What are the main criticisms done to Bitcoin?

bitcoin downsides explained

Twelve thousand, then seventeen thousand, it was all in just a few days. Percentage increases that defy the laws of understanding. The first Bitcoin buyers took advantage of this boom, sometimes to become billionaires. But paradoxically, it undermines the credibility of Bitcoin as a currency for retail investors.

An energy drain

By accumulating computer resources, miners consume electricity. A lot of power. At the beginning of November 2017, when Bitcoin reached $7,000, mining became profitable up to a consumption of 24 terawatt-hours. A quantity of energy that illuminates Nigeria’s 186 million inhabitants for one year.

One month later, this “break-even point” has risen to more than 32 terawatt-hours, close to Serbia’s annual consumption. In total, Bitcoin transactions are estimated to account for 0.15% of global electricity consumption — much lower energy efficiency than other means of payment.

Exceptional volatility

A quick example helps to understand why extreme variations in the bitcoin sometimes make it unusable. To do this, imagine buying an iPhone X worth 0.1 bitcoin – about 1300 dollars at the time of writing. Due to the technical limitations of mass use, delays, before the transaction becomes effective, can reach several hours. At the time of transfer, the debit could finally correspond to 1200 dollars – the user would be delighted – or 1400 dollars – Apple would be delighted.

For sellers and buyers alike, it is, therefore, a matter of speculating on every transaction, whether it is an iPhone, a car, or a coffee. It is unthinkable risk-taking for companies whose profitability depends on margins in the order of a few percents.

Imperfect security

Anonymity and security of transactions are part of the foundation of Bitcoin. Users must rely primarily on word of mouth without a centralized body to control cryptocurrency management institutions. Although transaction hacking is unlikely, virtual portfolios are not infallible.

In 2017, $62 million has reportedly been stolen from the NiceHash mining platform through the site users’ bitcoin portfolios. By 2014, nearly 750,000 bitcoins had disappeared from Mt. Gox, one of the most widely used buying and selling platforms at the time, a loot that would be valued today at about 11 billion dollars.

Let’s be honest here for a second, the security of Bitcoin core’s protocol is not a problem. It has proven to be the most secured piece of tech ever created by man with over 10 years of activity and not a single Bitcoin stolen from it!

High transaction costs

To protect themselves against these increases and decreases, all players may have to hedge themselves, which is equivalent to buying insurance against volatility. Thanks to the emergence of new financial tools, it will soon be possible. However, this represents an additional cost that will inevitably be passed on to the end-user.

That’s why the Steam platform no longer accepts Bitcoin since December 6th, 2017. In addition to the volatility issues, the team points to a significant increase in transaction costs, which are inherent in the bitcoin architecture. Machines must solve a mathematical calculation to secure and validate each payment. This operation (mining) requires an immense amount of computing power and therefore, significant investments. Miners are paid in bitcoins, but also in ancillary costs that depend on how quickly they process the transaction.

Since the madness around Bitcoin – the Coinbase app is now the most downloaded on the American App Store; the network is congested. In the face of high demand, minors can afford to pay themselves better to process operations. It is up to $20 on Steam, a hundred times more than when the platform accepted the first Bitcoin. A big bill, especially if you buy security sold for a few dollars.