Several analysts believe that the $20 transaction fee, which is higher than that of traditional payment systems, is a reason for Bitcoin's failure.
There is no such thing as something too large to fail; humanity has endured the biggest financial crises and manias ever documented. The tulip bulb mania in the 17th century (1), the dot-com stock boom in the 1990s (2), the stock market crash of 1929 (3), and now Bitcoin (4) is about to make it onto this list as one of the biggest lessons humanity has encountered.
Many articles, investors, and average users regard Bitcoin as a synonym for cryptocurrency because they are likely unaware of the other cryptocurrencies. Bitcoin was the first and is considered the mother of cryptocurrency by advocates, but some significant flaws are causing this digital currency to fall by the decade's end.
Bitcoin's initial allure was the democratization of the currency, and since central banks are not the blockchain's governing authorities, crypto levels the playing field in terms of the economy. Additionally, the ongoing inflationary crisis undoubtedly demonstrates that the influence of central regulations is not always a negative idea.
The Federal Reserve (5) increased interest rates to combat growing prices and the dollar's diminishing purchasing power. However, as borrowing got more expensive, the Federal Reserve's actions choked off the flow of money into the economy, and the inflation rate is now at its cooling point.
Unlike the Federal Reserve, Bitcoin has no central authority to offer such a measure in the event of a crisis or remedy. This digital token was worth $68,000 in November 2021 (6) and is currently worth around $21,000 at the time of writing (7).
Rational economists consider a crisis when a currency loses more than two-thirds of its value in less than a year. With no central authority to save or pull it up, bitcoin owners can only wait and hope that it will recover on its own.
What is Bitcoin?
The term "Bitcoin" (abbreviated as "BTC") refers to a decentralized cryptocurrency that also encompasses blockchain technology, its user base, and its system’s protocols. This technological marvel was purposefully designed to escape the banking industry as a dilemma for fiat currencies and centralized authorities.
The construction of this fundamental digital token was flawed as the supply of bitcoins was artificially capped at 21 million, a decision that itself is economically absurd. As transactions and other activities take place in an economy, there is a need for enough funds to cover those costs.
As more people start using the Bitcoin network (8) to make payments, the currency's value will need to increase or, at the very least, stabilize at high levels to meet these needs. It will inevitably experience deflationary bias if transactions keep increasing, but the amount of currency stops increasing owing to the ceiling.
As for the fundamentals of Bitcoin, it should be noted that all its transactions are recorded on a decentralized public ledger, and copies of that information are kept on servers worldwide.
These servers are called nodes, and anyone with a computer, phone, or tablet connected to the web can install these nodes. These nodes cryptographically agree on the rightful owner of the coins rather than relying on a single source of trust, like a centralized bank.
Why Bitcoin will fail?
A currency cannot function without stability, and Bitcoin's volatile market value makes it an even worse medium of exchange. Given its erratic market, most individuals are less likely to utilize Bitcoin as a form of payment in the hopes that its value will rise by a specific amount soon.
Similarly, merchants also decline to take Bitcoin as payment out of concern that its value might fall at any moment. Since currencies like the US dollar (9) function as legal tender supported by central banks and treasuries, they excel at providing a steady index of worth for any goods available on the market.
Because its owners prefer to hoard rather than exchange or spend, Bitcoin cannot compete with fiat currencies. Unfortunately, this is the fundamental reason its value has increased nearly indefinitely in the past.
When things are produced and directly priced in Bitcoin rather than in other currencies, Bitcoin will be able to maintain an ongoing economic cycle and eventually become a currency eternally. Although there are many societal, legal, and governmental barriers in the way to widespread adoption of bitcoin,
Contrary to popular belief, Bitcoin is more closely related to a commodity than a form of payment. It is also more like a digital version of gold without the intrinsic value of the real thing. Considering this, Bitcoin certainly possesses all the qualities of a commodity, including scarcity, portability, security, and durability, albeit with certain flaws.
It is also important to note that users prefer to use Bitcoin since it appears to be safe and useful. Still, they are also over-hyped and fervently motivated by the cryptocurrency phenomenon even without understanding the full state of the market.
Investors and speculators together form an exhilarating momentum that drives up the price of Bitcoin. Spiraling price inflation that could even end Bitcoin is possible as major players join the buzz while intentionally influencing the markets through large purchases and sales.
However, important indicators point to the fact that this financial experiment is likely to fail in the long run and could even lead to another speculative bubble. It is believed that anyone can make money, but the thing that prevents it from being hoarded is whether the market and investors accept it.
When it comes to a new currency, the degree of acceptability depends on the issuer's capacity to ensure that a wider audience assimilates it. The strength of the money will increase with the issuer's ability to influence how it is used.
Here are six reasons why Bitcoin will fail
No Real Value
Since the end of the gold standard, some users have claimed that fiat currency also has no real value. However, this is untrue because fiat currency has the value of the government's assurance, just as how it is mentioned in the US dollar's designation as "legal tender" (10) and other fiat currencies indicate that they are issued by the government, which also has the authority to tax citizens and businesses and therefore can sell public assets, issue bonds, and provide other forms of currency insurance.
