Common Bitcoin Concerns, and Answers to Them

Today I’m going to go over some of the most common objections to investing in Bitcoin, and why they’re non-issues in the broader picture. Each of these points is a valid concern, but it’s important that we properly understand why they don’t matter in the long-term (or at all!).

Let’s take a look:

‘It’s too volatile”

It’s true that Bitcoin is a volatile asset – but we need to remember it won’t always be that way. Being an emerging asset, it is still very narrowly adopted and should be expected to fluctuate a lot until it matures to its maximum distribution.

There’s also a reason why Bitcoin’s price movements aren’t “dampened”, which is also one of its greatest features: Its fixed (and low) rate of supply. Unlike other goods, which can be produced at a faster rate to cater to changes in demand, Bitcoin can’t be produced any faster or slower when the number of buyers changes. This means that any change in demand takes almost complete control over its price movements.

It can be reasonably expected that Bitcoin’s volatility will drop consistently over time as infrastructure and adoption grow, as will its total market cap.

“It can’t be used as money”

Bitcoin can be described as slower to process as many transactions as traditional payment systems do, like Visa or Mastercard.

This is a common problem in Cryptocurrencies – a blockchain must choose a balance between decentralisation and security vs. how quickly it can process transactions. Once again, the very thing that holds Bitcoins’ transaction capacity back is also one of its greatest strengths: It’s decentralisation and immutability.

However, it’s important to consider that Bitcoin is an ever-evolving technology. Improvements can be made as they are developed, while second-layer scalability solutions like the Lightning Network can speed up smaller, everyday transactions.

“It wastes too much electricity”

Bitcoin does indeed require a lot of power to run, but yet again this is a side effect of one of its strengths – its unmatched security and resilience.

It’s also worth mentioning that an estimated 76% of Bitcoin miners use renewable energy – primarily hydroelectric power. Part of the reason for this is that otherwise-unused, excess electricity in remote locations is perfect for mining Bitcoin.

We could also compare Bitcoin’s power consumption to that of the traditional banking world. According to some estimates, even if Bitcoin power consumption increased by 100 times, it would still only consume a tiny 2% of the power consumption of the traditional banking industry.

“It’s used for illicit activity”

Although Bitcoin received a bit of a reputation for use in the black market, the truth here is that fiat currency is – and always has been – used for illicit activity to a much greater extent than Bitcoin ever has.

In fact, reports say more than $2 trillion in illicit funds are laundered by traditional banks each year – more than 60 times the value of all Bitcoin in existence.

One notable case of this money laundering activity being caught was HSBC’s laundering of at least USD$881 million in drug money from two cartels in 2012. As a result, they were made to pay a USD$1.9 billion fine.

Bitcoin, like any medium of exchange, is neutral in nature – it’s up to you how you use it, just like fiat currency.

“It’s not backed by anything”

While Bitcoin is not “backed” in the traditional sense (like we’d evaluate shares in a company or a consumable commodity), it does have very distinct value through its utility and network.

Bitcoin’s utility value comes from its ability to be transacted at the will of the user, completely out of the reach and control of banks and governments. This value is further strengthened by its code, which sets its rules in stone, as well as the consensus among its many users – its network effect.

“It’s going to be replaced by another technology”

At first glance, it’s a valid concern that Bitcoin might be replaced by another cryptocurrency or form of money which has superior technology or features.

The difference, however, lies in Bitcoin’s network effects mentioned above. Bitcoin has, by far, the largest user base and infrastructure of any cryptocurrency today. It also has the longest history, which has allowed it to become more firmly established and fairly distributed over more than a decade.

Other cryptocurrencies may have faster transaction speeds or a wider variety of features, but reaching the level of network infrastructure, security, and distribution of the Bitcoin network would be something that’s near-impossible to achieve.

It takes a while to understand Bitcoin

Bitcoin is a new and difficult concept to grasp for a lot of people, due to most of their world revolving around already-established assets. Hopefully, this newsletter helps answer some questions you or the people around you have about it and puts to rest some common objections.

When we look deeper into our existing banking system and begin to question why things work the way they do, Bitcoin starts to make a lot more sense. Bitcoin is a more fitting version of money for a technological future – and it’s here to stay.