it needs to work out its problems just like how any currency in its beginning stage would need to.
Bitcoin, as you can see, is not perfect. It does have its disadvantages. This is mostly due to the fact that Bitcoin is still a relatively young and new currency. People are just beginning to become more aware of it. In order for Bitcoin to succeed, more people need to understand what it is and not let their preconceived notions distort the concept of digital currencies.
Applancer is an open platform for discussion on all things like Blockchain , Cryptocurrency and Ico news updates. As such, the opinions expressed in this article are the author's own and do not necessarily reflect the view of Applancer .
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