Bitcoin: the good, the bad, and the ugly

The good

Deflationary

Inflation, or the decline in the purchasing power of most currencies, is something we’re all unfortunately familiar with. Over time, the same amount of money tends to buy less and less. One of the reasons people are so excited about Bitcoin is because it is billed as a deflationary currency. With only 21 million coins in total, Bitcoin has a fixed liquidity cap. Once all the coins are mined, the lack of new supply theoretically means that the purchasing power of a given bitcoin will increase.

Transparent

Bitcoin is inherently transparent due to the nature of the blockchain. Every transaction ever made, from the genesis block to now, is visible to the public. Since blockchain transactions are immutable, it’s possible to get a complete record of Bitcoin’s history, including all wallet addresses and the transactions they take part in. This is one of the reasons why laundering money via Bitcoin can be a huge pain, with criminals frequently getting busted when they try to cash out.

Financial freedom

Move money across borders with ease, get around capital controls. Big hypothetical is if there’s a run on the bank and you can’t get money out. Popular in countries with unstable currencies. Gives you a degree of control from having spending habits analyzed, with loans that don’t impact credit scores with P2P lending. It’s when you try to convert Bitcoin into fiat that regulation comes down on you.

Pseudonymity

Bitcoin is frequently mischaracterized as being anonymous. This is what helped earn its colourful reputation as internet money for buying drugs and assassinations. While this is mostly sensational, Bitcoin has been used for certain purchases because it’s possible, with some work, to divorce your identity from your Bitcoin transactions.

Since Bitcoin is completely transparent, it’s possible to see where money is going, and often for what purposes if the destination wallet is identifiable. Bitcoin doesn’t offer total anonymity, but it’s more anonymous than a traditional bank.

Revolutionary

Bitcoin was the first fully functional, widely adopted currency. Without Satoshi Nakamoto’s white paper, the crypto industry as we know it wouldn’t exist. Borderless, a way to send money across state borders. It disrupted the status quo and introduced blockchain technology to the world.

Very secure

Bitcoin is itself fairly secure. Aside from one incident in 2010 that was quickly mitigated, Bitcoin has never been hacked. ¹ Bitcoin is decentralised, distributed over tens of thousands of nodes across the world. Even if one node is hacked, the network itself will keep running. One theoretical attack on the Bitcoin network is called a 51% attack. If someone gains control over more than half of the Bitcoin network’s computing power, or mining hash rate, they can prevent new, valid transactions from gaining confirmations, and gain the ability to double-spend coins.

One of the major protections against vulnerabilities like 51% attacks and fraudulent confirmations is the sheer scale of the Bitcoin network. Due to the protocol’s construction, miners are incentivized to keep working for the good of the network as a whole.

Total ownership

Let’s say you have money in an online banking service. One day, out of the blue, you’re locked out of your funds. You call customer service, send frantic emails, and even tweet at the company. No dice. Your money is inaccessible, and may as well be gone for all the good it’s doing you. This is a common complaint for users of services like PayPal and Venmo. With Bitcoin, the coins you have in your wallet (that you control the private keys for) are yours. You’re the only one responsible for them. Of course, this also means that if you fall victim to a scam, no one is going to help you. With great power comes great responsibility, as they say.

Censorship resistant

It’s a fact that private companies and governments can interfere in digital fiat payments. Since Bitcoin is blockchain-based, it is decentralized by design. It would be extremely difficult for anyone to censor a transaction.
Entries into the Bitcoin blockchain are immutable – once they’re there, they can’t be changed or removed. Once a transaction has been added to the ledger, it’s nearly impossible to change or delete it.

The blockchain is not owned by a single entity. No state or entity can prevent someone from transacting on the Bitcoin blockchain.

The bad

Volatility

As popular of an asset as Bitcoin is, its notorious volatility can unnerve cautious investors. Bitcoin is designed as a deflationary asset that increases in value over time. However, regulatory crackdowns and consumer uncertainty have led to rapidly fluctuating prices.

Non-revocable

When you send a Bitcoin transaction, you cannot take it back. When they’re gone, they’re gone. Bitcoin has no customer service, and it is impossible to Karen the blockchain. This is the basis for Bitcoin.

Uncertain future of regulation

In the early years of Bitcoin, people cherished a romantic notion that it was a foolproof way to squirrel money away from prying governments. It was nontaxable and impossible to regulate, they said. A great way to regain sovereignty over your assets, they said. There are two things that are certain in life, and Bitcoin users can’t escape taxes. Or regulation. Several countries have banned Bitcoin outright, while the rest of them are scrambling to figure out how to tax and regulate it. There’s no way to tell what the future holds for Bitcoin, legally speaking.

Revolutionary technology

It’s a brave new world for crypto users, which can be both good and bad. The lack of precedent is what makes Bitcoin exciting for so many people, and has helped kickstart the crypto revolution. Bitcoin users are definitely on the frontier of something big. Unfortunately, the ecosystem sometimes resembles a saloon in the Wild West during a whiskey-fueled brawl. This was especially apparent during the ICO boom of 2017, when lack of regulation and scruples lead many to get burned. No one can tell what happens next. Prescient and savvy investors stand to make a lot of money, but plenty of people get distracted by fool’s gold.

User-hostile tech

While a cornucopia of services offer a simplified experience, users often need to pay high fees and relinquish control over their funds to access easy mode. For those looking for more of a say on their funds, things can get complicated quickly. A typo during a transaction can send your coins hurtling off into the void, never to be seen again. Since Bitcoin transactions are irreversible, every action just seems a little bit more risky. Getting used to the addresses and QR codes can take a bit, and public and private keys are not intuitive to users.

The ugly

Crime and risk

Contrary to popular belief, the proportion of Bitcoin transactions connected to illegal activity is relatively small. ² That’s not to say that Bitcoin users aren’t at risk. An entire industry has sprung up around relieving unsuspecting people of their bitcoins. There’s bitcoin stealing malware, phishing scams, Twitter scams, investment scams, spear phishing, malicious copies of wallet software, malicious copies of wallet hardware, and phishing. If there’s a way to steal bitcoins, someone has thought it up and implemented it in a very clever way. Users are faced with an enormous responsibility of keeping their coins safe.

Environmental impact

There’s no real way around it: Bitcoin mining is a significant source of carbon emissions. The Cambridge Bitcoin Electricity Consumption Index states that Bitcoin accounts for 0.31% of the world’s energy consumption, using approximately 67.72 Terawatt hours. Put into context, that’s more than the entire country of Austria. ³ Researchers writing in the journal Climate Risk Management argued that the impact of the Bitcoin network on the environment warranted the imposition of a carbon tax. ⁴

References

1. https://hackernoon.com/bitcoins-biggest-hack-in-history-184-4-ded46310d4ef
2. https://www.forbes.com/sites/haileylennon/2021/01/19/the-false-narrative-of-bitcoins-role-in-illicit-activity #:~:text=According%20to%20an%20excerpt%20from,10.0%20billion%20in%20transaction%20volume
3. https://cbeci.org/cbeci/comparisons
4. https://www.sciencedirect.com/science/article/pii/S2212096321000395