10 Reasons to Stay Away From Bitcoin
Heading into May Bitcoin’s price is now testing the $5,400 resistance level.
The world’s first and most highly capitalized cryptocurrency is showing signs of health and many market buy signals for currency price speculators.
As Bitcoin shakes off a long bear market and continues its steady price ascent, don’t forget these 10 reasons to stay away from Bitcoin.
1. Bitcoin is just a fad like Beanie Babies or Myspace.
It’s just a fad. When have we heard this before?
“What Is Internet Anyway?”
The Internet Will Collapse
In an Infoworld article published December 1995, Robert Metcalfe wrote:
“I predict the Internet will soon go spectacularly supernova and in 1996 catastrophically collapse.”
Metcalfe is the guy who invented Ethernet LAN cables.
The Internet Will Not Disrupt Print Media
A February 1995 issue of Newsweek printed this:
“The truth is no online database will replace your daily newspaper, no CD-ROM can take the place of a competent teacher and no computer network will change the way government works. How about electronic publishing? Try reading a book on disc. Yet Nicholas Negroponte, director of the MIT Media Lab, predicts that we’ll soon buy books and newspapers straight over the Internet. Uh, sure.”
In 1995 the mainstream media was telling readers that digital publishing would not disrupt print media because they didn’t fundamentally understand the pace of progress in the digital computation industries.
Many still don’t intuitively grok how quickly refinements accrue to disruptive computer technologies. They seem crude and lackluster at first, but make great leaps forward, and achieve scale in market adoption seemingly all at once.
The editorial writer at Newsweek back in 1995 didn’t know he was only seeing a rough sketch of something the engineers understood as a proof of concept. The engineers and the early investors knew they were onto something that would become commercially viable on a mass scale over successive refinements within a few years.
So the mainstream media told its readers the new technology was a fad, because it didn’t fundamentally understand the value of a medium with essentially free distribution, saving publishers substantial operating costs while leveling the playing field to make room for anyone to publish. Plus all the limitless possibilities and versatility of software to customize and improve the medium.
Instead the mainstream media told readers in that 1995 issue of Newsweek to expect people to keep reading their news off of a giant wad of paper physically delivered to their house every day by a truck. Something that got black ink all over their fingers and took up a ridiculous amount of space to unfold and read.
2. Bitcoin is used for fraud.
Well if that’s a good reason to stay away from bitcoin, then it’s an even better reason to stay away from the U.S. dollar. J.P. Morgan Chase & Co. is the largest U.S. bank…
Over the last decade of bitcoin’s existence, J.P. Morgan Chase has been charged 48 times for violations of banking and securities rules that prevent financial fraud.
An assessment of fines against J.P. Morgan Chase & Co. since the financial crisis put together by investment bank Keefe, Bruyette, and Woods found that America’s largest bank has been fined $44 billion by the federal government since the financial crisis.
All the most massive money laundering operations over the last 30 years weren’t carried out with bitcoin. They were carried out with fiat currencies in institutional banks. Take the case of HSBC Holdings in London, the seventh largest bank in the world…
Years of money laundering friendly policy allowed £5.57 billion to be laundered through HSBC’s books. Outstandingly enough HSBC was fined $1.256 Billion, much less than the amount of money it helped launder for terrorists and criminals.
3. Bitcoin can be stolen.
Critics warning you to stay away from bitcoin will point to cases like the money stolen from the Mt. Gox bitcoin exchange in 2014. 850,000 bitcoins worth $450+ million disappeared in that debacle.
But all the account holders with Mt. Gox knew, or should have and easily could have known, that their private keys to their bitcoin were not in their control, and that they were relying on an untested third party named “Magic: The Gathering Online eXchange” to secure all that money.
Besides a year after the Mt. Gox heist, cyber criminals allegedly stole $1 billion worth of fiat money from more than a hundred institutional banks. A leading Internet security firm says the thieves inserted malware to bank computers that allowed them to watch bank employees’ screens in real time and learn every detail of their work flows.
The sophisticated hackers then took control of bank computers and mimicked the work flows they learned to avoid detection while transferring millions of dollars into accounts they had created for the heist.
4. Bitcoin can be lost.
It’s true that bitcoin users have lost and forgotten their keys, locking their bitcoin up forever and losing whatever money they had at that bitcoin address.
