Will Bitcoin Lose Its Dominance?
For most people, "cryptocurrency" equals "Bitcoin." Blockchain equals Bitcoin too. National channels discuss Bitcoin. BTC price fluctuations influence all crypto market. All crypto newcomers hear about Bitcoin at first. Their brains tag it as the most significant crypto and the most important.
Sometimes it seems that altcoins don't exist at all. However, is Bitcoin indeed the king of cryptocurrency or it has gained such popularity just because it was the first?
We decided to wade through media hype and evangelistic revelations and find out whether the frescoes depicting the beautiful bitcoin future are right.
Bitcoin disadvantages, which lead to a fall
Comparing to newer altcoins, Bitcoin has a few serious drawbacks:
Low efficiency
“Bitcoin is a distributed ledger” — this basically should mean that blockchain is some distributed computer, which performs distributed computations. This leads to the idea that bitcoin nodes spread across the world work on the something significant bit by bit. Have you ever thought about how this concept works?
In fact, all nodes record the same information into blockchain and store the history forever.
Millions of nodes (=computers) all around the world do the same operations, for all time. There is no parallel work, no synergy, no distribution. Doesn’t seem efficient? It is just duplication.
As for now, the full bitcoin wallet has 100 GB history of all transactions. It doesn’t sound user-oriented and efficient.
Slow transactions
The problem mentioned above plus the small size of the block end up in the long confirmation time of transactions. Average Bitcoin transaction takes at least ten minutes, but, for example, back in the days of the crypto boom in December 2017 users were waiting for a few days for the transaction to be verified.
If the network faces scalability problems when the number of crypto users doesn’t exceed 3 million, how can it soon become the substitute for the money? The network won’t be able to process all transactions. For comparison, Visa processes thousands of transactions per second.
It’s one of the main issues that prevent Bitcoin from becoming a full-fledged alternative for money. For example, Ripple, that has gained popularity in 2017 and quickly became rose to the third largest market capitalization 2, completes one transaction in 3 seconds.
Security vulnerability
Bitcoin blockchain is vulnerable to a 51% attack—if someone controls 51% of computing power, that person makes decisions in the network and can write entirely new financial history. So miners are mining blocks not only to verify transactions but to decrease the probability that someone grabs the control of the system. “Good” miners use huge amounts of energy just to protect blockchain from “bad” miners.
The illusion of decentralization
Nobody mines Bitcoin at home with a personal computer anymore. Now mining needs much more computing power to operate blocks. So miners unite in mining pools and share the profit, which may be not so high but stable.
Pseudoanonymity
You send money to your friend, so he knows your wallet’s public address. Now your friend can see the balance of your wallet, all previous transactions and, what is even worse, all future ones. Have you imagined that? Now you understand that anonymity is essential not only for drug-dealers or fraudsters who want to launder money. It’s the fundamental right of every person.
To avoid these, many people don’t use blockchain wallets, preferring, for example, online wallets, where public address changes automatically after every transaction so that no one would see the details of your wallet’s operations. Otherwise, they can create new wallets for every big enough transaction which needs anonymity, or they use coins that have enhanced anonymity in their bones (such as Monero).
Using Bitcoin without third-party services like exchanges and wallets is inconvenient. However, all exchanges and wallets are centralized to some extent. So the core idea of decentralization seems utopian with current state Bitcoin.
Other disadvantages
Like any other currency, there are other disadvantages associated with using Bitcoin out of technical features mentioned above:
Wallets can be lost — if a computer crashed and the wallet file is corrupted, Bitcoins have mostly been lost.
Bitcoin volatility — the price fluctuates according to demand, and only God knows what else. BTW, we at Bonpay make weekly newsletter where we analyze what influences the Bitcoin price.
No buyer protection — nothing can be done to reverse the transaction. Escrow services would assume the role of banks, which destroy the original idea of a peer-to-peer currency.
Built with deflation — since the total number of bitcoins is capped at 21 million.
No Valuation Guarantee — no one can guarantee its minimum valuation. A large group of merchants can dump or pump Bitcoins.
Let's take a look at the picture in detailes and find out what influencers think about it.