Invented in 2008 and launched one year after, Bitcoin has shown the world an absolutely new way of payment without having to rely on any third parties. The financial crisis made people doubt the reliability of banks and other financial institutions. This is when the idea of decentralized means of payment stepped out into the light.
Cryptocurrencies have some undeniable benefits in comparison with traditional FIAT payments that are controlled by the banks. With the incredible rise of Bitcoin’s popularity in 2017, many people now ponder the possibility to convert some of their funds into crypto. And it could be a wise decision as well. If Bitcoin ever gets to the mass adoption stage and replaces traditional means of payment, its price may rise to unprecedented heights and grant the world some more unexpected millionaires. But how viable is such a scenario? Let’s find out.
What are Bitcoin benefits?
The main purpose behind creating Bitcoin was to give its users a possibility to exchange value without having to rely on third parties. Such an approach helps to resolve some of the issues that are associated with bank transfers. Bitcoin gives its users the following benefits:
- Instant transactions. No need to wait for several days as with sending funds via bank transfer. On the blockchain, the money changes the owner instantly. The estimated time of the transaction confirmation depends only on how much the network is overloaded in a given moment of time.
- No third party to make you do a refund or to freeze your wallet.
- No taxes. As Bitcoin is a decentralized means of payment, no authority has the right and the technical possibility to get its share of the payment.
- Low transaction fees in comparison with what you have to pay when sending money via wire transfer or when you make an international transaction overseas.
What about Bitcoin disadvantages?
All this sounds great, but have you ever seen a coin that has only one side? Despite all these advantages, Bitcoin also has many flaws that prevent its mass adoption.
- Volatility. Without any control from the centralized authorities, the bitcoin price changes all the time. You can never know how much it will cost – not only in the long-term perspective but also in the nearest few days or even hours.
- Bad reputation. Due to its anonymous nature, Bitcoin is a very popular means of payment for drugs, weapons and other illegal items on the black markets.
- No way to get your money back if it is stolen. There are no chargebacks on the blockchain and no one will force you to return the money once you’ve received it. This is something that businesses should be really fond of. But the dark side of this benefit is that if someone steals your funds, you won’t be able to get it back anymore.
- Scalability. The Bitcoin network allows processing only 7 transactions per second at the maximum. If you compare it to VISA’s 47,000 TPS (as of 2013) you will see that Bitcoin is still very far from mass adoption.
- High network fees. This disadvantage is closely related to the previous one. On the blockchain, you do not pay for the financial authority, but you have to pay the network fees. The more transactions are processed at the same time, the higher are the fees. In December 2017, Bitcoin was at its highest. As a result, many people rushed to buy it in their fear-of-missing-out, and one had to pay more than $50 to make a transaction.
- Centralization. Although Bitcoin adopters name it a decentralized currency, the facts show the opposite. According to “are we decentralized yet?“, more than half of bitcoins belong to only 4 entities that can put the whole network at risk if they come to an agreement and decide to put it down.
Is Bitcoin doomed then?
Due to all the issues mentioned above, Bitcoin can hardly get to the mass adoption stage, but since its creation, many new projects have appeared that resolve its problems and enhance the benefits. Here are some of them.
Launched by Vitalik Buterin in 2014, Ethereum is not only a means of payment. It is a whole platform, an environment for developers to create smart contracts and decentralized apps.
These projects resolve the problem of the network capacity and transaction fees. So far, the registered all-time-high TPS on EOS equals to almost 4,000 and no fees are required to make a transaction. WAVES can process 100 TPS and has a fixed fee that equals to 0.01 WAVES (~$0.02 as of October 2018) which is not as good as EOS, but still much better than most of the other projects.
By the way, apart from the high capacity, EOS also allows undoing a transaction in case you become a victim of fraud. To do this, you need to apply to ECAF(the EOSIO Core Arbitration Forum) and your case will be reviewed individually.
This cryptocurrency was invented specifically for banks and international payment systems. Its main aim was to speed up transactions. Ripple is pretty centralized and mostly belongs to the issuing company, but it’s a perfect tool if you need to send money overseas quickly and with low fees.
Tether, True USD, etc.
These are the so-called ‘stable coins’ that come with a constant rate of 1:1 to the FIAT currencies, such as USD. The drawback of such a solution is that it is a single company that issues this kind of coin. If the company goes bankrupt, people will lose money.
Should I invest in Bitcoin?
Bitcoin is truly a revolutionary technology that has the potential to alter the way people exchange value. The advantages it gives in comparison with the traditional financial institutions are undeniable.
However, it’s hard to provide the best solution when you are the first one to discover the area. The drastic surge of interest towards cryptocurrencies in 2017 revealed the issues, as the system just couldn’t handle so many users. Now that new projects come instead of Bitcoin and gradually improve the payment solution, cryptocurrencies get better chances for mass adoption in the long perspective.
With the current limitations that Bitcoin possesses, the chances for its mass adoption are quite low. Since more than half of its supply belongs to a very small amount of holders its price is totally manipulated. It’s hard to say if Bitcoin will ever see the same ‘rally’ that took place in December 2017, and the profitability of such an investment is also doubtful. But as the new projects with better KPIs come into the light, it’s worth to investigate them as they have good chances to replace traditional ways of payment.
Note: this is not a financial piece of advice. Make your own research before investing into any cryptocurrencies.