10 Reasons Why Bitcoin Will Fail
By Elena Stark, Listverse, 23 November 2017.
By Elena Stark, Listverse, 23 November 2017.
For people outside of the complex and exciting world of cryptocurrency, Bitcoin can be hard to understand. Many have brushed it off for years, saying that it was a fad that would disappear as quickly as the value of Beanie Babies. However, with the price spiking in the thousands of dollars for a single Bitcoin, naysayers are suddenly singing a different tune. Newcomers are dumping their money into Bitcoin, hoping that the price will only continue to grow.
Many old-school investors who haven’t done their research will simply say it’s in an economic bubble and call it a day. But the reasons why Bitcoin cannot succeed in the long run go so much deeper than that. Just like any other speculative asset, no one really knows what is going to happen in the future. However, when one looks at the big picture, it becomes clear that Bitcoin will struggle to survive.
10. Blockchain > Bitcoin
The most valuable thing about Bitcoin is that it introduced blockchain technology to the world. Blockchain technology drastically improves the speed, privacy, and security of sending money. Bitcoin can be sent from one person to another without a middleman, and it encrypts everyone’s identity to a long string of letters and numbers called a “wallet.” Blockchain is a big deal. Its potential to change technology is as big as the Internet. At the moment, the world of blockchain is young and exciting, like the Wild West of the digital world.
However, even though Bitcoin was the first to introduce blockchain to the world, it’s not necessary for blockchain to exist. Sort of like if one web page goes down, the Internet still exists. Most people never saw the very first website that was ever created. It was a blank white page that was titled “World Wide Web” and a list of text links. That’s it. No one could have ever imagined that that seemingly unimpressive page would evolve into what has now become what the Internet is today. There are already bigger, better, and faster versions of blockchain that made improvements on the original Bitcoin, like Ethereum and Ripple. Both of these coins, or “cryptocurrencies,” are already available on the market.
9. Big Brother Is Watching
One of the biggest benefits of Bitcoin it that it is supposed to be private, secure, and untraceable. Obviously, this was a huge benefit for criminals on the Dark Web. Cryptocurrency got a really bad reputation once news broke that Bitcoin was being used to send money anonymously on the drug trafficking website Silk Road.
The appeal that a lot of Americans see in Bitcoin is that they believe they can avoid paying taxes to the IRS, which is also a crime. It’s tax evasion. In 2013, 44 percent of the Bitcoin supply belonged to people who identify as Libertarian. Today, the market has way more newcomers, so the percentage of Libertarians is much smaller as more casual people join to invest in hopes of getting rich, rather than trying to start a revolution.
The FBI has made it very clear that they are watching Bitcoin very closely, and they are getting better and better at finding the true identities of the people who use Bitcoin for illegal activity. They are fully aware that not everyone who uses Bitcoin is a criminal. In fact, they have a public dossier of their educational materials given to law enforcement to help them understand what it is. There are plenty of ways for hackers to hide their identity, but for the casual user, they are not getting any added expectation of privacy from Bitcoin. At this point in time, the only way to truly have an anonymous and untraceable financial transaction is with cold, hard cash.
8. The Lack Of Leadership
Bitcoin was created by the man of mystery, Satoshi Nakamoto. While there are many compelling theories about his true identity, no one knows exactly who he is. At the beginning of the Bitcoin project, Satoshi was able to guide the coders who helped create the platform any time they had a question. Once investigation agencies all over the world began searching for him, Satoshi Nakamoto disappeared. All over the world, homes of suspected Satoshis have been raided. Despite law enforcement’s best efforts, his true identity is still a mystery.
Now, coders and miners must come to a consensus every time a decision about Bitcoin’s future must be made. Unfortunately, the community cannot seem to agree on even the smallest decisions. There is no clear business plan mapping out Bitcoin’s future. In fact, the Reddit community message boards had to split into two totally separate Bitcoin groups, because opposing opinions wanted to continue to talk inside an echo chamber instead of getting along.
