Why Bitcoin Is Not the Currency of the Future


On Feb. 8, 2021, Tesla announced its controversial purchase of $1.5 billion worth of Bitcoin. Only a month later, that investment turned a $1 billion profit. Bitcoin prices are surging past barriers previously deemed impossible, and cryptocurrency has reentered the public eye as Elon Musk, Mark Cuban, and even Snoop Dogg publicly back the nascent technology. But as more money pours into Bitcoin’s skyrocketing prices, investors are wondering if the cryptocurrency is as revolutionary as its publicity suggests. While Bitcoin’s idealistic mission to liberate consumers from central banks holds apparent promise, its many legal and technological flaws could hinder it from becoming a widespread and convenient currency. Therefore, what will Bitcoin’s murky and unpredictable future hold? If it does not become a currency, will Bitcoin still be worth anything at all?

Bitcoin was initially created as an alternative to government-issued currency. It aimed to remove third-party regulators, such as banks, by having users collectively maintain transaction histories. Bitcoin uses a network protocol called blockchain, in which thousands of transactions are assembled into blocks. Every user keeps a copy of the public Bitcoin blockchain, preventing scammers from manipulating past transactions and stopping new fraudulent transactions, which would need to bypass 51% of the network. Bitcoin miners confirm new blocks by solving complicated computer algorithms, and in return, they are rewarded with coins. Through the use of blockchain technology, the creators of Bitcoin hoped to create a transparent peer-to-peer network regulated not by central authorities, but instead through financial incentives to the Bitcoin community. With this idealistic system in mind, Bitcoin was publicly launched in early 2009.

The main purpose of Bitcoin is to create a reliable, decentralized currency. But its lack of regulation and technological inhibitions stand as obstacles to widespread adoption of the cryptocurrency.

The removal of a central authority in the Bitcoin network comes as both a blessing and a curse. While its lack of regulation promotes autonomy, Bitcoin’s nonrestrictive system also does not provide user protection or price stability. Although the Bitcoin system is nearly impossible to take down, individual users’ “wallets” are still very susceptible to hacking. Users access their Bitcoin accounts by entering a private key, which is easy to steal from devices connected to the internet, or more often, from cryptocurrency exchanges. According to Reuters, $1.9 billion was lost from cryptocurrency theft and fraud in 2020. Since Bitcoin is an independent network, its exchanges are not insured by agencies such as the FDIC, leaving users without legal protection. Also, if users forget their private keys, their bitcoins are lost forever in the system. Bitcoin transactions are one-way as well, meaning unintentional transfers are irreversible. Such rigid rules create a system impractical for day-to-day use, whereas these problems are typically resolvable in the more flexible and consumer-oriented current banking system.

Price volatility is another major concern in adoption of Bitcoin as a major currency. On March 13, 2020, the price of one bitcoin was $6198.78. One year later, a single bitcoin was worth $57306.17, an increase of 924%. For comparison, the euro grew by just 8% when compared to the US dollar over the same period of time. This rapid, unpredictable price fluctuation inhibits widespread use of Bitcoin. The cryptocurrency’s volatility may cause problems on an everyday scale, such as the price of a carton of milk adjusting every few seconds, or on a commercial scale, such as business contracts with ever changing terms. When Bitcoin was launched, a contingency plan against inflation was implemented, specifically the rule that only a limited supply of 21 million coins could be mined in the system. But this design also means the system will run into inevitable deflation if Bitcoin becomes a high-valued currency. Early adopters of the system will have increasingly expensive coins, which will therefore encourage users to hold onto bitcoins as investments, as opposed to spend them as currency. Bitcoin’s very design therefore does not promote its use as everyday money, but instead a role in long-term alternative investments.

Technological issues also remain a challenge in implementation of Bitcoin as currency. Due to the inherent nature of blockchain, transaction confirmations are slow and large amounts of electricity are spent on Bitcoin mining. New blocks are added to the Bitcoin blockchain approximately every ten minutes, though to definitively confirm a transaction is valid, some large transactions require six blocks to be added. This means a single Bitcoin transaction could potentially take up to an hour or more. Also, since the actual Bitcoin reward for miners is exponentially decreasing every four years or so, users now need to include a monetary incentive for their transactions to be included in new blocks. This means some transactions are prioritized over others depending on the size of the tip, so if no miners add a user’s transaction to a new block, a Bitcoin transfer could hypothetically never complete. With delayed or incomplete transactions, Bitcoin cannot possibly work as an actual currency in today’s fast-paced world.

Bitcoin mining also consumes enormous amounts of electricity. In order to confirm new additions to the blockchain, miners use specialized computers to solve complex mathematical algorithms. According to Digiconomist, the annual carbon footprint of the Bitcoin network is similar to that of New Zealand’s, with an estimated 38.67 million tons of carbon dioxide emissions. A single bitcoin transaction is also extremely wasteful, consuming the same amount of electricity as an average US household over 25.35 days. To further exacerbate this situation, research from the University of Cambridge reveals that 65% of Bitcoin mining occurs in China, a majority of which comes from remote regions such as Inner Mongolia. Bitcoin miners often exploit lax environmental regulations in these regions to access cheap electricity coming from coal-fired power plants. In fact, an estimated 35% of electricity in Bitcoin mining comes from coal. If Bitcoin were to be scaled up, further computing power would be necessary, meaning even more negative environmental impacts could potentially come from widespread adoption.

Governments and consumers are starting to realize the infeasibility of Bitcoin as a widespread currency. For example, in response to energy-intensive Bitcoin mining, the Chinese government banned all cryptocurrency operations in Inner Mongolia on March 2, 2021. Similarly, governments around the world are beginning to crack down on Bitcoin and other cryptocurrencies for a variety of reasons: black market dealings, lack of taxation, undermining of national currencies, etc. While Bitcoin may likely never become a currency alongside US dollars or Japanese yen, this, however, does not mean that Bitcoin is completely worthless. Instead, Bitcoin’s future may more likely lay in investment. Like Tesla, many major companies and institutional investors are already diversifying their portfolios with Bitcoin and similar cryptocurrencies. Individual speculators are also buying bitcoins in hopes of profiting from price jumps. While Bitcoin may never become the universal currency of the future, the cryptocurrency offers promise as a new investment asset.