Continuing our exploration of the disadvantages of Bitcoin, we delve deeper into the inherent challenges and criticisms surrounding the world’s most prominent cryptocurrency. In this installment, we dissect various issues ranging from transaction processing times to energy consumption and regulatory uncertainties. Despite its growing popularity and recognition as a decentralized digital currency, Bitcoin faces significant obstacles that raise questions about its long-term viability and relevance in the global financial landscape.

Bitcoin faces problems if the total issuance is fixed per hour but circulating Bitcoins are lost or misplaced. For instance, if the total quantity is 100 BTC and 50 BTC are lost, the overall total BTC issuance becomes fixed at 50 BTC. Since Bitcoin issuance cannot be arbitrarily adjusted, the total issued Bitcoins start from 50 BTC. Moreover, being an electronic currency, if phenomena like hard disk formatting occur, accidental currency shortages inevitably arise.

The approval time for real cash transactions is considerably long when using Bitcoin. While for international remittances, using Bitcoin takes around 30 minutes for 5 confirmations, making it significantly faster than conventional systems like SWIFT or Western Union. However, for domestic electronic payments or cash transactions, it is subtly slow. Especially in South Korea, where financial networks are well-established, and interbank transfers take only seconds, this drawback becomes more significant.

The substantial consumption of computing resources can also be considered a disadvantage. Bitcoin relies on numerous hash calculations conducted on the blockchain network, all of which consume considerable amounts of electricity since they are based on computer or electronic circuits. This poses a more serious problem than commonly thought. As of late 2017, the electricity consumed globally for Bitcoin mining exceeded that of the entire nation of Serbia, and by around 2020, it was expected that the electricity consumed for Bitcoin mining and transactions would surpass that of the entire United States. Moreover, since Bitcoin mining “factories” are concentrated in China, this electricity is primarily produced by Chinese coal-fired power plants. In other words, if this continues, Bitcoin could become a major contributor to global warming. The accompanying surge in Chinese-origin fine dust pollution is an added concern.

Additionally, there are issues with mining equipment. Apart from Bitcoin mining, there is virtually no use for specialized mining hardware, which is being mass-produced. Since Bitcoin mining difficulty is steeply increasing, these devices will become obsolete in just a few years. To consistently profit, continuous purchases of new mining equipment are necessary, leading to additional resource consumption. Another significant problem with Bitcoin mining is that miners consume computational resources, including electricity, without creating any value for humanity. Yet, they end up generating money out of thin air.

However, if the technical limits of electronic engineering are reached after a certain period, and it becomes impossible to develop new mining-specific hardware, miners may attempt to offset electricity costs by installing self-generation systems. This expectation suggests that instead of continually increasing computational power to profit from electricity expenses, they may attempt to reduce electricity costs to zero to maximize gains.

Bitcoin proponents argue that such computations provide a secure trading environment. However, as evidenced by the Mt.Gox incident, even if Bitcoin itself is secure, hacking can occur if there are vulnerabilities in systems handling it, such as web wallets or exchanges.

While Bitcoin may not physically collapse, concerns about its instability and abnormal operation remain unresolved. In January 2016, Mike Hearn, one of the initial developers of Bitcoin Core (a Bitcoin wallet client), declared, “Bitcoin has failed,” disposing of his Bitcoin holdings and stepping away. His post outlined why Bitcoin is doomed to fail:

• You can’t move your money.
• Realistically, you have to pay transaction fees, and the fee rate is unpredictable and even increasing rapidly.
• Buyers can cancel payments with a single click after taking the goods home (even if you don’t know this “feature,” Bitcoin allows it, just change it, and it’s done).
• There are massive backlogs and unreliable payments.
• China controls it.
• Companies and people developing it are fighting a civil war.

The Bitcoin blockchain system has a capacity limit of 1 megabyte, which was already surpassed when Mike Hearn wrote the post. As a result, transaction delays of several hours occurred because the blockchain’s capacity limit could not keep up with Bitcoin’s transaction volume. Consequently, the Bitcoin system prioritizes transactions with “much” higher fees, but determining how much these fees will be is unpredictable. In extreme cases, imagine a store that requires you to pay half the value of the goods as a fee. Who would use such a store?

