Why Is Bitcoin Problematic?
In recent days, Bitcoin has become one of the hottest topics around. Its price can jump by a thousand dollars in just a few hours—or drop just as quickly. A cryptocurrency that once cost just a cent is now being bought for $10,000, and interest in it is enormous. But what are the main criticisms of Bitcoin?
1. Bitcoin Is Not Regulated by Any Government
This can be seen as both a positive and a negative. Who should have the right to issue money—the state or independent entities? Currently, every country believes it should be the state: it collects taxes and prints the currency in which those taxes are paid. Once this chain is broken, it opens the door to all kinds of abuses—tax evasion, terrorist financing, and money laundering.
“Bitcoin shows just how great the demand is for money laundering methods,” says Larry Fink, CEO of BlackRock Financial Management, echoing the views of most bankers and officials worldwide. The lack of a regulator is a good marketing point, but in reality, it’s a bit misleading. Control over cryptocurrency is distributed among Chinese miners (who own most of the computing power), software developers, and exchanges. And they can’t agree on a unified direction for Bitcoin’s development.
2. For Many, Bitcoin Is Just Another Form of Gambling
In financial terms, Bitcoin is an excellent asset for speculation. Buying bitcoins is relatively easy, doesn’t require special knowledge, and doesn’t involve investment firms. The cryptocurrency’s price is extremely volatile, attracting many “gamblers” who are more interested in betting than investing. This only increases volatility and makes Bitcoin resemble a financial pyramid scheme.
3. Bitcoin Strongly Resembles a Bubble
During the infamous MMM pyramid scheme, critics warned that no asset in the world can provide hundreds of percent returns per year. Bitcoin’s price increased 15-fold in a year, and it’s increasingly compared to the “dot-com bubble” that burst in the early 2000s. Back then, investors overestimated the internet economy without fully understanding its potential or structure. There’s a sense that Bitcoin investors also don’t really understand how it works or what it can be used for.
4. Bitcoin Mining Consumes Enormous Amounts of Energy
Mining is required to create new coins and process transactions. Bitcoin uses a system that requires a huge number of calculations, resulting in massive energy consumption. As the value of Bitcoin rises, mining becomes more profitable, so miners keep expanding their operations, consuming more and more electricity. Currently, maintaining the Bitcoin network uses as much energy as some entire countries. Soon, its energy consumption will surpass that of Serbia, Denmark, and then Belarus.
In other words, to keep the system running, we have to burn huge amounts of oil, gas, and other resources. Is it really worth it?
5. Bitcoin Doesn’t Serve a Socially Useful Function
This argument is more philosophical than economic, though it’s often made by economists. Usually, an asset is valuable because it’s useful: we know why we pay for oil, iPhones, hamburgers, and so on—they all, in a sense, make the world better. According to economists like Nobel laureate Joseph Stiglitz, Bitcoin doesn’t actually change the world in any meaningful way.
One could argue that Bitcoin and everything happening around it is a test of the very idea of cryptocurrency, and that’s a kind of benefit. But is that benefit really worth the current price of Bitcoin?
6. Bitcoin Is an Imperfect Cryptocurrency
Many other cryptocurrencies are trying to fix Bitcoin’s flaws. As a result, there are now cryptocurrencies that offer:
- Higher transaction throughput
- Alternative block creation methods that don’t require massive electricity consumption
- Complete anonymity for participants
- Concealment of transaction amounts from observers
- Implementation of new technologies like smart contracts
- No limits on the number of new coins