I’ve got a bone to pick with cryptocurrencies like Bitcoin. It curdles my cheese. It gets my goat. But I am not in the feta cheese business. No. I’m annoyed. Please let me explain.
2017 was full of surprises and one of the biggest has been the explosion of Bitcoin. These days I have classmates invested in it, guys I play pickup basketball with are in it, and I even have a friend who is starting a company based on the underlying blockchain technology. So sometimes my peers ask ” Will you invest in Bitcoin?” and my answer is “No!” Here’s why …
At the time of writing this ( January 2018) Bitcoin has a few problems.
1. The high price (roughly $10k+/ Bitcoin) makes it unclear if it will continue to grow or turn a profit.
2. It’s not clear how to value cryptocurrencies like Bitcoin. I think it’s mostly hype right now because I hear a lot about plenty of young adults (my peers!) are getting into Bitcoin on the hopes of getting rich and without understanding what they’re buying. More troubling, I’ve heard rumors of people putting all their life savings into cryptocurrencies on the hopes of getting rich.
3. Bitcoin has a long way to go before it becomes a replacement for present-day currency. The idea of a decentralized currency is without a doubt a salient dream that could whip even the most die-hard Bankers into a piranha-like frenzy, but the truth is that Bitcoin ( and many cryptocurrencies in general) will have to overcome some massive hurdles before we can use it like any of our standard currencies.
Some of these hurdles are:
1. Transactions with Bitcoin currently are very slow. As Kevin O’Leary puts it, if you try to use Bitcoin to buy a cup of coffee today, the value of Bitcoin might change several times in the middle of your transaction and by the end of your transaction you would have been waiting for so long that your coffee would be cold. It’s just impractical.
2. Bitcoin is still not completely safe. While it’s true that the blockchain which Bitcoin is built on is very secure and once you get on the blockchain your money will be safe, the interfaces between Bitcoin and commonly used currencies are not safe. That is the website which allow you to exchange your hard-earned dollars for Bitcoins are susceptible to being hacked.
And if this weren’t enough, we still don’t have very reliable ways to recover Bitcoins in the case that one forgets their important keys i.e. Encryption to their Bitcoin.
3. It’s quite possible that big banks will jump into the cryptocurrency/ blockchain game as well. After all the big banks care about their business and I’m guessing that a lot of them have been well aware of cryptocurrencies long before most of the public caught on. I believe it’s possible that if cryptocurrencies truly take off then big banks will similarly invest in blockchain decentralized technology to offer competing products. Hence it’s not even clear to me that big banks will ever be overtaken by the cryptocurrencies.
4. Finally there are simply so many competing cryptocurrency on the market it’s really not clear which among the hundreds or maybe thousands of cryptocurrencies existing will be the one cryptocurrency to gain market dominance and become the one coin to rule them all. Will it be Bitcoin? Etherium? Ripple? Or maybe even Dogecoin – the parody cryptocurrency invented as a joke yet still somehow worth significant amounts of money due to people buying into it anyways (really??). It really is anyone’s guess at this moment.
But now that I’ve been able to vent my frustrations I do want to give cryptocurrencies some credit. The underlying technology to all cryptocurrencies is blockchain and unanimously all experts agree that blockchain technology will revolutionize how we make transactions. The technology is here to stay. And while I’m a believer that cryptocurrencies are just a bubble we can argue that even the financial crisis following the Dot Com bubble didn’t change the fact that the internet was a revolutionary new technology and many internet companies still became rich in spite of Dot Com bubble.