According to the appreciation of Professor Eswar Prasad, an economist at Cornell University, Bitcoin has some fundamental flaws. Their existence, he explains, leads many people to seek better alternatives to this cryptocurrency. He does not deny the role of Bitcoin, but assures that some of its problems do not make it the best, but the most popular.
The weaknesses of the most important of the digital currencies in market capitalization, Prasad lists them in three main ones. Lack of privacy, contamination from mining and the unfeasibility of being used as currency. It should be noted that at least two of these failures can be resolved in the short and medium term.
In other words, what Prasad sees as structural flaws could be part of Bitcoin’s past in no time. In the same way, the existence of other cryptocurrencies does not diminish the importance of Bitcoin. On the contrary, digital currencies complement each other, since they can be exchanged for different purposes without the need for intermediaries.
What are the three flaws of Bitcoin according to Eswar Prasad?
As already highlighted, the aforementioned economist assures that Bitcoin has three flaws that reduce quality and that in the future could threaten its dominance. To cover those flaws, users use other altcoins and will continue to do so. However, to what extent will Bitcoin’s problems affect its use in the future?
The problem of privacy is one of the most critical when it comes to economics. Governments and centralized entities seek to maintain control of the entire financial life of people. That is why cryptocurrencies are seen as a way to escape government scrutiny. Despite this, Bitcoin is not as invulnerable as many think.
When it comes to mining and its supposed negative impact on the environment, the concerns are extreme. The anti-Bitcoin narrative presents mining activity as the worst evil facing the stability of the planet in its entire history. Although energy consumption and coal emission from mining are worrying factors, they are not in the alarm range of other industries.
For its part, the weakness of Bitcoin when it comes to being used as a currency is evident. The poor scalability of the network makes it useless for making micro payments. In simple words, when the transaction traffic crashes the network, the commissions go up and, for any micro payment (of $ 5 for example), you will have to pay high commissions. Sometimes they exceed $ 25 per transaction.
The privacy issue
Among the flaws that, in Prasad’s opinion, Bitcoin has, the one related to privacy is the most painful for its defenders to admit. Earlier in the month, news broke that FBI officers recovered $ 2.3 million worth of Bitcoin. The agents would have breached the wallet of the hackers who attacked the Colonial oil pipeline that left almost 20 US states without fuel.
Although it was not a hack against the secure Bitcoin Blockchain network by the authorities, there was a vulnerability. All of this makes it clear that the use of Bitcoin is not as anonymous as many thought. This network is transparent, which allows anyone to have access to the transaction history. Thus, a pattern can be established to identify the user who made the transfer.
In the case of the Colonial pipeline hackers, they did not handle some security criteria, so it was easy for the authorities to reach them. This is one of the three flaws that leaves Bitcoin an untrustworthy currency for users’ financial privacy.
In that case, people looking for privacy and security can opt for other cryptocurrencies dedicated to this aspect. The privacy champion by far is Monero (XMR). This currency has a high level of concealment of its history and amount of transactions, which makes it practically impossible to detect. Its nature makes it the natural alternative to Bitcoin if total financial privacy is desired.
Poor scalability, contamination in mining and little privacy are the three flaws that Bitcoin has in the opinion of a Cornell economist.
The narrative of mining as a source of pollution
Another of the supposed failures of Bitcoin, is related to the supposed danger that it represents for the environment, mining. It should be noted that the consumption of mining activity is high. However, most of it comes from renewable energy sources. This means that greenhouse gas emissions are minimal when compared to other activities.
According to a study by Galaxy, Bitcoin mining is not the activity that demands the most energy. In fact, the report compares it with areas such as the banking system or gold mining and the differences in consumption are abysmal. The mining of the pioneering cryptocurrency requires less than half the consumption of these two sectors.
Other reports such as a recent post from Bitcoin Magazine, makes a comparative study of Bitcoin mining with the military industry. In terms of consumption and emission of coal and other gases into the atmosphere, the “military industrial complex” dwarfs Bitcoin mining. The data shows that the production of Bitcoin represents 2% of the energy consumed by the international military industry. The percentage decreases in times of conflict.
This leads to the inevitable conclusion that pollution or consumption are not among the flaws that Bitcoin has. The future democratization of hashrate, as a result of the ban on business in China, will allow the percentage of mining with green energy to increase considerably.
There is not enough scalability for BTC to become currency
This is a justified concern for Prasad. The original Blockchain network of Bitcoin lacks the necessary scalability for the cryptocurrency to become a commercial exchange currency. However, although it is a difficult issue, it has a very satisfactory solution that is already underway.
But going back to the issue of the lack of scalability of Bitcoin, it can be said that the network is unable to work normally when there is traffic. In other words, being designed to support 7 or fewer transactions per second, the network crashes when that number is exceeded. As a consequence, users must pay high commissions for their transactions to be taken into account by the miners and processed.
This leads directly to the average increase in transaction fees. If this is extrapolated to the world of micro payments, it would be catastrophic. Imagine paying $ 3 for a bag of fruit and the commission for that transaction is $ 25.
Despite such a problem, the solution was solved by developers with the so-called Lightning Network. It is an offline protocol that allows tens of thousands of transactions per second. In addition, its commissions are low and the speed of payments is fractions of seconds. Migration to this protocol is a slow but constant process and it is in full swing.
Data to take into consideration
According to Cornell University economist Eswar Prasad, Bitcoin has three flaws that detract from its nature. Bitcoin’s flaws, he believes, are: mining contamination, lack of privacy and low scalability. Of these, the alleged contamination, It is a debatable issue, since there is no conclusive evidence to support the accusations. The problem of scalability is an issue that is being progressively resolved with the Lightning Network protocol. The lack of privacy in the main cryptocurrency remains as the Achilles heel of Bitcoin It should be noted that none of the cryptocurrencies are perfect. Bitcoin is not either. The privacy issue can be solved very easily with Monero.
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