Bitcoin is only for a bunch of criminals, it is not backed by anything, can be generated out of thin air, and can be used for fraudulent activities.
But wait, how exactly is this different from using dollars, euros or other fiat currencies?
Exactly, not that much (the dollar has a much better track record in these fields than Bitcoin), and by the way, these are not even the best arguments against bitcoin.
In my article today, you will learn about the better arguments against Bitcoin and might find out that most of the arguments against it could very well also be applied to the Dollar and other fiat currencies.
What is Bitcoin, and How Does it Work?
In my last article, I explained a bit about the blockchain technology and how real estate transactions will likely work in the future.
The same technology is used for cryptocurrencies like bitcoin, which is built on it and a tradable digital form of money.
Bitcoin and other cryptocurrencies use cryptography to secure and verify transactions.
At the moment, there are more than one thousand different cryptocurrencies in the world, Bitcoin being the most established and popular one.
In simple terms, it works by recording transactions into a database, in order to determine how much of that currency each individual, or their address, is holding.
Yes, it is quite similar to how banking currently works.
When you buy something online, you send money from your bank account to another one by subtracting from a digital figure that you have connected with your account, which is, in the end, your balance.
So, it’s basically the same: information is recorded in a database and no physical exchange takes place.
Bitcoin and other cryptocurrencies work on the same basis.
Large data records of information, called transactions, are used to establish how much of a cryptocurrency each address has to its name.
In this context, there is only a slight and shrinking difference to fiat currencies like the Dollar and the Euro. Cryptocurrencies are purely digital, and there is no option to take out a cryptocurrency in coin or paper form.
I wrote “shrinking” difference because in several countries of the world governments are working towards the prohibition of cash transactions.
I found a good video which complements my former explanation:
8 Valid and also Biased Arguments Against Bitcoin
When the Bitcoin price tried to reach the moon at the end of 2017, the average transaction cost of one Bitcoin reached $35.
Not good, because something else was expected from Bitcoin, namely lower to no costs.
The spike in the transaction costs was due to a high volume of transactions. Now, the average cost per transaction is less than $0.5.
The transaction can still be free, you just need to wait longer. Instead of 10 minutes, you need to wait for 20 minutes.
The reason behind this is that the nodes prioritize transactions according to the fees that have been paid.
By design, verifying a block of 2000 bitcoin transactions takes about 10 minutes.
So, when you make a payment, you will always need to wait 10 minutes.
For international transactions, this is something tolerable. International fiat money transactions through banks are even worse. You usually have to wait a couple of days for these transactions to be verified.
But if you want to buy just a nice and delicious cup of coffee or tea, 10 minutes is sometimes too much.
Imagine having just 3 persons in the line in front of you at the cashiers and that all 3 of them want to pay with Bitcoin.
That’s already 30 minutes waiting time, without taking into account your own transaction.
But this would happen only if the restaurant stays with a central cashier. Instead, why not have individual payment options directly at the tables?
The thing is, in order to increase the transaction security even further, it is advised to wait for 6 blocks (of 2000 bitcoin transactions) to be verified.
This would mean 60 minutes waiting time, and it doesn’t look good for instant payments.
3. Energy Consumption
The whole bitcoin network uses as much energy per year as the country of Bangladesh.
In other words, one Bitcoin transaction consumes the same amount of energy as 27 American households in one day.
Why on earth that much?
Well, to verify a block of 2000 transactions the Bitcoin networks work together.
All the computers participating in the network actually compete and try to solve a mathematical puzzle by guessing a number.
You might have heard in the above video that this is called mining. For a 10-minute interval, there is only one winner.
The more computers are added to the network to solve the puzzle, the more difficult it gets and the more energy resources are needed.
The above-mentioned lightning network will not only solve the speed problem, but it will also, at the same time, solve the energy problem.
In this article further ideas about how to solve this problem are presented.
By the way, if we don’t use the contrast principle, and compare the energy consumption of the Bitcoin network with the energy consumption of Bangladesh, but rather compare it with its direct competition, the banking sector, we come to completely different results.
For, according to Kelly-Pitou, a clean energy technology researcher at the University of Pittsburg, banks consume three times more energy than the bitcoin network and thus the same amount of energy as 3 times the size of Bangladesh.
4. Security or don’t let thieves get your private key (password)
Because of the decentralized bitcoin ledger, it is almost impossible to modify transactions.
The risk, as so often in the field of security, is not the technology but the human element in it.
You can have the best-designed security system in the world, if someone is negligent with the access information, the whole system can be compromised.
The same happens with Bitcoin, and by the way also with the PIN of your credit card or online banking account information. If someone steals your password (in the case of Bitcoin, your private key), your money will be gone.
