The Bitcoin protocol components and built-in ideas aren’t new. Generally, they were all known before 2009, but only the authors of Bitcoin managed to piece them together to make it work back in 2009. Since then, for almost nine years, only one critical vulnerability has been found in its implementation. one malefactor snagged 92 billion bitcoins. Fixing that required rolling back the entire financial record by 24 hours. Nevertheless, just one vulnerability in nine years is praiseworthy. Hats off to the creators.
Many people first listen to bitcoin in the context of its price. Whether it was the fizz of late 2013 or the recent fall below $300, an excellent piece of the general public thinks of bitcoin only regarding how volatile the price is and how worthy of purchase it.
The fact is, of course, that bitcoin goes far beyond its classification as a commodity. The decentralized peer-to-peer payment network built possibly by bitcoin is only one example of how bitcoin is breaking down doors. If the price of bitcoin were probably to stay the same forever, it would still have utility in several other areas other than as a risky investment.
The authors of Bitcoin faced the challenge of making it all work with no central system and no one trusting anyone else. The creators rose to the challenge and made electronic money an operational currency. Nevertheless, some of their decisions were devastating in their ineffectiveness.
I am not here to discredit blockchain, useful technology that has shown many remarkable uses. Despite its disadvantages, it has unique advantages as well. However, in the pursuit of the sensational and revolutionary, many people concentrate on the upsides of the technology, often forgetting to take a sober view of things, thus disregarding all of its downsides. It is for this reason, for the sake of diversity, that I deem it useful to focus on the disadvantages of the technology.
To be straight, there is an argument that gold is valuable because it does have utility beyond decoration (I, of course, would argue that that is an entirely useful thing in its right. For example, gold is used in electronics & dentistry. An argument based on utility, though, affects even more so to cryptocurrencies.
One of the big modern risers, Ethereum, is precisely that: Ethereum based on a blockchain, like as Bitcoin, which means it has an attached currency (Ether) that incentivizes miners to verify transactions. However, the protocol includes smart contract functionality, which means that two untrusted parties can engage in a contract without a 3rd-party enforcement entity.
One of the most significant application functionality is unsurprising of other cryptocurrencies. The last year, in particular, has seen a blast in Initial Coin Offerings (ICOs), regularly on Ethereum. In an ICO a new blockchain-based entity is created, with the initial “tokens” — i.e., currency — being sold for Ether or Bitcoin. These initial contributions are, at least in theory, valuable because the currency will, if the application built on the blockchain is successful, increase in value over time.
Historically it has been hard to incentivize the making of new protocols as Albert Wenger faces out. This has been because, there had been no direct way to monetize the creation and maintenance of these protocols and, it had been challenging to get a new protocol off the ground because of the chicken and egg problem.
Now someone can create a protocol, create tokens that are native to that protocol, and retain some of that token for themselves and future development. This is a great system to incentivize creators: if the protocol is successful, the token will go up in value…Also, tokens help to solve the typical chicken and the egg problem that several networks have, the power of a network goes up a lot when more people join it. So how do you get people to join a brand new network? You give people partial ownership of the network…
Many misinformed people come into the trap of assuming that, like practically anything else we’re used to, bitcoin could be shut-down by governments if one or more of them wished to do so.
Yes, governments have the authority to make it very challenging for their citizens to use bitcoin and some form of government regulation is necessary as Bitcoin matures. Even so, because of its infrastructure, it would take considerable time, money and energy for any government to pose a severe threat to the global bitcoin network if they even could at all.
Once people realize that bitcoin can, indeed, be used to buy real things, they may not see what the digital currency has to offer that their incumbent payment methods like cash and credit cards don’t. Luckily it doesn’t take long to debunk this myth.
Some of bitcoin’s most obvious benefits are its low transaction fees. Typically, transacting bitcoin saves merchants 1-3% compared to negotiating credit cards, and when compared to services like the Western Union, bitcoin is superior – especially for sending money abroad.
Some of the earliest adopters of bitcoin may be techies and secret business shoppers, but the same could arguably be told about the Internet and look who uses that now. Regardless of how private the bitcoin community may be right now and it’s pretty esoteric, adoption takes time.
As organizers in the space continue to build consumer-friendly apps with bitcoin and awareness of the digital currency spreads, a more diverse crowd will come to use it in their everyday lives. There’s also another essential demographic that many forget about- the millions of unbanked people in the developing world who rely on mobile phones as their computer, bank, and communication device all in one.
Whether it’s some of the above myths one of the tens we previously debunked, bitcoin is ripe with misunderstanding; this knowledge gap needs to be bridged so that the myths and misinformation come to an end.
The blockchain is open, and everyone sees everything. Thus, blockchain has no real anonymity. It offers pseudonymity instead. Putting aside the significant issues that crooked users have with that, here’s why pseudonymity is bad for honest users. A simple example: I am transferring a few bitcoins to my mother. Here’s what she can learn:
How much money I have at any given time.
How much I spent and, more important, what I spent it on. She could also find out what I bought, what I gambled on, and what politician I supported “anonymously.”
Alternatively, if I paid back my friend for some lemonade, I would thus let him know everything about my finances. That’s hardly a trifling matter: Would you reveal the financial history of your credit card to everyone you knew? Keep in mind that this would include not only past but also future transactions.
Some disclosure may be tolerable for individuals, but it is deadly for companies. All of their contracting parties, sales, customers, account amounts, and every other little, petty detail would all become public. Financial transparency is perhaps one of the largest disadvantages of using Bitcoin.
Some people may be blinded, some may simply not understand how the technology works, and others may see and realize everything but feel the system is working for them. It’s worth considering that many of those who have purchased bitcoins begin advertising and advocating them — as in a pyramid scheme. Why disclose that the technologies have disadvantages if you’re counting on the growth of the exchange rate?
Yes, Bitcoin has competitors that tried to solve some of these problems. Although some of those ideas are quite good, they are still based on the blockchain. And yes, there are other, non-monetary applications for blockchain technology, but the main disadvantages are found in them as well.
So, if someone tells you that the invention of the block chain can be compared with the invention of the Internet, be skeptical.