THE FIVE BIGGEST THREATS FACING BITCOIN
Any new, disruptive technology will have its fair share of
detractors doing their best to limit its potential.
The idea that people would need their own personal computer
for work seemed ludicrous 50 years ago. Why would anyone need a device for
making automated calculations? Today, though, it is almost impossible to
function in modern life without using a PC.
The automated teller machine, or ATM, was thought to be a
needless apparatus by many when it came out. Who would need access to money
outside of bank hours? Now, more people use ATMs than go and queue in branches.
Bitcoin is a new concept edging its way into the mainstream,
thus, it is not immune to negativity and unfavorable public perception. It is
undeniable that the digital currency has its enemies, either real people or perceived
notions. So what are some of the biggest problems it faces right now?
The centralization
of bitcoin
The idea of mining, for many who first come across the
concept of bitcoin, seems bizarre. When broken down into a peer-to-peer way of
confirming transactions, however, it makes a lot of sense.
It made a lot more sense, though, when any bitcoin node, on
any computer, had a chance to confirm transactions and thus be rewarded a
block. But that doesn’t happen anymore.
Although bitcoin was built with good intentions in mind,
altruistic systems are often exploited. And this is what has happened to the
bitcoin network.
The problem is that there is little incentive to run a node
anymore. That’s because powerful machines built specifically for bitcoin’s
SHA-256 proof-of-work algorithm have changed its decentralized and more open
nature.
This has, in effect, concentrated bitcoin’s confirmation
power, leaving it in the hands of only those who can afford thousands of
dollars of ASIC hardware.
Bad actors
Bitcoin largely solves the double-spending issue. Despite
that, remarkable technical achievement, it doesn’t cater for mistakes, theft
and fraud quite so well.
The anonymous digital currency has sometimes attracted the
wrong types of people – those looking to prey on others who fall under the
spell of a never-ending upward trend for bitcoin’s price.
Whether it’s illegal online marketplaces, pump-and-dump
schemes or shady crypto exchanges, they all create a black cloud over the
industry. And, every time there is another bitcoin robbery or scam, it draws attention
from the mainstream.
Now-failed Mt. Gox was once the dominant exchange.
When leaders in the bitcoin industry are discouraged over
their inability to be banked in the US, bad actors are the ones who should be
blamed.
The bad actor problem creates a consumer protection issue
for bitcoin. When people learn about bitcoin and are lured to products and
services that do not follow best practices, as opaque as they may be in this
industry, that’s a problem.
As a result, some countries are simply playing safe and
pushing bitcoin away from their banking systems.
Reactionary
regulation
According to CoinDesk’s 2014 Q1 State of Bitcoin Report, 12%
of the 73 countries that have taken some regulatory action on bitcoin can be
considered hostile or contentious.
A number of countries taking a stance against digital
currencies appear to be more reactionary in their behaviour than seems
justified.
One example is India, where a bitcoin exchange in that
country was raided earlier this year, causing some bitcoin businesses to cease
operating.
In China, the major operators there are talking about
upcoming periods of hardship as the government cracks down on bitcoin
activities.
Furthermore, amid rumors of a ban on virtual currencies in
Russia, organizers recently felt impelled to cancelled a bitcoin conference
that was planned to be held there.
These actions perhaps reflect more about the banking systems
of those countries than anything a government official says. It reveals that
many financial systems don’t want to compete with bitcoin; they would rather
regulate it out of existence.
A patchwork of reactionary regulatory policies helps no one.
This is especially true since international borders simply cannot restrict
bitcoin, the decentralized nature of which makes it impossible to ban.
A better approach could be a wait-and-see attitude towards
this new technology, since its advantages could end up befitting everyone.
Countries currently taking this kind of approach include Canada and Israel.
Poor mobile
platform support
Since last year, Apple has taken a proactive stance towards
making sure that users cannot send bitcoin via wallets in its App Store.
Furthermore, Google does not allow in-app payments with bitcoin.
Although this has not deterred some developers from creating
mobile applications for bitcoin, it’s harming the ecosystem.
These larger technology companies do not want to compete
with bitcoin. So they do the same thing as restrictive governments and use
their power to regulate it out of existence – within their ecosystem, anyway.
Will bitcoin grow with the rise of smart devices capable of
remote payments?
Bitcoin is excellent as a method of remote payment. It could
be a competitive credit card alternative – especially in remote transactions
with mobile or wearable devices. And this is a much better way to receive and
send payments instead of using of QR codes.
Using Bluetooth Low Energy, Near field communication (NFC)
or some other wireless technology could change the way people make payments.
However, with billions of dollars relying on the outcome,
the major players in the technology industry will do their best to restrict
innovations that they do not control.
Low adoption
Given all of the above issues, it's not incredibly obvious
why the average person would want to use bitcoin. Sure, there are many
theoretical benefits to using a distributed currency.
What is the value, though, to the everyday person who just
wants to ensure that money is in the bank?
One issue is that banks often overstepped boundaries and the
global economic situation has brought hardship for many since 2008. The
appearance of bitcoin on the scene represents something new and offers hope to
people jaded by traditional financial institutions.
Circle and Bitreserve are both bitcoin startups that have
recently unveiled plans to bring the digital currency to the masses. They plan
to do so by bringing the technology's benefits to the consumer market by not
exposing user to the bitcoin 'layer' it still depends upon.
Is bitcoin stuck
in the early adopter chasm?
Many startups in the bitcoin space tout the 'wow' factor of
bitcoin. Yet negative events over the past year have left consumer sentiment
less positive than the industry hoped for and this, in turn, has caused tension
with policymakers.
In the end, it is possible the best way to get bitcoin's
benefits into the hands of people might be to not talk about it at all.
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