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Bitcoin may not eventually become the cryptocurrency which will reach mainstream use. It may be overtaken, just like the same way Facebook dominated its predecessor’s like Bebo and MySpace.
One day in the near future, a cryptocurrency that reaches higher levels of popularity will be created.
It will improve on bitcoins’ strengths and address its weaknesses. Many cryptocurrency users still feel that Bitcoin’s network effect guarantees it a top place even in the future. So, what are bitcoin problems today? What about in 2017-2018? Let’s find out.
But first of all, how does Bitcoin work?
Bitcoin is a digital currency, which is recognized among people as a medium of exchange and people can buy/sell stuff with it.
As a Bitcoin owner, you have to have a Bitcoin wallet (online, hardware, software – check our website to learn more about Bitcoin wallets) to be able to store and make transactions with it.
Bitcoin is a cryptocurrency (the first cryptocurrency ever), which means it is encrypted in a way that it cannot be copied anymore.
All Bitcoin transactions are recorded in a blockchain, and thanks to its technology, people cannot spend a Bitcoin more than once.
Similar to commodity money (money backed with gold and/or other commodities) the supply of Bitcoins is finite- Bitcoins are created through a process called mining. This is done with powerful computers, which solve complex mathematical algorithms and when they succeed, the rewards are the Bitcoins. The more people mine Bitcoins, the more complicated algorithms come up. In other words, the mining difficulty increases with the number of miners.
As Bitcoins have a decentralized, peer-to-peer system, and there are no institutions regulating it (e.g. banks, governments etc.), inflations, economic collapses and other major economic events do not affect Bitcoins anyhow.
So, what problems does Bitcoin have?
Below are some of Bitcoin problems and solutions.
1. No Intrinsic value
One of Bitcoin problems today is that it doesn’t have an intrinsic value. A number of people are dissatisfied with the fact, that there are no specific ways of calculating the intrinsic value of Bitcoins. In contrast to commodities, Bitcoin’s prices are highly depending on the demand and the buyer’s willingness to pay.
Each Bitcoin slot found in the shared public ledger has a fractional value. This is usually decided by the available total number of slots.
2. Taxation and legal challenges for regulators
Another problem with Bitcoin is that it provides serious taxation and legal challenges for regulators. It presents a whole new outcome of unexpected opportunities and challenges. The current regulatory state is uncertain, with various governments taking different stands towards bitcoin.
- For cryptocurrency like bitcoin to be able to reach widespread use, clear guidelines on the way people will transact and use bitcoin will be needed. This entails knowing bitcoin problems and solutions.
- But in order to achieve this properly and in a process that will not stifle innovation will not be an easy task.
- Meanwhile countries like Israel, US and Canada are maintaining an open position towards cryptocurrency.
- On the other hand, Bolivia, Ecuador, and Morroco have taken hostile stances and have even banned its use.
- In number of countries, taxation offices are instantly creating methods, in order to decide how to tax Bitcoin users from all sides (buyers, sellers, miners etc.)
These policies and recommendations will hopefully change for the better in the future as governments, regulators and businesses come to better learn about this cryptocurrency and the way it works.
3. It has created a huge hardware competition
The procedure of verifying and authenticating transactions has been greatly criticized for creating an artificial hardware competition and for consuming such huge amounts of energy to maintain its network.
Proof – of – stake is an alternative which has been proposed to address some of these issues with Bitcoin. Through this concept, an individual can validate block transactions according to the number of coins he or she holds.
4. Economic effects
There has been a lot of great concern about the various economic effects when Bitcoin reaches its final supply and also the detrimental effect of it ending in inflation.
However, when used properly it can be a very useful tool in maintaining a vibrant and healthy economy.
5. Slow transactions
A 10 minute confirmation time is very cumbersome and clumsy for merchants who are in need of quick transactions.
This also slows down the duration taken for bitcoins to be securely sent between addresses thus it becomes less liquid.
Fortunately, different payment processors and bitcoin trading websites can do such transactions (off the blockchain) thus ensuring merchants get their payments instantly and securely.
6. Long-term security of its hashing algorithm
Some experts are apprehensive about the long-term security implications of the hashing algorithm, known as SHA256. If there was even a single chance to “break” SHA256, bitcoin could face issues. As a result, multiple algorithm altcoins were introduced, in order to solve similar problems.
7. Huge transaction fee
A huge transaction fee is currently the no.1 problem for Bitcoin users. Consumers are currently paying $28 on average to make transactions using the digital currency.
Due to the unprecedented interest in Bitcoin, many people want to use the currency which leads to congestion in the network making it very slow.
They have come up with a possible solution known as “Lightning Network.” It aims to let people send several transactions to and from outside of the blockchain and it would work as a second layer above the ledgers that carry cryptocurrency.
8. No mechanism to recover stolen or lost bitcoins
In case you lose your Bitcoins, it’s impossible to get the lost/stolen Bitcoins back.
With Bitcoin, if you lose it you lost it. There is no mechanism to recover stolen or lost Bitcoins.
The most secure method of storing Bitcoins appears to be an offline disk. A single file of bitcoin on a consumer’s desktop or laptop is the ultimate key to accessing that consumer’s Bitcoins.
