Almost everyone who has access to the internet these days has heard of Bitcoin. There was a real turning point in human civilization when money was first invented as a medium of exchange. Instead of relying on a barter system where goods were exchanged without any consideration for precise evaluation, money allowed people to conduct trade more effectively.
A new level-up in the fiat money known as cryptocurrency is expected by the end of this century. With the introduction of digital money, the foundation of the financial system as we know it can be altered. Ontology, politics, social interactions, and economics could all be forever altered by a paradigm shift in the nature of money.
What is the meaning of the cryptocurrency Bitcoin?
Because it is decentralized, no single government entity, such as a central bank or the Securities and Exchange Commission, is in charge of Bitcoin. Because it is a cryptocurrency, the data associated with financial transactions is protected through the use of algorithms and encryption. Satoshi Nakamoto, the pseudonymous inventor of Bitcoin, first introduced the currency in 2009.
For the most part, the goal of Bitcoin was to serve as an alternative to fiat currencies like the USD, GBT Pound, Euro and Yen, among others, However, as a means of storing value or an investment, Bitcoin has grown in popularity among the general public. Bitcoin is frequently hailed as the first cryptocurrency, laying the groundwork for today’s crypto market, which includes tens of thousands of new variations.
What is a blockchain?
The Bitcoin blockchain is the technology that underlies and hosts the currency. All Bitcoin transactions are recorded in blocks on a blockchain, which is a digital ledger. In order to ensure complete transparency, the blockchain is distributed among all of the network’s active participants.
For example, blockchains can be used for supply chain management, quality control and data analysis, as well as other management functions.
How did Bitcoin become so well-known so fast?
Only IT experts and a few financial investors were interested in Bitcoin when it was first introduced in 2009. Despite this, academics from around the world have been drawn to the Bitcoin blockchain because of its open-source, trustless, and decentralized nature. The term “open-source” refers to projects whose source code is freely available for use by anyone, anywhere, at any time.
As a result of the Bitcoin blockchain’s trustless network, no one or a small group of people could be trusted to run a business. For one thing, the decentralized nature of the Bitcoin system allowed it to continue to operate without the intervention of a government or private regulator at all times.. Its centralized status as a medium of trade or replacement for paper money was the primary concern of many developers at the time of its introduction.
As a borderless and internet-based money, Bitcoin has grown in popularity worldwide due to factors like as a lack of digital banking and the growing popularity of the internet around the world.
Bitcoin’s Long History of Skepticism
The value of Bitcoin began to rise as the public’s faith in the money rose. Many prominent government regulators and corporate financial industry figures, on the other hand, have come forward to express their skepticism about Bitcoin.
At $69K in November 2021, it is apparent that the negative connotations around Bitcoin were not enough to detract from public attention to this alpha cryptocurrency. Bitcoin has been the target of a number of notable attacks, some of which are listed below:
It’s not hard to see why some of the top names in the banking and investment industry have been dismissive of Bitcoin throughout the years. While there has been a lot of negative press surrounding Bitcoin, it has remained the world’s most valuable cryptocurrency and continues to lead the industry in terms of market value.
Even the most ardent supporters of Bitcoin are unable to ignore some of the cryptocurrency’s shortcomings. Imperfections are part of the moral world, and Bitcoin, the 1.0 cryptocurrency, has some of its own problems that need to be addressed by stakeholders.
- Utilization of Electrical Energy
- Attack is 51% of the time
- Concerns about the environment
- Fees for completing a transaction
- Risks of Investing
- Volatility costs money.
- Education is lacking
- Regulations governing the financial industry
- Storage and Download
- Reduction of Employment
- Missing Bitcoin.
- Mining on a Blockchain that has already been mined
Any developer can examine the Bitcoin blockchain at any time because it is an open-sourced project. As a result, anyone using the blockchain at any given time is exposing their entire financial transaction history to other members of the network.. Venmo, for example, is one of the retail apps that recently implemented this feature.
So, if you’re using the Bitcoin blockchain, you’re making it possible for everyone else to see everything you’ve done on that network. This can be a small annoyance for particular users. In the case of commercial organizations, however, maintaining financial privacy and avoiding the publication of every internal transaction can be a huge challenge.
Scalability refers to a network’s ability to manage a growing amount of internet traffic. There are seven transactions per second on the Bitcoin network at its core. Consider that Bitcoin is a global network that millions of people use simultaneously. To put this into perspective, Visa, an international digital transaction service provider, can process about 20,000 transactions per second.