Other cryptocurrencies actually have leaders to guide them. Vitalik Buterin is the boy genius creator of Ethereum. Harvard-educated Brad Garlinghouse is the CEO of Ripple. Both Buterin and Garlinghouse met with central banks and the Federal Reserve in October 2017, but Bitcoin did not have a seat, because there is no leader to represent them.
7. Laws And Regulations
In October 2017, China declared that it was illegal to create an “ICO,” which stands for “Initial Coin Offering.” Start-up companies were learning how to use blockchain to make their own spin-off coins to raise funds. The only downside was that a lot of these coins were fraudulent. A few fake coin companies took millions of dollars from desperate people who were trying to invest so they could “get rich” on these ICOs.
In New York, all businesses who want to accept Bitcoin are required to register for a “BitLicense” if they want to do business. The license promises to comply with United States taxation laws and regulations. The application costs US$5,000, and there are 500 pages of legal paperwork that would require a team of taxation lawyers to decipher. For most businesses, it’s simply not worth the money, time, and effort to accept Bitcoin when so few people will actually use it in their stores.
In 2014, the IRS released a guideline that anyone who profits from digital currency needs to pay taxes in the same way that anyone selling their stocks or bonds must pay their taxes. If the Bitcoin revolutionaries stick to their morals, they aren’t going to listen to the IRS. When there is such a huge spotlight on an activity that is known for tax evasion, it is obviously something that law enforcement takes notice to.
6. Use Cases
Many small businesses in California’s Silicon Valley accept Bitcoin as a form of payment, but larger corporations still only accept cash and cards. Unless Bitcoin can actually buy and sell things with bigger companies, they will never actually have very much of a purpose, since blockchain technology can exist without Bitcoin. The Journal of Government Financial Management says that blockchain technology can truly help the financial system, but they need to see more successful examples of use cases, first.
At the moment, the one and only digital currency that is actually working with the US Federal Reserve is a company called Ripple. They have proven that they can work with large corporations, banks, and credit card companies. They’re even going to process the financial transactions of American Express. Ripple has their own cryptocurrency, called XRP.
All of the original ideas for possible use cases for the blockchain are actually coming true through Ripple, not Bitcoin. In October 2017, Bill Gates announced that he chose Ripple to run his project that will help alleviate poverty in developing nations, despite having promoted Bitcoin in the past.
5. Time And Mining Problems
The longer Bitcoin exists, the more difficult it becomes to “mine,” or create new coins. Without the miners, the Bitcoin network collapses. The cost of getting started as a new miner is so far out of reach for the average person that the main miners are gigantic warehouses in China. In most countries, the cost of electricity to run these computers is actually more than what the digital currency is worth, which makes it pointless to even try.
The longer Bitcoin exists, the longer it takes for these computer systems to process the information. At the time this article was written, the official time for a Bitcoin transfer is “one hour,” but anyone who uses Bitcoin on a regular basis knows that is far from the truth. Transactions can take up to six hours at busy times of the day, because it averages 15 transactions per second. There is no guarantee that it will ever improve. In fact, it is likely to keep getting worse.
In contrast, Ripple’s coin XRP settles 1,500 transactions every second, and they have the technology and infrastructure to make sure that they’ll never slow down. In the digital age, where people want things to happen within a split second, it is simply not realistic to think that as the world slowly begins to understand and use blockchain in their everyday lives, they will choose the slower option, Bitcoin, over currencies that are faster.
4. Fear, Uncertainty, And Doubt
The current Bitcoin market is extremely volatile. If Bitcoin is in the news, its price can fluctuate hundreds of dollars in a matter of hours. Fear, uncertainty, and doubt are talked about so often in the community that everyone just calls them “FUD.” If there was ever any reason for the public to believe that Bitcoin may become illegal, if there was a hack, a virus, or any other issue in the system, the value will drop dramatically as people panic and sell as quickly as possible. It’s very similar to the stock market in that way.
