Bitcoin is not as great as it’s made out to be.
Plus a number of reasons why Bitcoin might not be worth your time and money.
This article is a continuation of another article of mine, in which I assumed a positive stance to Bitcoin.
Brief recap on Bitcoin.
Bitcoin itself is often referred to as the ‘founding father’ of cryptocurrencies, and, like any other cryptocurrency, can be sent between users on the peer-to-peer Bitcoin network without the need for intermediaries. Transactions are verified by network nodes through cryptography and recorded in a public distributed ledger called a blockchain.
But with the asset in a 40% freefall (bear market, even) in recent months, a closer look needs to be taken at whether Bitcoin even deserves its #1 spot.
Flaws
Adoption in El Salvador is largely regarded as a failure.
Bitcoin has certainly not been well received in El Salvador. In fact, various monetary authorities have recommended against the decision to use BTC as legal tender — The World Bank has refused to help with El Salvador’s bitcoin rollout and the IMF has previously warned of “macroeconomic, financial and legal issues that require very careful analysis”.
Domestic residents have been holding protests against Bitcoin, while a recent survey revealed that they wanted a choice of whether to use Bitcoin or not — a choice they aren’t allowed to make. If President Bukele made the Bitcoin decision for the good of his people, he should at the very least consider their viewpoints.
International markets also are unenthusiastic — Moody’s downgraded El Salvador’s debt in July, and S&P could follow suit. Additionally, the spread between the interest rate that the government must pay on its debt and the US Treasury rate has increased sharply since the plan to ‘bitcoinize’ was first announced in June.
Another disadvantage is that even the digitally savvy run the risk of forgetting passwords and losing their bitcoin. And at least half of El Salvador’s population have no access to the internet in the first place.
On the day of its launch, the website of the e-wallet Chivo (the government’s official Bitcoin wallet) crashed. Meanwhile, the dollar value of the cryptocurrency traded down as much as 17%. Chivo itself is a government-sponsored enterprise with little transparency.
If other countries choose to follow El Salvador’s path, they will inevitably face the same issues. As such, it can be concluded that this is a result of Bitcoin’s inherent unusability as legal tender.
Environmental concerns.
Over the last years, with the price of Bitcoin reaching new highs, the attractiveness of mining Bitcoin has caused the total energy consumption of the Bitcoin network to grow to epic proportions.
According to the Cambridge Bitcoin Electricity Consumption Index, Bitcoin’s energy consumption lies at around ~133.68 TWh per year. Of course, this changes based on network usage & other variables. That makes Bitcoin’s impact on the environment equivalent to a country like Sweden, Poland, Malaysia, or Argentina.
If it were to be analysed from another angle, a single Bitcoin transaction emits 866.12 kgCO2, or the equivalent of the carbon footprint of 1,919,613 VISA transactions or 144,353 hours of watching Youtube.
Meanwhile, a single transaction also:
- Consumes 1823.40 kWh of electricity — equivalent to the power consumption of an average U.S. household over 62.50 days.
- Produces 253.30 grams of electronic waste — equivalent to the weight of 1.54 iPhone 12s or 0.52 iPads.
This environmental effect was quantified by a study which stated that Bitcoin, by itself, can raise global warming above 2* C.
Technically advanced, but practically useless.
Each of Bitcoin’s distinguishing features are simply lacking in innovation and are done better by other cryptocurrencies. Specifically, these features include:
Transaction Fees
The median BTC transaction fee currently stands at around 22,000 satoshis per transaction, which is equivalent to ~$9.95.
There are some ways to reduce this, such as:
- Setting a lower fee, but this comes at the cost of drastically increasing your transaction time.
- Using the Lightning Network. However, this is still in development and only a few parties have LN channels open. This severely restricts the utility of your BTC.
- Use wallets with scaling technology, such as SegWit or bech32. While SegWit is widely utilised, bech32 is quite obscure and is rarely used for transactions.
Unfortunately, since only a few wallet providers & retailers accept these methods, a user is most likely stuck with the $10 transaction fees common during periods of high network usage.
But why should you pay so much when you can use NANO or XPR for no fees whatsoever?
Transaction Times
BTC transaction times have been rising recently and now stand at ~24 minutes per transaction for 10 network confirmations — but exchanges often require many more, which can bring the times up to an hour.
Of course, this varies wildly based upon network usage and was once as high as 50 hours (!) in May 2021. These transaction times are highly impractical and essentially make BTC useless for real-word usage.
Once again, this can be compared to NANO and XPR, which complete transactions in 5–10 seconds.
Transactions per second
Bitcoin can only handle 3.3 to 7 transactions per second (cannot be scaled easily), which is nothing compared to Visa’s 1000–1500 tps. Imagine using BTC in a real-world scenario, but instead, there can only be 7 payments occurring at any given time. This, too, is highly impractical.
This is bested by nearly every cryptocurrency, including ParallelChain 2.0, which is supposedly able to handle up to 200,000 transactions per second.
Anonymity
Every BTC transaction can be viewed & tracked online, which completely nullifies user privacy. Alternatives like Monero and Zcash offer full privacy & untraceability.
‘Overvalued’
Bitcoin’s market cap is ~$800 billion currently, which means that it has lesser room to grow in price. From a monetary standpoint, it is better to invest in alternatives with lower market caps.
As such, Bitcoin does possess a number of flaws, which may or may not render it a virtually-useless relic of the past. What do you think?