VISA’s network can also expand its capacity during peak periods such as holidays and other special events. Second-layer Bitcoin project called the Lightning Network is being developed by a team of developers from Square Inc.
Utilization of Electrical Energy
Proof-of-Work is the consensus model used by the Bitcoin network. Miners on the Bitcoin network must use decryption machines or computing power units to solve each new block puzzle in order for PoW to be used as a consensus model. To qualify for mining rewards, miners compete against each other to solve the block encryption first.
Miners, on the other hand, use heavy-duty mining equipment and cutting-edge processors to increase their chances of winning. For the most part, these mining companies must use a significant amount of energy in order to operate continuously around the clock. A Bitcoin mining rig is estimated to consume enough electricity in 10 minutes to power 100,000 people in a developed city.
Attack is 51% of the time
There are a lot of Bitcoin miners who aren’t individual computer owners working from their homes. The majority of Bitcoin miners form cartels or pools in order to maximize their chances of success. The four largest mining companies currently control more than 51% of the global hash rate output. Despite the widespread belief that the Bitcoin network is impervious to corruption, this is not the case currently.
Bitcoin’s financial ledgers might be altered if a single person controls 51% of the network’s mining contributions, according to a theory. Because of this, the 51 percent cartel could theoretically use the Bitcoin money twice. If this were to happen, Bitcoin’s market value would fall dramatically.
A “flippening” scenario is one in which a single cryptocurrency or a group of altcoins surpasses Bitcoin in value. The possible dethroning of the flagship coin could have a lasting impact on the cryptocurrency sector. It is currently impossible to separate the cryptocurrency market from the performance of the stock market.
For now, Bitcoin prices are bearing more than half of the whole cryptocurrency market capitalization. Several whale investors, high-net-worth traders, and traditional financial giants stand to lose or gain substantially if Bitcoin is dethroned as the leading digital currency by another cryptocurrency or stablecoin.
Clones and Forks
Forks are splits in the Bitcoin consensus model, either due to a disagreement or a deliberate decision to do so. A soft fork is a change to a blockchain’s algorithm that is automatically implemented, allowing users to update at any time. When it comes to hard forks, however, only those who have accepted the upgrade can access a completely new version of the blockchain.
Hard forks such as Bitcoin Private, Bitcoin Cash, and even Bitcoin Gold have become popular in the Bitcoin community. The original Bitcoin blockchain is the source of all of these other cryptocurrencies and blockchains.
Dogecoin, Peercoin, LTC, and Dash are just a few of the stand-in clones that have spawned local investment communities and released their own native currencies. Cryptocurrency duplicates, also known as forks and clones, are a source of loss for investors.
Concerns about the environment
Bitcoin mining has been shown to demand a large amount of energy. There are, however, certain environmental issues concerning the Bitcoin currency. CoinShares estimates that Bitcoin mining activities will contribute to 41 megatons of CO2 emissions in 2021, which is a significant amount. Due to environmental concerns around Bitcoin, the New York state legislature has also issued a two-year ban on all PoW digital currencies in the region.
Others argue that the carbon impact figures around bitcoin mining are overblown. Bitcoin supporters also say that the carbon footprint of traditional financial institutions is bigger than that of Bitcoin mining farms. Even still, the verdict is still out, and this could have a significant impact on the price forecasts of the most valuable currency in the long run.
When Bitcoin was first established, it served as a replacement for conventional currency. This means that theoretically, Bitcoin should be able to withstand the transactional pressure of the entire global population of 8 billion individuals. However, the Bitcoin blockchain can only execute seven transactions per second when using the network’s default configuration.
According to the most recent survey, approximately 47 million people in the United States own some Bitcoin. Even at this early stage, it is not uncommon for Bitcoin network users to have to contend with lengthy backlogs.
Every 10 minutes, a new block is added to the Bitcoin network, and each block can have up to 20 thousand transactions. It seems unlikely that the Bitcoin network will be able to replace fiat currencies any time soon because of the network’s processing speed.
Fees for completing a transaction
The Bitcoin network’s transaction costs are the same regardless of the amount of money being exchanged. If a trader sends $10,000 or $10, the transaction fees will be the same in both circumstances, for example.
This means that buying a cup of coffee in the morning with Bitcoin is not the best use case for the cryptocurrency. The Lightning Network, for example, is a technology that aims to reduce transaction fees while also speeding up the network.