The Canadian cryptocurrency exchange, QuadrigaCX’s stunning loss of tens of millions in crypto assets serves as a proverbially cautionary case.
But these losses are due to mistakes, and users are figuring out best practices to avoid making them in the future. The losses to the value of many of the world’s sovereign fiat currencies are built into these money systems by design.
The loss to inflation is constant and never-ending. That’s why you have to pay higher and higher prices to own shares of U.S. companies every decade. That’s inflation.
5. Bitcoin’s price is not stable.
This Bank of England Governor says that after a review of digital assets, the BOE concluded crypto is too volatile to be a store of value.
He also says that crypto doesn’t satisfy the principles of currency.
Ask anyone who says that’s a good reason to stay away from bitcoin if they think you should stay away from owning stocks or mutual funds or other securities as a store of value to save for retirement or put away for some other future purpose.
6. Bitcoin isn’t backed by anything.
That’s actually not true.
Bitcoin is backed by the largest deployment of public key cryptography in history to secure, maintain, and update trusted banking records, that are viewable and verifiable by anyone, using completely free and open source software. That’s valuable.
What are fiat currencies backed by?
Two things: 1) The fact that people have to pay taxes and can be treated like criminals for not paying. 2) And the fact that people have to pay their taxes in fiat currency. In the U.S. lenders are also legally required to accept USDs in payment for debt.
7. Bitcoin is old, outdated technology.
This is what people say who shill altcoins of dubious utility. Bitcoin is the oldest of the cryptocurrencies. It launched the product category. That hasn’t made it obsolete, but it does mean Bitcoin is the most tested, debugged, and battle-hardened crypto.
The team of developers and all the stakeholders around Bitcoin do have the most experience out of any cryptocurrency weathering the technical and commercial trials of spearheading entrepreneurial software development’s foray into the finance industry amidst a cosmically massive and fast-moving global economic and technological environment.
A new block holding the latest transactions has been added to the Bitcoin blockchain every ten minutes like clockwork for the last ten years. Every ten minutes the new block of transactions is sent to every computer running Bitcoin Core, and they all agree on the same exact, latest authoritative copy of the network’s accounting books for all 32 billion bitcoin wallets (as of 2019).
8. Bitcoin uses up too much electricity.
There are a number of greatly exaggerated reports of the environmental impact of using bitcoin to maintain bank records and facilitate fast payments with the same low fees across the desk or across the world.
Do all these electricity misers think banks illuminate their buildings by candle light? Or that banks don’t have a lot of computers running all day using electricity? Bitcoin’s miners are paying for the electricity they’re using, so what’s the problem?
9. Bitcoin can’t process payments fast enough.
Life finds a way.
Bitcoin critics and stakeholders alike have long considered the Bitcoin Scalability Problem. The use of bitcoin to transfer money is constrained by a block size of 1 megabyte and an average block creation time of 10 minutes.
So bitcoin can only handle 4.6 to 7 transactions per second. Visa says it processes 1.7K transactions per second on average every day. For bitcoin to become a global payments player that competes on that level, it would have to find a way to scale.
Developers already have found solutions to the Bitcoin Scalability Problem.
Lightning Network is a second layer protocol that allows even faster payments with even lower fees and grows the capacity of the bitcoin blockchain with auxiliary databases that periodically settle up transactions on the underlying blockchain.
There are other interesting possibilities with Layer 2 payment protocols such as smart contracts, micro-payments, and even sub-satoshi increments of bitcoin.
10. There isn’t enough bitcoin for everyone
It’s true that there will only be 21,000,000 bitcoin mined. Since a Satoshi is a 100 millionth of a bitcoin, that means that there will never be more than 2.1 quadrillion discrete units of bitcoin. That’s one of bitcoin’s most valued features.
Unlike bank currencies that constantly grow in quantity and siphon value away from the currency’s holders to redistribute to the currency’s issuers, who lend the new money at interest for a profit, bitcoin is a deflationary currency with a stable supply.
The fact that there’s only a limited amount of bitcoin is what increases its scarcity. Even the limited transaction capacity of the network with global financial aspirations is a form of scarcity encoded into the bitcoin architecture. The world’s oldest cryptocurrency is quite intentionally precious and brutally deflationary.
That’s just one reason why you can’t keep money away from capitalizing bitcoin.
Disclaimer: The author owns Bitcoin and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.
Featured image courtesy of Shutterstock.