What is cryptocurrency ?
Let’s first understand what is cryptocurrency. Cryptocurrency is a digital currency with no physical attribute but an underlying value attached to it. It has no banking or centralized system through which it works. Refer to the detailed definition here- Cryptocurrency – Wikipedia.
Now whether we can rely on cryptocurrencies is the question which needs to be answered.
The answer is NO. The reasons to back up my stance here is due to the following reasons :-
- The foremost reason will be that there is no regulatory framework around it. If the cryptocurrency is hacked, no one will take the responsibility to repay our money.
- The chances to lose your data and money is very likely. There will be no sense of security. We cannot sleep peacefully because the cryptocurrency’s value keeps on fluctuating. Standard currencies fluctuate too, but not as highly as cryptocurrencies
- Based on speculation- demand and supply. Bitcoin, the earliest cryptocurrency will generate only 21 million coins. That means when the demand for the bitcoin is more, the value of the bitcoin will increases. There is a downside to this, the value of the currency completely depends on the demand it has, that means if the major investors withdrew their money, the value of this currency will crash.
- Cashless economy made financial transactions much easier. Hence, there is no need of cryptocurrencies.
- Time consuming process- It takes almost 10 minutes to complete one transaction.
- Ransomware hackers demanded their payment through bitcoins, because it protects identity of the person in financial transactions
- Climate impact- One area of confusion about blockchain is the perceived negative environmental impact, but this is a problem specific to bitcoin and some other cryptocurrencies. It is caused by the limitations of the decade-old design of bitcoin and due to Bitcoin’s mining process that requires a “proof of work” to validate transactions. Proof of work is a mathematical algorithm that is essential to validate transactions in the Bitcoin blockchain and consumes huge computational power and energy close to what Denmark consumes annually.
And while it’s impossible to know exactly how much electricity Bitcoin uses because different computers and cooling systems have varying levels of energy efficiency, a University of Cambridge analysis estimated that bitcoin mining consumes 121.36 terawatt hours a year. This is more than all of Argentina consumes, or more than the consumption of Google, Apple, Facebook and Microsoft combined.
And even if it one day becomes possible to run all bitcoin mining on renewable energy, its e-waste problem remains. To be competitive, miners want the most efficient hardware, capable of processing the most computations per unit of energy. This specialized hardware becomes obsolete every 1.5 years and can’t be reprogrammed to do anything else. It’s estimated that the Bitcoin network generates 11.5 kilotons of e-waste each year, adding to our already huge e-waste problem.
It seems that Bitcoin will likely cease to have meaningful value, defeating the whole point and philosophy imagined by Satoshi Nakamoto, the alleged inventor of Bitcoin. Its current value appears to be purely psychological, and the hype seems to be driven by irrational exuberance, greed and speculation. Modern human history has seen many bubbles, including the dot-com bubble, the housing bubble and even the tulip bubble. However, when these bubbles exploded, many excellent dot-com companies survived, most houses regained their value and tulips still have meaning and carry value in our lives today. But what will happen when the Bitcoin bubble bursts? What utility or residual value will bitcoin have to consumers and businesses? Most likely none. And this is the real problem with Bitcoin and cryptocurrencies.