Blockchain has been preached to be the solution to every financial problem, especially when it comes to fiat versus crypto. Why this is not entirely wrong, it is to be noted that there are some issues associated with blockchain that need to be explained for better understanding. Having Pros without Cons is somewhat impossible in the right sense, and irrespective of how positive adopting cryptocurrency over fiat can be, it still has some of its disadvantages, and they need to be explored.
Bitcoin, for example, rivals the traditional fiat directly, and bitcoin’s main aim is to become the future of money. However, other cryptocurrencies have different aims, such as ethereum, ripple, Cardano, and litecoin. Bitcoin is such that it was developed to become the future of money both as a means of exchange, a statement of account and as a store of value. Nonetheless, Satoshi Nakamoto, the founder of bitcoin, still couldn’t perform the development of Bitcoin to the perfect stage. Hence, bitcoin, the supposed future of money like every other currency (either fiat or cryptocurrency or other forms of money), has its own problem that could mitigate against it being the future of money. If you buy Bitcoin now and store it for the future, there’s. However, a bigger chance of you becoming resourceful in the next couple of years if cryptocurrencies should get the general recognition it aims at.
Here are some of the problems associated with blockchain:
- A high environmental cost:
The way blockchain is being used today suggest it comes with a high environmental cost. It contains encryption and relies on this encryption to provide and establish a consensus over an array of networks. In other words, before a user can be proven to have the right to write to the chain, some complex algorithms that require a very high computing power need to be in place, which comes at a high cost. Using bitcoin, the most widely known crypto, as an example, the Bitcoin blockchain has very high computing power. As of 2020, last year, the estimated computing power needed to keep the network running was pegged at almost the same power consumed by 159 nations combined. The Bitcoin network uses the PoW consensus, which consumes a large chunk of energy.
Of course, the Bitcoin network is valuable, with a current market capacity of over $170 billion. These and many other factors are why the blockchain needs computationally intense and sophistical security systems in check. On the other hand, small scale cryptos may require a smaller percentage of what the Bitcoin network consumes because of the workloads and smaller transaction rates. Some of these cryptos are deployed internally; they are used majorly to record business activities and not transactional (on a large scale) like bitcoin. This is one of the reasons why blockchain is environmentally costly, and this reason cannot be overlooked as it consumes a very high amount of energy.
- The environment could become risky as a result of lack of regulation:
The issue of regulation is another huge problem with Bitcoin and other crypto networks. Nonetheless, those investing in Bitcoin and other cryptocurrencies would have found out that cryptocurrency investment is quite volatile in these past few months. If you buy Bitcoin today, the price will most likely not be the same tomorrow or in the next few hours to show how volatile Bitcoin can get. Due to a lack of regulatory bodies and oversight, market manipulation and scams have found their way into the crypto space. There have been several issues of Ponzi schemes disguised as cryptocurrency scamming newbies in the crypto space of their money. These cryptos claim to be the next Bitcoin, and asuch several newbies tend to fall for the gimmick, hence tagging cryptocurrencies at large a Ponzi scheme. The legislators have failed to call a truce with innovations and innovators, allowing those wanting to explore FOMO (Fear of Missing Out) to become scammed.
Even as a speculative investor in the crypto community, if you chose to only invest in ethereum, litecoin, bitcoin or other relatively established coins, there’s no guarantee that your preferred exchange platform of wallet cannot be hacked. It could also be shut down either by the owners of the exchange platform or by the government as a result of shady practices. All these are birthed as a result of a lack of regulatory oversight in the crypto community.
- It might become too complex for end-users:
In a nutshell, blockchain’s complexity means end users might find it hard or too complex hence, have little or no appreciation for its benefits.
Although blockchain’s revolutionary applications are somewhat understandable, the encryption and other technical analysis and terms associated with blockchain might need extra education and reasoning before its usefulness can be understood and, therefore, appreciated. However, tech-savvy has made several assumptions regarding replacing Middlemen facilities run by financial services, such as preventing fraud and clearing payments. On the other hand, as far as others are concerned, financial institutions such as banks provide these services better and at a user-friendly cost.
It is no news that Bitcoin, the first blockchain, gained public consensus immediately after the financial crisis in 2008 when the public and media showcased a growing distrust and widespread dissatisfaction with the laid down financial institutions. Ten years down the line, with no immediate or looming danger of repetition, you might want to ask yourself, “Is there still a need for wholesale to tear down financial services and rebuild from scratch?” Note, however, that global problems or crises could rekindle the need for revolution, but before then, blockchain may remain a hard nut for most to crack.
Bitcoin currently is the number one cryptocurrency with a very large user base. It’s, however, somewhat impossible for Bitcoin to become the only panacea to solving blockchain problems. Blockchain, however, remains the best thing that has happened to the financial sector. With advancement coming in, several innovative technologies might solve some of these issues.