It’s easy to get swept up in the hype surrounding cryptocurrency. It’s new, it’s tech-based, and a lot of people have made a lot of money. On paper, Bitcoin, in particular, seems great. It’s a way to transfer money from Point A to Point B quickly and securely without the involvement of banks or governmental agencies.
Bitcoin prophets foretell an entirely paperless peer-to-peer future, where you manage your own life savings and make transactions with a wave of your smartphone. All in an environment that’s open, safe, secure, and fast.
Yet, Bitcoin has its fair share of critics. Some clearly have hidden agendas. Maybe they’re already a part of the traditional, established a monetary system. Maybe they’re squirrelly regulators or tax professionals, unsure how to handle something so new and dynamic. Maybe they’re just old. Don’t laugh – the vast majority of Bitcoin owners are young, male professionals.
Picture the stereotypical Silicon Valley type. That’s a far cry from the retirement set, who primarily keep their money in hedge funds and 401ks, or the investment banker set, who most often store their wealth in solid, old-money resources, like capital investment firms, banks, and real estate.
But Bitcoin has its fair share of nonbiased detractors, as well. These detractors point out that Bitcoin is just one more tool in the financial tool chest, not a catchall solution to all things money. Still, others like to point out that Bitcoin, comparatively, is old technology.
The original Bitcoins were mined in 2008, for example. Think about how much the technological world has changed since then. Widespread smartphone adoption, massive leaps in computing power, the growth of cloud services, and more have changed the way we live, compute, and pay for things. Bitcoin might have been a solution for a somewhat simpler era, these folks say.
We’re going to take a look at the top criticism of Bitcoin from the nonbiased set and examine the counterpoints to each. Remember, this is coming from folks who have nothing to lose – or gain – from Bitcoin’s success. These are just cold, hard facts about the digital currency. Any smart investor ought to have a 360-degree view of a potential investment, so it’s only fair to consider Bitcoin’s negatives as an antidote to the hype.
Bitcoin Is Slow
This is one of the heavyweight criticism that Bitcoin frequently gets slammed with. For a cryptocurrency aiming to take over day-to-day transactions, the Bitcoin network is not particularly speedy. In fact, the average time for a Bitcoin transfer to take place and be verified on the blockchain is about 78 minutes.
Compare that with the time it takes to swipe a VISA debit card and leave the grocery store. True, banks do some behind-the-scenes processing, so transactions don’t really take place in real-time. It’s orders of magnitude faster than Bitcoin, however. And consider that 78 minutes is an average time. Some transactions can take considerably longer.
Without getting too technical, this is a problem called scalability, and it has to do with how transactions are processed and verified on the Bitcoin network. Several solutions have been proposed, including the better technology behind the scenes, but the number 1 way to fix this problem so far has been forking Bitcoin into other forms – notably Bitcoin Cash. For all intents and purposes, this means that the key to fixing Bitcoin’s speed problem so far has been to use a coin other than good old Bitcoin.
Bitcoin Is Expensive
Anytime you move Bitcoin from one place to another, you pay a transaction fee on the network. Although this fee has been chipped away over time with improvements in the processing technology, you can still expect to pay a hefty price for moving your Bitcoin – up to $28 per transaction.
This clearly kills the coin as a day-to-day purchasing item. Imagine taking $28 onto every purchase you make with your VISA debit card. That pack of gum now costs $0.99 plus $28 in transaction fees.
Again, forking has been proposed as a solution, as has upgrading Bitcoin’s processing technology. At the moment, however, it remains quite expensive to shuffle Bitcoins around.
Bitcoin Is Old
This ties in with the previous two criticisms. Bitcoin is quite simply old technology. It was the originator of the current cryptocurrency craze, but it has since been surpassed in several areas by other coins based on newer technology.
Ethereum, for instance, boasts faster transaction times, lower fees, and a more flexible platform on which to base other coins. That might seem like an unfair comparison – a payment method to a platform – but the fact remains that Bitcoin has literally thousands of competitors now in the alternative coin (altcoin) arena. The developers of these coins are on the bleeding technological edge, and they’re producing coins that shame Bitcoin in certain key areas.
While there is a Bitcoin development team, they can’t radically change what Bitcoin is without a hard fork. This has certainly been done, many times, but the core Bitcoin project is just a product of its times. You probably wouldn’t use a laptop from 2008 for your day-to-day computing needs, critics argue. Why should you use software developed in the same timeframe?
Bitcoin Is a Big Target
This addresses Bitcoin’s inherent security. Blockchain systems are supposed to be safe. They’re transparent, and the “crypto” in “cryptocurrency” comes from the signed digital hashes that are used to verify transactions on the blockchain. Still, Bitcoin is probably still not the safest investment, from a security standpoint.
It’s still vulnerable to hacking and phishing attempts, and many Bitcoins have been lost in large-scale attacks on exchanges. For those who might argue that banking data is no more secure, it’s worth considering that banking data can be insured at the federal level in the U.S. Very few Bitcoin exchanges currently offer that kind of peace of mind.
Moreover, one of the selling points of Bitcoin is that you act as your own bank. Access to your funds is controlled with a private key, which most folks write on a piece of paper and store somewhere they believe to be safe. Lose that piece of paper, and your access to your Bitcoins is gone forever. Imagine losing everything in your bank account because you can’t for the life of you remember your PIN. It’s that easy.
Moreover, Bitcoin has a huge target on its back. As the premiere cryptocurrency today, it is the one considered most valuable to hackers and phishers. This is a weak argument, true, but it’s a fact – if a hacker is going to steal something from your wallet, they are far more likely to steal Bitcoin before anything else. It’s the difference between leaving a Ferrari unlocked in a bad neighborhood and leaving a Ford Edsel unlocked in the same neighborhood.
Bitcoin Has a Shady Past
You can view this as a positive or a negative, but it’s true. Bitcoin’s founder, Satoshi Nakamoto, is still unknown. “He” might be a lone wolf, a company, a group of developers, a government actor – anything, really. We simply don’t know who created Bitcoin. That also means we don’t know who holds a giant block of Bitcoin that was mined in the early days. What happens to those Bitcoins matters to the market. If they were released all at once, the market would take a steep dive.
Moreover, Bitcoin has faced adoption problems from the traditional moneyed set and governments alike because its first big use case was as the currency of choice for the Silk Road. The Silk Road was an online black marketplace where folks could buy drugs, guns, and other unsavory materials with the (supposedly) anonymous and untraceable Bitcoin.
When that market was busted up by federal officers, large numbers of Bitcoin were seized, and the Silk Road founder was tossed in jail. Money can and will forever be used for shady dealings. The fact that Bitcoin rose to prominence in that fashion, however, leaves a bad taste in the mouths of some investors.
There are more, but they tend to get a bit esoteric. Questions surrounding Bitcoin’s fixed supply, the true safety of its code, and the lack of intrinsic value are topics for another day.
The market still has some big questions surrounding Bitcoin, and it pays to know what those questions are. Each of these criticisms has been addressed in several ways, but they remain stumbling blocks to widespread adoption. Before you throw your hard-earned fiat money at Bitcoin, it’s essential to know what kind of long-term challenges the coin still faces.