These are certainly the powerful forces that assure users that the value of the fiat currency will last for a long time, just as stocks have genuine value because of the company's capacity to turn a profit from the products and services they sell. Because businesses buy them as raw materials to create products and services, commodities have real worth.
Bitcoin only has value when an investor is prepared to pay for it in the sense of a work of art, but even works of art have the power to enhance the environment in which they are displayed, unlike bitcoin, which only has value as a virtual good.
Whether or not merchants require it, bitcoin is a lousy currency because of its volatility. Similarly, if a user has a bitcoin, the decision of whether to use it to buy something or not arises because many people would prefer not to use it for that purpose. This is due to users purchasing bitcoin, hoping its value would increase as a speculative investment.
The concern that bitcoin's value might increase by 20% or more two weeks from now, or even the following day, prevents users from paying with it. For that reason alone, merchants refuse to accept it as payment because they don't want the value to decrease by 20% or even more.
Competing with fiat currencies
Advocates of bitcoin certainly contend that it will displace fiat currency. If this is even a remote possibility, it might cause a problem for national currencies if central banks shift to using bitcoins, which is evidently out of anyone's control.
This would eventually be fatal for their monetary systems, as countries like China (11) have already banned bitcoin trading and mining, which indicates no country will adapt to bitcoin rather than issue their version and later ban it bitcoin.
Bitcoin investment is not blockchain investment.
Cryptocurrencies that use the most recent blockchain technology are known as stablecoins since they are backed by actual assets, such as fiat currencies. Their sole fluctuation is their underlying assets, so these digital coins can be used as currency.
However, superior blockchain solutions are accessible, so they do not compel one to invest in bitcoin as it does not give users access to blockchain technology.
Bitcoin mining is not environmentally friendly.
More criticism of Bitcoin eventually stems from miners' processing transactions that require a lot of processing power in exchange for bitcoin rewards. According to estimates, the Bitcoin network consumes as much energy as countries like Norway (12) and Argentina (13) combined.
Furthermore, the specialized equipment required for Bitcoin mining generates a lot of electronic waste, which has sparked outrage among environmentalists.
Other cryptocurrencies offer wider features.
Bitcoin was eventually compared to gold or a hank of virtual metal demonstrating the underlying intrinsic value of cryptocurrencies. The only reason the market values it is that people place value on it. Beyond the mechanisms by which bitcoin lives and dies, gold offers functional benefits.
Gold (14) is highly expensive and malleable, making it simple to create jewelry and other artistic aspects. It does not react with oxygen and does not rust or tarnish like other metals. While other cryptocurrencies with actual gold-like capabilities can do it, bitcoin cannot be used to create a 50-mile thread or be used in the micro-manufacturing of electronics or the area of dentistry.
For instance, using Ether (15) grants users access to the Ethereum blockchain (16), which hosts numerous NFT-based digital assets (17) or NFT domains (18), as well as peer-to-peer lending. Being the second-largest cryptocurrency by market capitalization, it was the first to use blockchain-based smart contracts, which are to thank for several important developments, including non-fungible tokens (NFTs) and decentralized finance (DeFi) (19), which significantly contributed to the recent explosive growth of cryptocurrencies.
Bitcoin's network's inability to use smart contracts could render it redundant in the long run. Ethereum, on the other hand, is a ledger technology that offers multiple purposes beyond just a currency, making it significantly more robust than Bitcoin. However, both Bitcoin and Ethereum operate on blockchain technology.
Cardano (20), a third-generation cryptocurrency asset, aims to overcome one of Bitcoin's main problems: sustainability. Environmentally conscious consumers will find the Cardano blockchain much more appealing because it uses a small fraction of the energy that Bitcoin does not. If Bitcoin's energy usage problems are not resolved, Cardano might overtake it as the leading cryptocurrency.
Many cryptocurrency networks believe that Bitcoin can process fast transactions at a rate of about seven transactions per second (TPS). With its ability to process more than 50,000 TPS, the Solana blockchain (21), however, elevates transactions to a new level. Because of this, it is even more scalable and appealing than Bitcoin, whose slow rates might someday make it useless.
Since its inception, Bitcoin has made commendable strides, as evidenced by its acceptance as legal tender in El Salvador (22). However, it is also clear that the digital asset still faces several difficulties related to functionality, sustainability, scalability, and volatility, which must be resolved to prevent the edifice from collapsing.
While the closest rivals have already made significant progress toward fixing and adapting to the solutions, the most ardent critics of the cryptocurrency have predicated their forecasts of Bitcoin's doom on these key flaws, and for bitcoin to survive, it must too.
Bitcoin developers are renowned for their relentless work on the network and their ongoing search for ways to improve it. The new upgrade to Bitcoin's Taproot (23), which aims to address the network's scalability and functionality problems, is now or never for Bitcoin.