Bitcoin is undoubtedly one of the most fascinating creations of the 21st century. The mysterious inventor, the timing of creation, and the groundbreaking solution to the double-spending problem all add to the allure surrounding it.
What started out as an odd combination of cryptography enthusiasts and people trying to buy illicit drugs on the internet, the cryptocurrency community has grown exponentially over the years with the endorsement of several major internet giants and influential people. The market capitalization has seen a peak of half a trillion dollars with millions in trade volume every single day. Suffice to say, there is a major consensus surrounding the ecosystem that believes the potential of Bitcoin is endless and that it will revolutionize money in every sense of the word.
However, it is important to adopt a sense of skepticism when looking at things of this level of perceived grandeur to look past the hype. Here we tackle a few reasons why Bitcoin might not evolve into the currency-killer we all hope it’d be.
Most critics of Bitcoin are quick to point towards volatility, scalability, power sustainability, and lack of ease. These are very inconsequential flaws when looking at the long-term perspective. Volatility can be expected to decrease drastically as markets and the ecosystem matures.
Market manipulation can be combated and several stablecoin solutions are being well funded and developed to make the issue irrelevant. As for scalability, the multiple layer 2 and side-chain solutions speak for themselves. The scaling problem will only get easier with time. When it comes to electricity consumptions, alternative consensus algorithms such as Proof-of-Stake are feasible alternatives that need to be actively tested.
Concentration of wealth
As of late 2017, 95.53% of Bitcoin in existence was owned by a mere 4.11% of the addresses. While the reason seems to be obvious — early adopters and massive buy up by the wealthy “whales” — this is definitely a hindrance to mainstream adoption. This being said, wealth concentration is nothing new even in the world of traditional currency. However, it must be noted that concentration at this magnitude could lead to a lot of friction to spearhead the transition.
While it can be argued that newer cryptocurrencies and quite possibly the future ones might not have the same level of concentration owing to the increased popularity, it is still a very tricky situation. To create a sustainable cryptocurrency, it is important to have a reasonable amount of spread but given the lack of identity or authority — two of the core principles of crypto — it is impossible to ensure that.
Inflationary cryptocurrencies might be a viable way around this problem but inflationary models have been met with a lot of other criticisms and haven’t actively proved their worth in the way that Bitcoin did.
Progress in traditional finance
Bitcoin is the underdog competing with centuries-old financial systems. Back in 2008, right after one of the biggest financial collapse we have seen, an authority-proof currency with instant transfers and near-zero fees was an alien concept. People paid a significant amount of money in fees and had to wait for several days to move their money around. However, in the decade since there have been several solutions to both those problems.
0 fee instant transfer options aren’t unheard of when it comes to domestic banking. Surely if international transfers are still dire with the aforementioned age-old problems it isn’t unreasonable to expect progress in this area. When banks get to par with cryptocurrencies in the aspect of convenience the only way to ramp up adoption is to convince people about the need for lack of authority in the financial world. The only problem is that this seems to be an almighty task.
People are indifferent
This argument didn’t age well back in the 80’s when it came to personal computing and the 90’s with respect to the internet, but it is impossible to pretend that magnitude of the transition is similar here. The lack of an authority, a central point of failure and the umpteen subsequent reasons might seem appealing and convincing to a certain faction of people but, all-in-all, the majority might not even care. Throwing away everything about traditional finance for getting away with authority isn’t a worthy tradeoff in the eyes of your average Joe.
On the other hand, however, the average Joes who are living under authoritarian governments with massive inflation and other economic problems might be an exemption when it comes to bringing momentum.
Assuming we overcome all the potential pitfalls in replacing fiat, governments aren’t going to be very happy about losing control over what is probably their most powerful aspect. Disarming governments of the financial wing would make them weak – and they know it. Examples of innovations like zk-snarks, which make sure transactions are cryptographically private, show that there is going to be a monumental amount of resistance by governments around the world.
All things said and considered, Bitcoin is still going to emerge as a valuable alternative class of asset even in the doomsday scenario. There is nothing close enough to signing your own transaction knowing that you are the in charge of your own wealth to the extent like never before in the history of money. Just like how gold and fiat co-exist, there is optimism that Bitcoin with its perks and uniqueness will continue to evolve into digital gold.