Disadvantage of Bitcoin

Categories: Bitcoin

1. Price volatility. While Bitcoin's value has risen dramatically over the years, buyers' fortunes have varied widely depending on the timing of their investment. Those who bought in 2017 when Bitcoin’s price was racing toward $20,000, for example, had to wait until December 2020 to recover their losses. And even though 2021 was a strong period for Bitcoin, it has since fallen substantially off of its all-time highs.

2. Hacking concerns. While backers say the blockchain technology behind Bitcoin is even more secure than traditional electronic money transfers, there have been a number of high-profile hacks. In May 2019, for instance, more than $40 million in Bitcoin was stolen from several high-net-worth accounts on cryptocurrency exchange Binance. (The company covered the losses.)

3. Limited (but growing) use. A handful of merchants have begun accepting Bitcoin as payment. But these companies are the exception, not the rule.

4. Not protected by SIPC. The Securities Investor Protection Corporation insures investors up to $500,000 if a brokerage fails or funds are stolen, but that insurance doesn’t cover cryptocurrency.

5. Volatility - When Bitcoin was created by Satoshi Nakamoto, a limit was set of 21 million bitcoins that could ever exist, which is why some regard Bitcoin as being absolutely scarce. This scarcity is what makes Bitcoin so valuable, but also what makes its prices vary because the price is now the only variable that can change to ensure demand.

There are also other factors that influence Bitcoin’s volatility such as headline-making news that is perceived as bad by investors, the uncertainty about its future value and uses, as well as security breaches.

6. No Government Regulations - Sure, a decentralized currency can be viewed as one of the benefits of cryptocurrency, but it can also be considered a disadvantage of Bitcoin, since it means investing in Bitcoin is not regulated. Unlike a currency that's regulated by a central bank, Bitcoin transactions don't come with legal protection and typically are not reversible, which makes them susceptible to scams.

Another issue with Bitcoin being decentralized is that there's no guarantee of a minimum valuation. So if a big group of investors decides to stop using bitcoins and sell them, the value of it could decrease greatly and affect users with a large amount of the cryptocurrency.

7. Irreversible - Since Bitcoin transactions are anonymous and unregulated, another disadvantage is the lack of security. Transactions done through Bitcoin are irreversible and final, so nothing can be done if the wrong amount is sent or if it's sent to the wrong recipient.

In addition, there's a risk of loss. Many Bitcoin users choose to keep their bitcoins in a cryptocurrency wallet, which puts them at risk of losing their investments if they lose access to their private key. In case a hard drive crashes or a virus corrupts the records or even your wallet, your funds could become inaccessible or gone completely in a matter of minutes.

8. Limited Use - Even though there's a growing number of companies that accept Bitcoin, such as Microsoft and some Subway franchises, it's still not widely accepted. This puts a limit on where you can spend your money, unlike using a credit or debit card.

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