Digital technology has overhauled every aspect of our lives – our phones have become something like external limbs, we buy almost everything except groceries online, and we use the Internet to consume books, movies, and music.
Since the appearance of Bitcoin in 2009, it’s generally been assumed that cryptocurrencies will be the major digital disruptor for the global financial system. After all, they’re a virtual, decentralized, global currency – what’s not to like?
Well, it turns out that the glitter of crypto hides quite a few issues that need to be addressed before we can talk about Bitcoin or Ethereum becoming the world’s replacement for fiat money. And in this article, we’ll look at some of the more realistic disadvantages of crypto – at least in its current state.
Table of Contents
Understanding Crypto Is Hard
Let’s be honest – most people who have invested in crypto don’t understand how the underlying technology works. Even if you’re reasonably tech-savvy, the concept isn’t easy to wrap your head around. You need to understand how blockchains work, and that’s not something intuitively clear for a majority of people – even seasoned financial investors.
That’s a problem if you decide to invest in crypto because it’s never wise to invest in a technology you don’t fully understand. Sure, you can use many online resources to upgrade your knowledge – but it still takes time and patience. And unfortunately, not everyone who’s putting their hard-earned money into crypto has the follow-through to learn all they need to know to form an informed opinion.
It’s A Volatile Investment
Once you learn about crypto, you’ll realize one important thing – it’s a pretty volatile investment. Sure, the stories of the first people who bought a hundred BTC for next to nothing and are now millionaires are enticing. But as with most other investments, you’re probably too late to get in on the ground floor once you hear about it on the news.
Of course, that’s not to say that people who have invested in crypto in the past 5-10 years haven’t made a profit. But it’s also worth keeping in mind that while crypto has reached some dizzying heights in that time – it’s also had some shocking dips that have spooked investors and led to billions of dollars disappearing from that market.
Ultimately, crypto may be a great bet in the long run – but it’s still a bet. Right now, it’s a market that’s completely driven by speculation. And that makes it extremely vulnerable to sudden price changes – especially when it comes to the price of Bitcoin, which wreaks havoc on the prices of all the other coins when it drops.
Not Great For The Environment
One of the biggest problems with crypto is the environmental impact that no one has talked about until a few years ago. This may shock you – after all, aren’t digital technologies supposed to reduce the amount of paper we produce and actually help the environment?
Unfortunately, it’s a bit more complicated than that. The digital “mining” process through which bitcoins (and most other cryptocurrencies) are based on GPU and CPU power – results in astounding energy costs for every household with a crypto-miner.
Extrapolate that to a global scale, and we find that crypto-mining operations use more energy than most countries. The current levels of electricity consumed by Bitcoin miners alone are roughly equivalent to the amount used by the entire country of Sweden.
Just one BTC transaction spends the same amount of electricity that a regular household in the U.S. would use for an entire month. Since most of our energy still comes from carbon, blockchain energy consumption produces more emissions than any other financial instrument known to humankind.
Scalability Problems
Sure, cryptocurrency transactions are quick – but only up to a certain point. Many issues hold major cryptocurrencies from achieving lightning-quick speeds on a global scale. The energy requirements for Ethereum and Bitcoin transactions create bottleneck and capacity limitations – ultimately slowing down the speed of processing transactions.
Security Risks
There’s a lot to be said for the security of cryptocurrencies – compared to traditional financial systems, they’re a lot more difficult to hack. Bitcoin has pioneered one of the best encryptions in the world of finance – but unfortunately, it’s not all about “hacking” like we see it in movies.
In practice, plenty of security issues plague cryptocurrency holders – especially newbies who don’t know much about data security or aren’t tech-savvy. Every crypto owner has a private key that they use to access their digital wallets. And if someone steals that key or a computer with the key file, they can transfer all of your crypto coins and steal them.
That’s why email scams and other phishing attacks are particularly dangerous for crypto owners – and no matter how great the encryption is, the whole system is still susceptible to human error.