Apr 10 2013

To be honest I don’t trust Bitcoin.

It was created by someone using a pseudonym and his or her identity has never been revealed. The liquidity is dismal. The timescale for verifying transactions is slow (1), and anonymity is still an issue. The volatility is very high, which can be good if you feel like gambling and possibly making a return or potentially losing a significant amount of money because the time necessary to process the sale didn’t occur fast enough. Since Bitcoin has a limited number of cryptographic keys that can be used as coins it also has issues with entropy. (2) If someone loses their Bitcoin wallet, all of their coins are lost. Under the current system they cannot be reclaimed or mined again. You are entirely responsible for your own Bitcoin wallet. Last but not least early adopters prove to benefit the most from it, as the initial mining of unique cryptographic sequences was done very easily en masse at its inception and gets increasingly difficult over time. So it does resemble a pyramid scheme in that respect. (3)

The idea of a cryptocurrency is still very new. I’m really glad that Bitcoin is around and it’s really opened our eyes to different methods of solving the issues we face with our current systems of exchange. There has been far more brainpower being directed at alternative solutions for our common medium of exchange, which can only lead to positive change. We definitely need a currency that isn’t being controlled by corrupt national banks under the influence of the financial elite.

But for it to have any chance of becoming a truly viable means of exchange, the timescale for verification needs to shorten (a purely technical issue), the liquidity needs to increase (more people need to trust it and adoption needs to increase), and the volatility needs to decrease (again higher percentage of adoption and more trust in its use). Only then will the number of vendors that support using it for transactions increase, followed by a more widespread adoption. But this is a Catch-22. Bitcoin needs increased adoption in order to improve its issues with liquidity and volatility, but the only real way that adoption will increase is if the issues with liquidity and volatility aren’t an issue anymore.

So, let’s say that the issues with the transaction timescale, liquidity, and volatility are solved. Hurray! But that still won’t get rid of the inherent flaws in anonymity, entropy, and the early adopters of mining controlling the largest pieces of the pie.

Anonymity could potentially be solved by blind signatures. (4)

Entropy could possibly be taken care of by a workaround for re-mining coins that have been found to be “lost” for a certain period of time, say a year to five years. Loss due to personal negligence could still be a possibility but there are solutions for backing up wallets electronically and physically if necessary.

There is no way to take care of the issue with early adopters having gotten the most coins with the least amount of effort. They would have to purchase goods or services from or donate to a ton of different people in order to redistribute and balance the ownership of Bitcoins. But that still wouldn’t change the fact that they got rich quick with minimal effort and are riding on the hard work and expenditure of resources by others. This isn’t a new phenomenon. It has happened throughout history, and it does need to change if we ever hope to have a society that truly practices a philosophy of equality. A cryptocurrency that is able to bridge the gaps between the shortfalls of Bitcoin just might be the part of the solution, but Bitcoin in its current incarnation will not be able to pull it off. It is too young, and it lacks the fine tuning gained from gradual evolution and widespread real world implementation.





One response so far

  1. the most succinct and intelligent think I’ve seen to date on the #Bitcoin subject.

    Great post.


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