Satoshi Nakamoto is the pseudonymous creator of Bitcoin. By inventing Bitcoin, they laid the foundation for merging decentralized ledger technology (DLT) and traditional financial systems.
DLT has nullified the role of central entities like central banks in approving transactions. It is also the bedrock for the cryptocurrency industry, whose valuation has ballooned to over $1 trillion.
This article takes an in-depth look into the pros and cons of Bitcoin, its profound effect on society, and its potential perils.
Pros of Bitcoin
1. Decentralization and autonomy
Bitcoin’s decentralized nature stems from the underlying blockchain technology. Through Bitcoin, anyone can transfer value globally without a seal of approval from a central authority.
One of Bitcoin’s main selling points is financial autonomy. It will give you control of your financial activities. Bitcoin ensures you can still access it and make transactions during economic uncertainty.
2. Cross-border transactions
One of Bitcoin’s growing use cases is facilitating cross-border transactions. No single individual or authority has ascendancy over Bitcoin, giving it a borderless nature. It is now increasingly being used in remittances.
Bitcoin also appeals to individuals who have limited access to traditional banking systems. By reducing dependence on banks, Bitcoin is quickly becoming a major payment system.
3. Limited Supply and Store of Value
Bitcoin has a capped supply of 21 million coins. Out of this, 19 million coins are already in the circulating supply. This supply cap created scarcity and made the case for Bitcoin’s growth in price.
Its scarce nature mimics that of traditional assets such as gold. However, Bitcoin appeals more to investors as a store of value in the current digital era due to its ease of access. Bitcoin is also more convenient to hold than gold.
4. Promotes Financial Inclusion
Bitcoin has made inroads into unbanked populations. A person can transact in Bitcoin with a phone and internet connection. The ease of use appeals to populations that need help accessing bank accounts.
Moreover, Bitcoin does not impose similar limits to traditional banking systems. A user does not need a minimum account balance or permission from a third party.
5. Comes with security features
Cryptography and blockchain technologies secure Bitcoin. These technologies safeguard transactions, making the network less prone to attacks than traditional banks.
With the Bitcoin network, no one can access your funds unless you give them access to your private key.
6. Potential for innovation
Bitcoin’s launch paved the way for a new smart contracts and decentralized applications (DApps) industry. Blockchain technology is now the backbone of fast-rising sectors such as blockchain games and non-fungible tokens (NFTs).
Blockchain technology also impacts other sectors, including financial institutions, supply chains, and healthcare. It benefits these industries through transparency and security.
Cons of Bitcoin
1. Price volatility
Bitcoin’s price fluctuates as it reacts to developments in the broader cryptocurrency industry. Bitcoin can record double-digit price gains and drops within a day, making it a high-risk asset.
The volatile price action hinders mainstream adoption, with people considering the coin a speculative asset. It also impacts its use as a means of payment for day-to-day transactions.
2. Regulatory concerns
Bitcoin operates in a murky regulatory environment. Its rapid growth has left regulators attempting to catch up. Legal frameworks around Bitcoin are sprouting globally, and while this can cause long-term price gains, it brings about price volatility.
Governments also remain skeptical. Its competitive edge against government-issued fiat, alongside its decentralized and anonymous nature, has created friction with governments.
3. Environmental impact
Bitcoin’s underlying consensus is known as proof-of-work (PoW). PoW gets reproved by environmentalists because of its high computing power when mining new coins. A 2022 report estimated Bitcoin spent 0.4% of the global electricity consumption.
Bitcoin miners are taking action to be in the good books of environmentalists by switching towards renewable energy sources.
4. Lack of consumer protection
Bitcoin’s decentralized nature is both an advantage and a disadvantage. The lack of a central authority to execute transactions means you cannot reverse the transaction when you send money to the wrong Bitcoin address.
In the past, people have made erroneous mistakes of sending Bitcoin to inexistent wallet addresses. Such funds are irretrievable. Additionally, if you send money to a wrong but existing wallet address, there are no safeguards to have the recipient send back the money.
5. Perceived association with illegal activities
Bitcoin’s use on the Silk Road Darknet marketplace cast it in a bad light. Over the years, cybercriminals have exploited Bitcoin’s decentralized nature and blockchain technology to conduct illegal activities.
This issue results in Bitcoin’s association with criminal activities. It has also heightened regulatory scrutiny. Regulators now require cryptocurrency exchanges to verify user identities before transacting in Bitcoin and other cryptocurrencies.
6. Scalability issues
The block size limit on the Bitcoin blockchain limits its capability to handle large amounts of transaction data. As Bitcoin grew in size and usage, it became slow and more expensive.
Developers are making strides to address this problem. For instance, the Segregated Witness (SegWit) upgrade in 2019 theoretically increased Bitcoin’s block size. The Lightning Network built on the Bitcoin network also solves scalability by enabling fast transactions among participating nodes.
Pros and Cons of Bitcoin in Summary
Bitcoin offers financial autonomy using blockchain technology. Bitcoin’s superiority over the traditional financial system is evident due to its borderless nature, security features, scarcity, and ability to promote financial inclusion.
However, bad actors are exploiting this decentralized technology to conduct illegal activities. This issue creates friction with governments and regulators. Bitcoin’s continued growth also overwhelms the network as developers rush to address scalability issues.
Amidst these benefits and challenges, Bitcoin remains undefeated and continues to gain global adoption. As more users join the cryptocurrency industry, there is a need to make informed decisions, given the price volatility and regulatory concerns. Bitcoin users should also engage responsibly with Bitcoin and other cryptocurrencies.
