5 Challenges to Bitcoin's Continued Growth
As the number of Bitcoin users grows, so does the number of transaction that occur on the Bitcoin blockchain. That’s a problem because Bitcoin can support only a limited number of transactions in a given time. By early 2017, Bitcoin transaction speeds started to become unacceptably slow for some users.
For the time being, this problem has been alleviated through an upgrade to Bitcoin called SegWit, which took effect in August 2017. SegWit basically removes some data from each transaction so that more transactions can be processed at once. If Bitcoin grows large enough, however, even the SegWit fix may not be enough to ensure acceptabe transaction speeds.
In a certain sense, Bitcoin is the perfect target for cyberattackers. It’s immensely valuable, completely digital and easy for thieves to liquidate without exposing their real identities. Indeed, if you’re a criminal, why would you rob a traditional bank when you can steal Bitcoin instead?
Major Bitcoin attacks have already occurred, most notably the theft of Bitcoin from the Mt. Gox exchange in 2014. Bitcoin developers have taken steps to improve security since then, but if there’s one thing no one can debate, it’s that total cybersecurity is an impossible thing to achieve. Plus, because Bitcoin is not backed by a government or central agency, there is no authority to hunt down attackers or help make victims whole again when a breach occurs.
This means that security will always be a thorn in Bitcoin users’ side. It’s difficult to put all of your money in Bitcoin wallets and remain confident that no one will steal it.
Yes, traditional banks have lots of problems, too, but losing customers’ money with zero accountability is not usually one of them.
Possessing Bitcoin does not entitle you to any special rights or privileges. In other words, Bitcoin has no intrinsic value.
You could say the same thing about U.S. dollars, which have had no intrinsic value since the federal government abandoned the gold standard in 1933. But dollars at least translate easily into value, because you can use them to buy a car, or a house, or a pizza.
Except in rare cases, you can’t currently make purchases like these using Bitcoin — although you may be able to in the future, which is why people are investing in Bitcoin now and driving up its price.
Still, whether Bitcoin will actually become usable for common transactions in the future remains to be seen. For now, there is a risk associated with Bitcoin because of its lack of intrinsic value. This is a challenge that other cryptocurrencies, like Particl, are trying to solve by building intrinsic value into their platforms.
One of the features that makes Bitcoin so alluring is that anyone can “mine” Bitcoin in order to help build the blockchain and generate wealth.
Unfortunately, Bitcoin mining is not as democratic as it sounds. You need specialized hardware to do it efficiently, and the amount of electricity that it requires is staggering. (So are the cooling expenses that go with it.) As a result, mining requires major investment.
Most Bitcoin mining is consequently done by people or organizations who can invest a great deal of capital in mining operations. There are also cloud-based mining companies where anyone can pay for mining services, but after the cloud providers take their cut, turning a real profit on these as a small-time miner is difficult.
This is bad because it corporatizes Bitcoin and undercuts the cryptocurrency’s potential to democratize money.
By default, Bitcoin is anonymous because you don’t have to operate under a real identity to use it.
But what many lay folks don’t realize is that Bitcoin is not private. Transactions can be traced. And if someone can link your Bitcoin wallet to a real identity, anonymity goes out the window, too.
Other cryptocurrencies have been designed with privacy as an explicit goal, using features like RingCT to add some privacy to transactions. But Bitcoin lacks these privacy features, and although various proposals have been issued to improve Bitcoin security, it does not appear likely that they will be implemented.
By default, Bitcoin is anonymous because you don’t have to operate under a real identity to use it.
But what many lay folks don’t realize is that Bitcoin is not private. Transactions can be traced. And if someone can link your Bitcoin wallet to a real identity, anonymity goes out the window, too.
Other cryptocurrencies have been designed with privacy as an explicit goal, using features like RingCT to add some privacy to transactions. But Bitcoin lacks these privacy features, and although various proposals have been issued to improve Bitcoin security, it does not appear likely that they will be implemented.
The value of Bitcoin, the blockchain-based digital currency, has increased more than six-fold since the start of 2017. Since inception, Bitcoin’s value has risen many thousands of times its original worth.
Yet Bitcoin faces challenges, which it needs to overcome in order to keep growing. Here’s a look at five of the biggest.
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