Risks of Investing
There is a lot of danger involved with investing in Bitcoin. Investing in stocks has been replaced in the minds of many with the use of digital currency like bitcoin. Bitcoin, on the other hand, resembles commodity trade more closely. Investment risk is increased because there aren’t many indexes or specific technical indicators for Bitcoin and other altcoins currently.
Bitcoin’s extreme price volatility is one of the most commonly noted drawbacks of the cryptocurrency as an investment option. Due to Bitcoin’s ambiguous underpinnings, the price of the currency is prone to abrupt fluctuations. Some investors like Mark Cuban feel that Bitcoin’s volatility is the primary cause for its enormous returns…
Costs to do business
No matter how much money is exchanged, the Bitcoin network has the same transaction fees. For example, if a trader sent either $10,000 or $10, the transaction fees would be the same in both cases.
It means that Bitcoin is not the best way to buy something small, like a cup of coffee in the morning. Solutions like the Lightning Network are working to lower transaction fees and speed up the network.
There is a lot of danger involved with investing in bitcoin. Many people think of cryptocurrencies as a digital version of trading stocks. But Bitcoin is more like trading commodities than anything else. There aren’t a lot of indexes or dedicated technical indicators available yet to track the prices of Bitcoin and other altcoins, which makes investments riskier.
One of the biggest problems with Bitcoin as an investment choice is that its price changes a lot. Because Bitcoin’s fundamentals are not well understood, its price is always subject to sudden ups and downs. But investors like Mark Cuban think that Bitcoin’s huge return is mostly due to the fact that its price is always changing.
It’s important to remember that once a Bitcoin transaction is complete, it can’t be undone. The fact that every Bitcoin transaction is completed almost instantly on the network is a great thing about it. This is because it doesn’t need to be checked or approved by a central authority. But if a business can’t reverse a financial transaction in case of a breach of contract or refund, it can be a hassle.
There is no insurance available through the Bitcoin network. When it comes to traditional financial businesses, insurance covers most financial services. With the help of a certain type of investment insurance policy, stock traders may also be able to cover their losses. But Bitcoin transactions and trading are made so that there is no safety net for its users.
Bitcoin has few or no rules about how it can be used for money. Because of this, many commercial investors don’t use it as a way to diversify their portfolios or do business. On the other hand, some of the newest rules about Bitcoin are mostly about taxing Bitcoin traders.
Save and Download
Every time a Bitcoin transaction is made by a new investor, the whole blockchain must be downloaded first. At the moment, the Bitcoin blockchain is up to 100 GB in size. It means it can take up all the space in the memory of a low-end PC or a high-end smartphone. In the best case, the whole download takes a few days on average.
Getting rid of jobs
Bitcoin is basically just another way to automate the way money is transferred. The Bitcoin blockchain gets rid of the need for real people to run the management of regulatory bodies like banks and other financial institutions.
It means that the final version of blockchain systems will make even fewer jobs for people like tellers, bank managers, administrators, auditors, chartered accountants, etc., necessary.
Financial regulators often accuse hackers and financial crimes like money laundering of using the Bitcoin blockchain.
Bitcoins are kept in digital wallets, which are protected by private keys and seed phrases. Because they are made up of a long string of random data, these private keys are hard to remember because they are complicated, large, and hard to write down. According to the most recent research, about 20% of Bitcoins are lost for good because their owners forgot or lost their private keys.
Every year, the number of transactions added to a Bitcoin block is cut by half, and miners also get half as much money for their work. The Bitcoin blockchain was made to work this way on purpose.
In one of his community posts, Satoshi Nakamoto, the creator of Bitcoin, said that in 20 years, miners would make their money by confirming transactions, and that by that time, all Bitcoin transactions would either double or go to zero.
People say that Bitcoin is a decentralized network a lot. But any IT expert who knows a little bit about cookies and web trackers can figure out who did every digital transaction on the network and where it came from. So, experts say that Bitcoin and all other blockchains are only “pseudo-decentralized.”
Mining for myself
The equipment that is used in Bitcoin mining farms can’t be used to do any other kind of online work or computation. Bitcoin miners usually need to install the most expensive and hard-to-find semi-conductors. Selfish mining, on the other hand, is when miners release orphan blocks that were hidden before and are still not validated. They then charge high transaction fees and work in a group of cartels.
People often say that the Bitcoin blockchain is the most innovative and game-changing idea since the internet. But Bitcoin has its own problems, just like every other new technology. But it looks like Bitcoin’s creator, Satoshi Nakamoto, has already achieved his main goal, since there is now a whole cryptocurrency market and thousands of different altcoins.