If the Great Depression and the 2008 recession were any clue about the future, people will sell without hesitation if they lose faith in Bitcoin. Without any clear vision of where Bitcoin is going, there is very little for an investor to count on or to have faith in. Many people have been rewarded for holding onto their Bitcoins for dear life, but good news can only last for so long.
3. Will The Real Bitcoin Please Stand Up?
Since the Bitcoin founder Satoshi Nakamoto is no longer publishing his opinions, all coders have left is the documentation he left behind. One person can read the same exact paragraph in the Bitcoin White Paper and come up with a totally different interpretation of Satoshi’s words than the next person. There are a lot of people who believe that in order for Bitcoin to survive, there needs to be a mass exodus to another platform that would be faster and more reliable.
Developers have come up with a solution called a “hard fork,” which is why Bitcoin Cash was created. However, they believed that Bitcoin Cash still did not solve the problems, so there was a much-contested plan to create yet another hard fork called Bitcoin Gold. That plan, known as SegWit2x, was eventually called off, and it resulted in another sharp spike in the price of the original Bitcoin.
As of 2017, the amount of Bitcoin that Satoshi Nakamoto owns is now worth billions of dollars, and he has made it clear that he is done with the project. He could possibly be on a private island enjoying life while coders continue to argue over which coin gets to be the “real” Bitcoin.
2. The One Percent Hate Bitcoin
Billionaire Jamie Dimon, the CEO of JP Morgan chase, has called Bitcoin a fraud and says that it is destined to fail. He said that even if the price of one Bitcoin rises to US$100,000, it would not change his opinion that it is destined for failure some day.
Every single year, Toronto hosts a banking conference called the Swift International Banking Operations Seminar (SIBOS), where some of the most powerful people in the world meet. The major company that runs the convention is called Society for Worldwide Interbank Financial Telecommunication (SWIFT). They are in charge of what the world currently uses for banking transfers. One individual bank moves billions of dollars every year. Almost all of the banks in the world use SWIFT’s now-outdated technology, and they handle quadrillions of dollars.
At the October 2017 SIBOS, SWIFT CEO Gottfried Leibbrandt said during an interview that their company is trying to come out with a technology that will improve security, anonymity, and speed. It’s easy to read between the lines and know that what he is really saying is that they want to make their own blockchain. However, he claims that it will take them over a year to actually get their technology up and running. Ripple was so confident that they can beat SWIFT that they they purposely scheduled their own conference, called SWELL, at the same time and location as SIBOS. Their party-crashing resulted in successfully adopting hundreds of new banking partners to use their technology. The one percent aren’t threatened by Ripple the way they are by Bitcoin.
1. The End Of The World As We Know It
The most enthusiastic supporters of Bitcoin are revolutionaries. Some hope that people will rise up and choose to go with Bitcoin instead of using traditional banks. Michael Lewis, the author of Moneyball, was encouraged to talk to these Bitcoin revolutionaries in Silicon Valley, because it might make for good material for another book. He watched as the revolutionaries very literally sat around smoking weed and talking about their ideas of the future, and he left feeling as though Bitcoin was going to fail. He decided not to write a book on the subject.
In order for these revolutionaries to get what they want - people losing faith in banks and switching to Bitcoin- the economy of the world as we know it would have to collapse. If that actually happened, people would have to lose their jobs, their homes, and maybe even their lives. Active revolutionaries who are pushing for a collapse are in short supply.
While they’re not necessarily one and the same, a member of Anonymous told Vice News that many of the members have left and that the organization is full of distrust. Others make false promises and never act out on their plans of revolution. For the most part, it’s just kids writing on the Internet about how they want the world to change, without a real plan on how to execute it. If one revolutionary group like Anonymous can fall apart, what’s to stop Bitcoin from suffering the same fate? Even if they could change everything in an instant, would they really be prepared to push the big red button to begin the end of the world?
Top image credit: geralt/Pixabay.
[Source: Listverse. Top image added.]