In the dynamic realm of cryptocurrencies, Bitcoin stands as a frontrunner, often revered for its potential to revolutionize traditional monetary systems. However, beneath its shimmering façade lie inherent disadvantages that demand attention and scrutiny. In this comprehensive analysis, we delve deep into the drawbacks of Bitcoin, shedding light on its instability, lack of transparency, and vulnerabilities. From its susceptibility to market whims to the complexities of decentralized control, Bitcoin navigates a turbulent landscape fraught with challenges. Join us as we uncover the intricate layers of Bitcoin’s pitfalls and explore the implications for its role in the global financial ecosystem.

Bitcoin suffers from instability due to its lack of physical form, legal framework, and centralized control. Additionally, it lags behind traditional currencies, which already dominate the market, making it a latecomer. Moreover, it poses significant complexity and difficulty for the general public.

Fiat currencies derive their value either from inherent utility or from the guarantee by governments for all obligations corresponding to their face value. While neither physical nor fiat currencies always maintain their value, they generally have wide acceptance. In contrast, Bitcoin, neither physical nor fiat, lacks such foundational value guarantee, leaving its value subject solely to market participants’ whims. This is the fundamental issue underlying Bitcoin’s problems, which also plague all cryptocurrencies. Unless this issue is addressed, the future of Bitcoin and virtual currencies remains uncertain.

Furthermore, transparency needs to be considered from various angles. Currency used in criminal activities like drug trafficking and smuggling, which is harder to trace than actual currencies, undermines the assertion that cryptocurrencies are transparent. Moreover, exchanges have eroded this transparency by engaging in questionable practices. When exchanges sell bitcoins they do not possess and fail to maintain internal trading records, transparency dissipates.

The touted advantages of decentralization and security with Bitcoin are comedic for the general public. While Bitcoin is technically safer compared to traditional currencies, exchanges handling Bitcoin are vulnerable to security breaches. Moreover, in reality, government intervention is difficult if bitcoins are stolen. Instances of exchanges being hacked and losing substantial amounts of bitcoins are numerous. What good is Bitcoin’s security if your wallet ends up empty?

Recently, during Wall Street’s credit finance problem, some dubbed it a nonexistent bubble. Despite the presence of a common physical economy, described as ‘illusory dreams of the United States and those involved,’ even this comes under scrutiny as non-existent numbers dominate discussions. Bitcoin takes this a step further by being an economy that exists solely in numbers.

At present, one of the fatal flaws of Bitcoin as a currency is its significant volatility in value. Currency stability is crucial; rapid value appreciation or depreciation poses problems. When the value of money increases, purchasing power rises, enabling more goods and services to be purchased. But this is not necessarily good, as it leads to reduced business revenue and asset deflation, causing overall economic downturn. Conversely, when the value of money decreases, purchasing power diminishes, leading to inflation and decreased preference for the currency. It’s evident that rapid currency value volatility exacerbates the aforementioned issues and leads to economic turmoil.

In reality, when China banned Bitcoin transactions by financial institutions in December 2013, followed by Baidu suspending Bitcoin payments, its value plummeted from $1200 to $600 in just three days before bouncing back to $800. Such a crash highlights the speculative demand for Bitcoin driven by Chinese speculation due to its initial absence of fees for overseas remittances, low purchase and transfer costs, and guaranteed anonymity.

The market capitalization of Bitcoin stands at $136.36 billion, less than one-tenth of South Korea’s GDP and one-sixth of Apple’s market capitalization of $889.16 billion. The fact that the total value of a currency does not even approach stable countries’ GDPs or even giant corporations’ market capitalizations signifies its lack of stability as a currency. Despite having substantial tangible assets and productivity, typical businesses often experience repeated ups and downs. However, the value of a virtual currency, essentially intangible and lacking practical utility, is even lower, implying extreme instability.

More worrisome is the common argument in favor of Bitcoin, pointing to its rapid value increase from $1 initially to over $300 now. Simply put, such rapid value appreciation raises doubts about Bitcoin’s potential as a currency. Moreover, the likelihood of speculative demand and the formation of a bubble are natural consequences. Hence, some derogatorily compare it to the tulip bubble, though it’s not entirely the same. Some believe Bitcoin will converge to a stable price through ‘implicit agreed-upon prices’ among market participants, but nobody knows the exact price or if such convergence will occur.

While some argue that once the minority controlling Bitcoin’s supply releases it all, speculation will cease, and the market price will stabilize, it remains an inherent long-term risk that Bitcoin must address. Additionally, with over half of the total coin production controlled by one entity, manipulation of the Bitcoin exchange rate becomes easy. Specifically, if one group monopolizes most of the network’s coin production (for calculation), they can easily manipulate the exchange rate. This mechanism stems from Bitcoin’s distributed network, where new coins are mined and verified. If one group monopolizes most of the network’s computational power, they can prioritize their found coins’ chains, disrupting legitimate mining. In such a scenario, those with the majority control effectively dominate all newly mined coins, and they may not face appropriate consequences.

Other scattered issues include the fact that Bitcoin can experience programming errors causing occasional price drops. Furthermore, considering the development history of the internet, where large companies like Google, Yahoo, Daum, and Naver often monopolized instead of numerous small-scale businesses, the same could happen with Bitcoin mining. Even now, pools are being created for mining resource distribution. If mining pools collude, as long as it’s not transparent whether mining is being conducted fairly, the pool’s size doesn’t matter. Malicious scripts aimed at mining already exist.

Bitcoin proponents often downplay the severity of these issues. However, realistically, internet development history shows that large-scale companies like Google, Yahoo, Daum, and Naver often dominated instead of numerous small-scale businesses. Even now, pools are being created for mining resource distribution. If mining pools collude, as long as it’s not transparent whether mining is being conducted fairly, the pool’s size doesn’t matter. Malicious scripts aimed at mining already exist.