The Pros and Cons of Bitcoin - Part 2

Cons

Con 1: Lack of awareness and understanding: One con of Bitcoin is simply that not many people are aware of it or understand what it is about. While many have heard the term “Bitcoin,” they don’t necessarily have any clue what the Bitcoin movement is or how the cryptocurrency operates. Mainstream economists and publications routinely try to discredit Bitcoin and point out different events as being the end of the Bitcoin experiment. While these predictions are always proved wrong, that information may not be what people see in mainstream media. This lack of public awareness and understanding also means that there are not many retailers that accept payment in Bitcoins. Some do, such as Subway, Overstock, and Microsoft, as well as many small businesses. However, compared to the number that accepts the dollar, the number is actually quite small.

Furthermore, some precious few laws are surrounding the use of Bitcoin, which, for the most part, is a good thing. Its inability to be regulated by a central government is one of the reasons many people choose to use it. But what if a legal case were to erupt which involves the use of Bitcoin? Could that be held up in a court of law? How would the law recognize Bitcoin, as an actual financial asset or as part of an imaginary market? Some major scandals, such as that of the Silk Road and ensuing fraud by Shaun Bridges — one of the FBI agents tasked with unmasking the Silk Road — showed that the legal system will not circumvent Bitcoin. However, there is still very little legal precedent for how any disputes involving Bitcoin would be handled.

Con 2: Risk and volatility: Money goes through cycles in which it is worth more and then worthless. All stocks and investments fluctuate; none exist on an entirely upward or downward trend. Historically, Bitcoin has seen more than its share of ups and downs in the market, and those ups and downs tend to be quite large, especially compared to traditional investments and fiat currencies. Bitcoin has been known to lose 75% of its value or more in just a single day! This volatility has kept many potential investors from using Bitcoin. ​

However, a simple analogy may demonstrate why Bitcoin experienced so much volatility. In the early days of Bitcoin, there weren’t many users. As such, any event could have tremendous implications for the entire system. For example, August 2012 saw a sharp plummet in the value of Bitcoin that was simultaneous with the US government shutting down a Ponzi scheme operating under the name Bitcoin Savings and Trust. Imagine that a bowling ball is dropped into a small, kiddie swimming pool. That bowling ball will make a huge splash, generate waves, and cause a lot of the water to leave the pool. Why? Simply because there wasn’t much water to begin with. The force of the bowling ball (in this case, major events that can affect the Bitcoin market) appears to be much greater when there is less water (in this case, fewer Bitcoin users) there to absorb the force of it. Now, imagine dropping that same bowling ball into an Olympic-sized swimming pool. It will certainly create a splash and some waves, and may cause some water to overlap the edges of the pool, but will not disrupt the entire system the way that it did with the kiddie pool. There is more water there to absorb the impact. There are now millions of users on the Bitcoin network and trillions of dollars’ worth of Bitcoins in circulation. While external events will certainly continue to affect the market, they are no longer able to do so with the extremes that they once were able to.

Con 3: Still developing: Blockchain technology is still in its infancy, and the Bitcoin network is still developing. Programmers are adding to it constantly. The fact that it is still developing means that its legal status could be in question, should a problem arise?

Con 4: Uses a lot of energy: The original value of Bitcoin that was published by New Liberty Standard was not connected to its financial viability but rather to how much money was required to generate the energy to create one Bitcoin. That move may have been quite symbolic because the entire Bitcoin network uses a LOT of energy. Think of how many thousands of computers are required to process one single transaction. Estimates are that by the year 2020, Bitcoin will use as much energy as the entire nation of Denmark! One challenge that Bitcoin will have to face is how to decrease the amount of energy that the network uses while not compromising security; otherwise, Bitcoin will simply not be able to remain viable in the long term.

Mastering Bitcoin for Beginners - Neil Hoffman