Posted on: 28. March 2018

Bitcoin Disadvantages

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Introduction on Bitcoin Disadvantages

Do Bitcoin Disadvantages really exist? Bitcoin is particularly popular among investors and is one of the most talked about cryptocurrencies on the market. The idea for Bitcoin had already been designed by 2008 when the basic principles were published in a white paper.

Satoshi Nakamoto is considered the creator of the currency. Overall, the currency has experienced phenomenal growth, with the market particularly highlighting the benefits of the currency. The currency's decentralization, anonymity, speed, and internationality are all salient features.

In addition, the use of Blockchain ensures a new level of security. According to computer science, transactions must meet the ACID characteristics, whereby the “”D”” could hardly be realized in the past review.

This is part of its durability, which was not previously given due to the revocability of transactions. A blockchain ensures this condition so that Bitcoin can now be more fully considered a perfect payment system.

The aim of this blog post is to highlight the disadvantages of Bitcoin, which are an integral part of the currency. The drawbacks to Bitcoin are enumerated, analyzed and evaluated with a conclusion.

A lack of widespread public acceptance

2017 was the year of Bitcoin. At the beginning of 2017, the price of the token was around $1,000, but at its peak, the currency reached a market capitalization of $19,535.70. As a result, the price has increased almost twenty-fold and the currency has surpassed most other financial tools.

However, Bitcoin is not yet so well known that every citizen knows what it is, let alone its functionality. Furthermore, a wallet is required for the trading of Bitcoins, which is not considered suitable for mass production.

It should also be noted that a large section of the population is struggling to get used to the acceptance of digital currency. A study by Destatis, for example, found that around 80.6% of payments in Germany are made in cash.

The main reason for the low acceptance is due to general misgivings about online services. This is also a bad condition for acceptance by a wide audience. However, online companies, increasingly relying on the use of Bitcoin as a means of payment, offer a positive outlook. Currently, Bitcoin does not play a relevant role in international payments.

The disadvantages of Bitcoin in the context of volatility

The price fluctuations of Bitcoins bring both advantages and disadvantages. Due to the psychology of the masses, however, this tends to result in rather conservative behavior, because humans usually perceive loss more than profits.

This sometimes includes fluctuations of more than 30% per day. Such fluctuations are rather rare in the context of traditional currencies so the skepticism of the masses remains at a very high level.

Significance of market capitalization

The high volatility is also reflected in the market capitalization. However, it must be remembered that 2017 was the year of Bitcoin. On December 18, a market capitalization of about $313 billion (US) was realized. In early February 2018, it fell to $145 billion.

For risk-averse investors, this was a reason to either accept the currency hesitantly or not at all. If the market capitalization was set in proportion to the gross domestic product of Germany, which stood at 3,263.35 billion euros, then it can be seen that the market capitalization reached for a currency is still very low.

It can, therefore, be stated that the liquidity of Bitcoin is simply too low for a global currency.

Investors typically have short memories but low liquidity means that a negative message can have a major impact on the current price. Thefts or frauds in the context of Bitcoin have a particularly large influence on the current price.

The negative effects of political influences on Bitcoin

Cryptocurrencies are currently seen an unwelcome development for the central banks. China, for example, has enforced bans on the use of cryptocurrencies. In addition, it has not been possible to admit ETFs based on a crypto portfolio.

The increasing regulation of cryptocurrencies as a general rule cannot be ruled out. Cases in which tax fraud has taken place by investing in cryptocurrencies are an appropriate starting point. This is because governments are concerned about investors using cryptocurrencies to avoid paying tax.

Additionally, fiscal policies have no influence on Bitcoin, which has more of a deflationary character. The currency has an absolute token number of 21 million. When the currency reaches its maximum potential, its price will rise to increase the money supply in the system.

This means that an increasing number of investors are collecting the token. This development might also cause the currency to be unattractive for new entrants, while new users stay with the proven money.

Bitcoin disadvantages due to its technical basis

Bitcoin, Bitcoin Disadvantages, and especially the blockchain, is a complicated construct that only a few people fully understand. All the more questions arise for interested parties as to whether all technical regulations can actually be implemented.

In particular, wealthy people are less interested in highly speculative investments; instead relying on conservative investments that enable wealth to be conserved. In addition, there is a need to reconsider whether the current hopes of market participants in Bitcoin are justified.

Bitcoin is much less a currency for active payments than a means of raising funds. Due to the technical limitation in the context of block time, a backlog of transactions became increasingly likely. For classic payments, this would have been a worst-case scenario so this also increases the problem with acceptance.

The innovation, enforced by the community, has dampened this problem a bit. However, other currencies such as BitcoinCash or Litecoin are much better suited for traditional payments.

Conclusion: The Bitcoin Disadvantages

As mentioned in the introduction, Bitcoin offers many advantages, making it a flagship currency, reinforced by the positive developments in recent months. However, there are many challenges, especially for mass acceptance, which still need to be overcome.

However, the ongoing development and improvement of the technical foundations should help the currency to finally break through.

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