In 2008 when Satoshi went public with bitcoin and the idea of blockchain technology, the invention received very little attention. In the past decade, the financial world was daunted by this new asset class and possibly the future of digital currency. Today there are more than 6,000 cryptocurrencies, according to Coinmarketcap.
Slowly, but steadily cryptocurrencies are establishing themselves in the scenes of commerce and industries. However, bitcoin and other cryptocurrencies have often received tons of criticisms from investors, individuals, governments, and other agencies.
Very often, cryptocurrency has been described as a bubble waiting to burst. In the first part of this article, we'll find some of the technology challenges.
CHALLENGES OF THE DISTRIBUTED LEDGER TECHNOLOGY
Some of the criticisms have been directed at:
Bitcoin volatility: For over a century, every traditional currency has been controlled by government regulations and the central bank. While this comes with many disadvantages, the process helps to regulate the price of money and prevent unnecessary price fluctuations.
However, cryptocurrencies are backed up by the distributed ledger technology, which is entirely independent of an external third party. This is responsible for the high volatility experienced by cryptocurrency traders and investors.
In December 2017, bitcoin plunged to an all-time price of over $19,000, by June 2018, the price plummeted to about 3,700. This quickly puts questions about bitcoin's stability and, ultimately, whether the scheme is a disaster waiting to happen.
Illegal activities: In 2017, the popular dark web, Silk Road, was seized by the Federal Bureau of Investigation (FBI), and the founder was subsequently arrested. The dark web had been previously notorious for drug trafficking, prostitution and other vices.
Interestingly, the platform primarily dealt with bitcoin because of the pseudo-anonymous nature of cryptocurrency. In an attempt to boycott third parties through transparency, cryptocurrencies have become a popular choice for criminal activities. Experts have often bashed bitcoin and cryptocurrencies for their popularity in illegal activity.
Decentralization: When Satoshi founded the distributed ledger technology, one of its standout properties was eliminating third parties in exchanging value. This was a superb game changer as many banks and governments had manipulated economies for too long.
However, as relieving as decentralization may be, every financial system is ultimately in need of some regulation or the other. Bitcoin's lack of regulation has made it susceptible to world news, institutional investments, and criminal activity. So long as the system remains independent of the government's control, cryptocurrencies will be massively unpredictable.
Transaction speed: More than anything now, the world is craving for digitized systems, financial institutions are certainly not behind. While bitcoin is tipped by many to be a currency giant and even possibly replace fiat currency in the future, it is now becoming limited.
The entirety of blockchain was initially designed to process 3-7 transactions per second. This was due to bitcoin mining complexity and a specific attempt to protect the technology from hackers. Unfortunately, as the technology is growing, processing transactions are now taking longer, and users report delayed transactions of up to days.
Every financial system of value exchange has its pros and cons, are blockchain challenges enough to label it a bubble?