Why Bitcoin Will Fail

Bitcoin has many issues and will at some point fail.

Bitcoin has no purpose and provides no benefit. It is not a currency, it is not a store of value, it is not an inflation hedge, it is not digital gold, it is not an asset, it is simply used for speculative trading. Its only value is that people believe it will continue to increase in value, so for the time being it does.

• Not a Currency: Bitcoin can only do approximately 2500 transactions every ten minutes. That is less than 5 transaction per second. There is also no guarantee that your transaction will get processed, the Bitcoin miners choose which transactions go on a block. They are under no obligation to process your transaction; it is not a first come first serve system.

• Not a Store of Value: A “Store of Value” must maintain its value over a long period of time. The chance that you will lose money by investing in a “Store of Value” should be minimal.

• Not an Inflation Hedge: Bitcoin is not correlated with inflation. Bitcoin is not indexed to inflation. Bitcoin has no underlying asset that will increase in value if inflation increases. Bitcoins only mechanism for increasing in value is if more speculators want to purchase it than sell it. If speculators felt Bitcoin would only keep pace with inflation, there would be very little interest, and the price would plummet.

• Not Digital Gold: The gold ETF is digital gold, not Bitcoin. With gold, once it is mined, the miners are no longer needed. With Bitcoin, the miners can never stop, they are needed to do transactions. There are a limited number of precious metals. There will not be a new version of gold. There are an unlimited number of cryptocurrencies, more are created every day. Bitcoin is more like a collectible rather than a precious metal. There will never be another 1914 Babe Ruth baseball card, but there will be plenty of other baseball cards.

• Not an Asset: Bitcoin has no way to generate revenue. It is a zero-sum trading vehicle. Someone can only make money if someone else loses money. Actually, it is less than zero-sum since its transaction cost is so high.

Bitcoin is an enormous waste of resources. The amount of electricity bit coin uses could power a small country, and keep in mind, this is all to be able to do 2500 transactions every ten minutes. A small laptop running off it’s battery could easily do 2500 transactions in ten minutes. A system that is this inefficient cannot last.

Bitcoin can be used for illicit transactions because of a lack of regulations. This will not last. At some point in the future regulators will require miners to ignore any Bitcoin transaction that was involved in an illegal activity. Or force them to return the Bitcoin to its rightful owner.

Bitcoin will never replace a countries currency. Countries have an interest in protecting their currency, they will never allow cryptocurrencies to impact their own currency in any meaningful way. Remember what happen to gold in the 1930’s, it became illegal to own gold in the United States for several decades.

Bitcoin miners could conspire to undermine Bitcoin. For a new block to be added to the chain a majority of the miners have to agree it is valid and no one has compromised the ledger. What would prevent a bad actor from adding a large number of miners, enough to be able conspire and post false transactions. The argument is that this would quickly be discovered and make Bitcoin worthless, therefore they would not do it because they would not profit. This argument ignores the fact that many countries would do it as a malicious act.