If the wallet file ever gets stolen or lost, all of the person’s bitcoins are most likely lost forever.
To avoid such a disaster you can deposit you Bitcoins using various cryptocurrency services available in the industry thus greatly reducing the risks when having to backup and secure your own bitcoin wallets.
9. It’s not friendly to users who are technologically challenged
A lot of people (specifically older generations) struggle with fact bitcoin is not a currency that you can hold in your hands and neither does it come from the bank or the government.
- For one to use a bitcoin you need a computer or device that is connected to the internet. This creates a major challenge for these individuals who are technically challenged.
- Such barriers to access have contributed greatly to misinformation, distrust, and ignorance for those first timers to bitcoin.
There’s a large community working to end myths and provide better bitcoin education and also there are businesses and third-party services which have mushroomed to better facilitate bitcoin usage.
10. Requires a lot of knowledge in computer security
Bitcoin demands its users to be well learned in computer security.
- Terminology like Encrypted wallets, BIP0038 and Cold storage Sound like a whole different language to a layman.
- Educating yourself on the best practices to protect one’s bitcoins can be overwhelming.
- Due to these many businesses dealing with online wallet services have been created to offload the security requirement from the user.
You can deposit your bitcoins with a trusted service of your choice to avoid the burden of having to protect your own wallet individually.
11. It is slow and impractical in retail transactions
Bitcoin is very slow and impractical hence cannot be used in any retail transactions.
- When a new bitcoin transaction is broadcasted to its network, it is normally visible to the receiver within seconds.
- And in some instances, it takes several minutes for the transactions to pass through the blockchain network and reach the receiver.
- This may cause a long inconvenient wait for both the seller and the buyer.
- Unless a buyer agrees to wait for almost an hour for thorough confirmation of the transaction, the sales of tangible items are vulnerable to double–spend attacks.
- Merchants are advised to use 3rdparty online Bitcoin payment service providers such as bitpay.com to handle their transaction processes.
Bitpay absorbs all their merchants’ double-spend risk and boasts of having experienced zero incidents of payment fraud.
Bitcoin payment services like these are well linked to the bitcoin blockchain network through a large number of its nodes throughout the globe which have greatly assisted in detecting spend attacks.
12. They don’t have mechanisms to protect their users against fraudsters
Payment processing companies and credit card companies protect their consumers against fraudulent sellers using chargebacks.
If the consumer is able to prove that they purchased and paid through the processors’ services for goods or services and during the process they were ripped off by a seller who’s untrustworthy, the company processing the payment will immediately refund the funds to the buyer.
- But for Bitcoin, they don’t offer such protection for their consumers.
- Transactions made at their website are irreversible.
- Sellers at bitcoin are protected from fraudulent chargebacks because the transactions are irreversible.
Because of this buyers should be extremely careful and keen before sending money to the seller
13. What is the Bitcoin blockchain problem?
One of the main problems of Bitcoins’ blockchain is its scalability. Its scalability problem rotates around how the blockchain system enables transactions between peers without double spending.
- This system is very complex and requires a huge number of decentralized nodes and miners to verify and authenticate the transactions.
- In order to maintain node decentralization, the volumes of transactions fed directly to a block of transactions which are mined every 10 minutes are limited.
- By decentralizing the miners, nodes, or both, no individual verifier has monopolistic control, which is a good thing.
However, its downside is that it can only do a small number of transactions per second and sometimes needs you to rely on second layer services or protocols to scale.
Below are some of the problems facing the blockchain;
- Double-spend –this normally occurs in the duration between when transactions are made and when the block settles. An evil-minded user could launch fraudulent transactions to trick the network.
- When settling a transaction on the blockchain all the nodes in the network need to come to an agreement that the transaction is valid. This makes it a far slower process than having a bank verify your transaction in an instant.
- The mining process on the blockchain is an innovation which uses game theory economics to incentivize people to commit computer power for securing the network for a profit.
The down-side of this is that generally, miners won’t care about settling as many transactions as possible; they will make the most money by finding and verifying a block in the fastest way possible.
Problems Bitcoin will solve
It’s hard to tell what problems bitcoin will solve 2017-2018. However, there is a lot to look forward to.
Bitcoin is the first decentralized online digital currency; this is because it works without a central bank.
It has the ability to empower financial freedom with its innovative product that tackles big problems in ways the financial industry hasn’t yet discovered.
Below are what problems bitcoin solves.
- Bitcoin gives a guarantee against the infallibility of economics in an apocalyptic situation, when no one can be trusted even the bank- system.
- The blockchain system is completely unbreakable whatever happens around and whoever rules the world.
- All the information stored in its blockchain will exist forever and you will even be able to retrieve an information about a transaction 200 years for any purpose
Bitcoin is not all perfect. It has so many problems that not everyone knows or understands. Even so, you will be amazed as to what Bitcoin has been able to achieve since its inception and the measures they are undertaking to solve the problems they are facing.
I hope by getting to know about Bitcoin’s problems, you are now in a better position to make decisions that will positively improve your experience with this cryptocurrency. For more on Bitcoin, take a look at other pages on our site.