So, it is best to not store your passwords online. If you use cryptocurrency exchanges to trade Bitcoin, passwords (private keys) are usually stored there and therefore also stolen from there.
But this doesn’t mean that Bitcoin is too risky or not safe, it just means that storing your Bitcoin passwords (private keys) there is.
5. Criminal Activity
You can use a rolling pin to make a delicious pizza dough or beat the crap out of your neighbor.
So, it’s not the rolling pin that can turn bad, but the person with the bad intention on how to use it.
The same is true for fiat currencies like dollars and euros, and yes, also bitcoin.
Cash has a much larger track record for being used for criminal activity and is still very popular among criminals.
Then there is the issue about the transparency of bitcoin transactions.
All transactions that ever happened in the past can be examined. You can identify the sender’s address, the amounts sent, and the receiver’s address.
This means it is slightly riskier for criminals to use Bitcoin compared to cash.
The police could potentially link all the associates who have ever done business with a particular criminal.
6. It’s another bubble or Tulip Mania
Many don’t understand crypto currencies well and ignore the fact that in any market hypes and bubbles can occur, and then they attribute bubbles or the Tulip Mania only to the existence of bitcoin and it’s supposedly not existing intrinsic value.
Sure, as in any relatively new market there is still a hype and sometimes there are also bubbles. But that’s business as usual in any market.
Look at penny stocks, the dot.com bubble, the housing bubble etc.
Everywhere in any market, it’s always people with different biases and their psyche that cause these hypes, booms, and busts.
That’s how life works in this reality.
7. It’s not tangible and not backed by anything
When the dollar was still backed by gold, and using cash was not at the point of being prohibited, this would have been a really great argument.
But it’s not.
This argument actually compares one currency, which can be printed unlimitedly (or just created by typing in some more zeros on the computer), and is only backed by belief and coerced taxpayers, with a start-up cryptocurrency that is also backed by belief.
The only thing Bitcoin does not have is the backing of coerced taxpayers and the option to be printed unlimitedly.
Some see the backing by the taxpayers as a good argument, but I am not sure if it’s not also a high risk to connect the fate and performance of a currency in a distorted market by central banks to a whole producing population and its future generations.
Sure, Bitcoin as a start-up currency is still rather risky but has also potential for high rewards (hint: risk/reward ratio).
The adoption of Bitcoin increases day by day.
First, it was only the open source enthusiasts that participated in developing it, but now more and more professionals venture capital and also hedge funds enter the bitcoin space.
So, in the end, it is a matter of belief, since the backing argument is not the strongest one.
8. It is bad that You Can’t Print More!
This argument amuses me a bit since I could also have used it not too long ago myself, when I was bombarded with the only economic theory most students learned in the past, are learning today and will probably also learn in the future (as long as there are central banks)!
It’s called Keynesianism.
In simple terms, Keynesianism is the little kid that cries for mama when the bad brother teases or challenges him, and mama comes and resolves the crisis between the siblings by giving a round of chocolate bars she paid for before with her credit card.
In Keynesianism, it’s basically the same.
When a financial crisis occurs, someone must have the ability to print a lot more money or currency (going deeper into debt) to counteract the crisis.
Only a few question this argument, because the majority learns about Keynesianism in school or college, but only a minority learn about Austrian Economics.
From their perspective, it is the nature of markets for booms and busts to occur, and printing money only buys time, distorts the markets, and increases overall government debt and therefore the debt of future taxpayer generations to come.
These government debts and the artificially increasing or decreasing of central bank interest rates lead to wrong business decisions.
For example, artificially lowered interest rates lead, or rather seduce, more investors and entrepreneurs to start new ventures, or make more and bigger investments then if interest rates would have stayed at the higher natural undistorted market rate.
More people buy houses; therefore, housing prices increase.
The supply of different products and housing (in real estate) increases to the point where even the increased consumption by the population due to low interest rates and increased inflation can’t keep up.
Now, the postponed bust occurs but with a much heavier impact and a lot of more private and government debt than before the market was distorted by money-printing central banks.
So, in the end, the same booms and busts occur, only stronger.
The question is not how to avoid that hurting in markets occurs due to booms and busts, but rather how to accept that this is the nature of markets and can’t be avoided, only postponed at the cost of increased debt of future generations.
So, by now, if you look at it in an unbiased way, you might realize the real arguments against the Bitcoin were unknown to you and the not so good ones can also be applied to the Dollar and other fiat currencies.
In my next article, we bring the Bitcoin again to the real estate world and analyze a bit the current situation.
Interested in Bitcoin Beach Villas from Costa Rica? Check out these listings with top views!
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