Cryptocurrency has many fans who are called crypto-enthusiasts, but there are also opponents of a new class of digital assets. They put forward different arguments and opinions as arguments of their negative attitude. In this article, we will consider what are the obvious disadvantages of cryptocurrency and those, which are far-fetched, but they are discussed in the community.
Attention! In this article, only disadvantages and claims will be considered, and some cryptocurrency advantages can be viewed from the negative side too (many people do it), such as anonymity.
At the moment, this is the main argument due to which institutional capital is not included in a cryptocurrency ecosystem. Digital currencies in many countries are still outside the legal field. Somewhere they are officially allowed (Japan, Belarus, Canada, Switzerland, Estonia), and somewhere they are officially banned (China, Thailand, Indonesia). However, in most countries, cryptocurrencies balance between two faces. They are not accepted as a means of payment at the official level, and are not prohibited. Discussions on this topic have been going on for about 2 years. G20 countries are actively showing a desire to start regulating this industry, but there are no concrete steps yet.
It is often noted, that uncertainty is associated with decentralization. States cannot accept that they don`t have the ability to control, and most of the cryptocurrency cannot be controlled.
CipherTrace conducted a study and found that the loss of the cryptocurrency industry as a result of fraud and hacking amounted to $ 1.2 billion in the first quarter of 2019 alone. This is 71% of the loss for the entire past year.
«These are just thefts that everyone knows about. The real number is much higher» CipherTrace representatives said.
Unfortunately, this is an integral part of any financial structure, and all the more cryptocurrency. The blockchain algorithm is responsible for the security of the blockchain. Bitcoin can not be hacked due to the fact that it is concentrated the greatest number of calculations. That is, if you keep your coins in your wallet without access to the Internet, and the private key is inaccessible, then it is impossible to steal funds. However, you can crack the centralized structure on which the bitcoins are stored. For example, the exchange. In the news feed, quite often there are news that some of the crypto sites were cracked once again. In addition, there are other ways to steal funds, such as phishing attacks. The blockchains of smaller cryptocurrencies can also be cracked, for example, using the 51% attack. According to CryptoAware for 2018, investors lost more than $ 670 million due to scams and hacker attacks, and over the past 7 years this figure has already exceeded $ 1.5 billion.
Undoubtedly, for cryptocurrency traders and those who came here for speculative gain, it is the opposite of dignity. But what about those who do business in this area? It is rather inconvenient to do business when you sell goods for bitcoin for $ 6000, and you cash it in $ 5500 a day later. On the other hand, various resources and companies have appeared that play the role of an intermediary and help fix the rate at the time of the transaction. For example, you sell a car through one of these services. The buyer makes money in bitcoins, and you immediately get dollars at the current exchange rate. But it already turns out some kind of exchanger.
In any case, due to the volatility, cryptocurrencies are not considered as a means of payment.
Soon the world will see stable CDC, which will solve this problem 🙂
Also, due to strong fluctuations in cryptocurrency, it`s difficult to consider as a safe financial instrument, they are risky assets. Experienced investors can use this for extracting increased profits, but there are disappointment waiting for newbies.
Satoshi’s ideas consisted in complete anonymity and at the same time network openness. At the moment, Bitcoin has only pseudo-anonymity, since all transactions can be traced back to the genesis block. If you have at least once tied one of your wallets with your identity, then you can easily be identified even if you use another purse to which you sent money from the one to which the person is attached.
However, a wallet in the blockchain is only a set of characters, and if the user has not been verified and confirmed the identity anywhere, then it cannot be recognized. For some, this may be a plus, but there are significant drawbacks:
– Underworld. Anonymous currency is an ideal tool for criminals. They can sell illicit drugs, organize terrorist acts, and trade in people without fear of being detected. Yes, they did it all safely and with the help of Fiat, and without the intervention of cryptocurrencies, but undoubtedly with cryptocurrencies it is much easier to turn.
– Anonymity harms the state. A country can function only due to tax collections from its citizens. But imagine a state in which people can use anonymous money. It will be impossible to find out the real incomes of the population and collect taxes from them.
A long time on the network went information that the bitcoin bandwidth – 7 transactions per second. Because of this, people in 2017, during a huge rush, had to pay up to $ 50 for making a transaction, because otherwise it could get stuck in the network for several days. Now the bandwidth is probably higher, because SegWit and Ligtning Network, as well as several other innovations designed to solve the problem of scalability, are being actively implemented. But in any case, Bitcoin is far from Visa or Mastercard figures, which are about 24,000 transactions per second. Because of this, it cannot be considered as a global means of payment so far, because as long as the network is not loaded, commissions are about 10 cents, but it’s hard to imagine a figure if the network processes as many transactions as giants in the field of payment systems.
But it is worth noting that there are cryptocurrencies with a throughput close to Visa and Mastercard. For example, Tron. Also, soon Ethereum plans to switch to PoS, thanks to which (according to their assurances) it will be able to process thousands of transactions per second.
Cost of Mining
Take Bitcoin again as an example, because its network is the largest and at the moment is about 50 million teraheshs per second. It is rather difficult to estimate the amount of energy consumption, but by very approximate data it is 1100 MW or 9636 GW⋅h (0.829 MTNE) for the whole year. This is about the same as:
– Consumes 520 thousand Canadians;
– Consumes Republic of Congo;
Many opponents of cryptocurrency clung to this argument, citing the fact that miners produce too much carbon dioxide, thereby polluting nature. And also they allegedly use the resources of the earth just like that, creating “useless digits on a computer that no one needs.”
In defense it is worth saying that miners are chasing the cheapest electricity. As a rule, they install equipment where there is a surplus of electricity. That is, if they did not use it, it would simply be lost. With regard to carbon dioxide emissions is to say that:
– Bitcoin for the year consumes as much electricity as the United States for 19 hours;
– The coal power plant consumes 5 times more;
– in 2015, Google consumed twice as much energy as Bitcoin now consumes.
In other words, everything is relative. On the one hand, this is indeed a significant figure, but on the other, it is not.
Lack of collateral. Bubble
Many of the disadvantages include the fact that cryptocurrency is not secured and grows only on the expectations of inexperienced investors. In other words, this is a financial pyramid, a bubble. In particular, the famous investor Warren Buffett thinks so. He has been criticizing Bitcoin since 2014, constantly inventing new arguments. For example, the other day he compared the first cryptocurrency with his own button. We have discussed this issue in detail in this article.
These deficiencies are localized and aren`t always applicable to the entire cryptoindustry.
– The inability to cancel the payment.
– There is an emission limit.
– Difficult interface (what can be solved).
Nothing is perfect and cryptocurrency in particular. Most of these problems / claims are completely solvable. In the next article, we will consider the advantages of cryptocurrency and the reason why they are so loved.