Simply put, this problem would be solved by increasing the blockchain’s capacity. However, the powerful minority controlling Bitcoin strongly opposes system improvements. The optimism in the Bitcoin optimism asserts, “No one can monopolize over half the system. Bitcoin’s network is too large for any one group to control.” However, according to the initial Bitcoin developers, a powerful minority already monopolizes Bitcoin, even controlling Bitcoin’s policies. They even censor opinions, engage in coercion, and launch DDoS attacks on some communities, behaving like neighborhood thugs, suppressing dissent without hesitation.

Moreover, there is an inherent problem with Bitcoin and the blockchain system – the fee rate. Bitcoin users currently do not know how much fee they need to pay to receive or send coins in a reasonable time. Therefore, they inevitably pay higher fees than others, assuming that the fees will be higher, leading to an endless increase in fees. Microtransactions become practically impossible, and miners further monopolize coins. However, if the fees become too low, it also becomes problematic. Bitcoin mining will be completed faster than expected, and to continue expanding the network, miners’ incentives must be increased. However, as mining costs increase sharply, Bitcoin must provide even higher rewards. Otherwise, bankrupt miners will drop out one by one, and new miners’ entry will almost disappear. In other words, Bitcoin must find a perfect balance point between the demanders and real users of Bitcoin and the miners who maintain the nodes. If this problem is not resolved, Bitcoin’s future looks very bleak.

Furthermore, due to the ambiguous position of Bitcoin, which is not recognized as currency in almost all countries worldwide, its value has risen. If Bitcoin were designated as currency, governments would not simply overlook its volatile nature. At least, it would be treated as a foreign currency, and in such a case, Bitcoin transactions and capital accumulation like those in 2023 would be subject to punishment for illegal currency speculation. The bigger problem is that through this series of processes, Bitcoin transactions may ultimately fall under the control of national governments. As a result, an important aspect highlighted as an advantage of Bitcoin, ‘high freedom,’ would disappear. Considering that its total quantity is fixed, and as of 2017, the dollar is the dominant currency, ultimately Bitcoin could degrade into a subordinate currency of the dollar. Therefore, if Bitcoin were to be recognized as real currency, there is a high probability that its value would plummet.

Especially from a national perspective, there are many cards to play. The fact that there is no entity that issues Bitcoin means that even if Bitcoin is attacked, there is no powerful entity to protect it. Imagine that a few developed countries decide, “Instead of recognizing Bitcoin as currency, we will determine its exchange rate. If you don’t like it, don’t use it here. We have our own currency like the dollar and the euro, so there’s no need to worry.” By declaring this and using fixed exchange rates, they could severely devalue Bitcoin, even if it were to collapse completely, and no one would come to its aid. Once one side starts to depreciate Bitcoin in this way, other countries may follow suit. If one country decides to devalue Bitcoin, the currencies of other countries, which were valued highly through Bitcoin as an intermediary, could also be at risk of devaluation. Even if not by governments, hedge funds could attack. In February 4, 2019,

2019, the total market capitalization of 2,519 cryptocurrencies, including Bitcoin, was $110 billion. This is only about 1/7th of the market capitalization of a single company, Apple, which stood at $780 billion on the same day. However, hedge funds have a history of attacking major currencies such as the British pound sterling and the Japanese yen. If hedge funds decide to attack, there is doubt about whether there will be any force capable of defending individual stocks or traditional currencies, let alone cryptocurrencies.

Overall, while Bitcoin has gained popularity and recognition as a decentralized digital currency, it also faces numerous challenges and criticisms. Issues such as transaction processing times, energy consumption, centralization concerns, and regulatory uncertainty pose significant hurdles to its widespread adoption and long-term success. As the cryptocurrency landscape continues to evolve, addressing these challenges will be crucial in determining the future viability and relevance of Bitcoin and other cryptocurrencies in the global financial system.