Here are the three main reasons why I feel any sustainable value or use of bitcoin and its crypto brethren will forever be limited. Unlike other practical, legal, and tax issues (see footnote 1 below), these three are fundamental problems with the core design of bitcoin and can't be legislated, engineered, "forked", or marketed away.
1. Security.
The problem I speak of is not security of the bitcoin blockchain itself (which has shown to be quite resilient thus far), but of how to manage its security. Conceptually, all bitcoin ownership is represented by a record in a blockchain database identified by a public key and accessed by a private key. That is all you get: 2 large strings of jumbled characters. You can layer whatever of your own security policies or toys on top of that, but in the end, you can't get around the problematic fundamental design that all is hinged on these 2 keys.The incorrect decisions about managing those 2 keys: how to store them, who should have access to them, how to change their keepers before someone or some piece of electronic equipment dies - has led to the loss or theft of millions of dollars worth of bitcoins on a regular basis. And unlike FDIC-insured assets in US banks, where not a penny has been lost or stolen by a depositor since the FDIC's inception in 1933, bitcoiners have no recourse once they have been totally wiped out. They have but a small hope that any government enforcement agency will make an effort to recover their coins or prosecute their thief. (Though ironically it is the lure of being detached from any government control that attracted much of the bitcoin crowd in the first place.)
2. Lack of a Moat (no durable competitive advantage).
As bitcoin's value started to increase in 2017, everyone and their brother created new 'improved' cryptocurrencies and there was no way bitcoin could stop that, or the trespassing on its brand (looking at you "Bitcoin Cash"). Bitcoin and other cryptocurrencies are unable to 'improve' themselves to a point where they can prevent new currencies from easily resolving any of their their shortcomings, marketability or utility.Shown below, as the value of bitcoin started to soar in 2017, its percentage of the entire cryptocurrency market (termed 'Bitcoin Dominance') shrank as "me too" currencies were created daily to steal its thunder. There are now thousands of cryptocurrencies in existence and even more of their sketchy cousin, the ICO.
This is worse than the built-in 'poison pill' of a corporate equity structure that will cause dramatic dilution. And it will happen whenever bitcoin gets any momentum in price appreciation. A supposed great advantage of bitcoin over fiat currencies is the impossibility of any dilution beyond its predetermined, finite rate; but the lack of any moat from competition negates that benefit.
3. Absurd Wasting of Electrical Power (due to the mining process).
The process of mining bitcoin currently uses (wastes!) as much electricity as all of Denmark consumes. And all for what? To create a 'lottery' that distributes small amounts of bitcoins to incentivize users to run/host the blockchain network on their computers. This lottery is implemented by requiring blockchain network hosts to use massive computing power to 'solve puzzles' to win bitcoins. (Source, and counter arguments.)Though the concept of incentivizing by awarding bitcoins assures a large, strong network, its implementation that consumes so much to accomplish something so simple has to be the most asinine waste of power I have seen. Those idealists who look to bitcoin to lead the New World Order are celebrating one of the most senseless contributors to global warming. Thanks a lot Satoshi!
----------------------Footnotes:
1. By the way, yours truly was in the room and sitting just a few feet from SEC chairman Jay Clayton when he made his famous statement June 13, 2018 in Atlanta regarding treating ICOs as securities. Actual photo I took as that statement was being made.
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