Bitcoin is a very young currency which brings many innovative improvements to more traditional systems. However – a decentralized currency is a new concept and there is little doubt that Bitcoin is prone to several risks. Quantum computers can hack Bitcoin, it’s legal status is uncertain in many jurisdictions, and it is used in for shady transactions to name a few concerns.
Bitcoin scam accusations
A common opinion among the economists suggests that Bitcoin may be a speculative bubble. Some say that Bitcoin is a scam because the currency is not backed by any real value – unlike traditional currencies, Bitcoin economy is formed solely by supply and demand.
Due to a decentralized design of Bitcoin, it is impossible to regulate the network or affect its technical side. On the other hand, it is possible to criminalize Bitcoin and apply a “de facto ban”. The legal status of cryptocurrency alternates extensively from country to country. While in some nations Bitcoin is legalized and even taxed, in others its use is entirely outlawed.
Turnover of illegal goods
Use of Bitcoins in the shady economy is one of it’s greater weaknesses. Due to the untraceable nature of Bitcoin transactions, Bitcoin helps criminals evade government control of trades involving weapons, drugs, child pornography and others. As a counter-argument to this criticism, during hearings in the US Senate regarding virtual currencies, it was noted that cash is used for illegal transactions even more often, but it is not criticized for the same reason. However, the problem is being portrayed as one of the main Bitcoin weaknesses.
According to the vice-governor of the Czech National Bank, Moimira Hampl, the high volatility is a significant weakness of Bitcoin, and it prevents the currency’s use as a payment option.
In a publication by Tel Aviv University and American University of Tulsa for the Journal of Monetary Economics which was released in January 2018, Bitcoin rate was revealed to be heavily manipulated by one or two large players who used trading bots. The currency rate increased from $150 to $1,000 over the period of just two months. Authors of the study noted that when deciding whether to use Bitcoin as a currency (as the Japanese authorities did in April 2017), it is essential to consider its vulnerability to such manipulations as one of the main weaknesses.
List of other Bitcoin weaknesses
- Out of control Bitcoin emission;
- Electricity consumption;
- Considered to be a Ponzi scheme and a pyramid scheme;
- Bitcoin-related ads are banned on most major online ad platforms.