Like any currency, there are disadvantages associated with using Bitcoin:
- Valuation Guarantee
Since there is no central authority
governing Bitcoins, no one can guarantee its minimum valuation. If a
large group of merchants decide to “dump” Bitcoins and leave the system,
its valuation will decrease greatly which will immensely hurt users who
have a large amount of wealth invested in Bitcoins. The decentralized
nature of bitcoin is both a curse and blessing.
- Wallets Can Be Lost
If a hard drive crashes, or a virus
corrupts data , and the wallet file is corrupted, Bitcoins have
essentially been “lost”. There is nothing that can done to recover it.
These coins will be forever orphaned in the system. This can bankrupt a
wealthy Bitcoin investor within seconds with no way form of recovery.
The coins the investor owned will also be permanently orphaned.
- Bitcoins Not Widely Accepted
Bitcoins are still only accepted by a very
small group of online merchants. This makes it unfeasible to completely
rely on Bitcoins as a currency. There is also a possibility that
governments might force merchants to not use Bitcoins to ensure that
users’ transactions can be tracked.
- Bitcoin Valuation Can Fluctuate
The value of Bitcoins is constantly
fluctuating according to demand. As of June 2nd 2011, one Bitcoins was
valued at $9.9 on a popular bitcoin exchange site. It was valued to be less than $1 just 6 months ago.
This constant fluctuation will cause Bitcoin accepting sites to
continually change prices. It will also cause a lot of confusion if a
refund for a product is being made. For example, if a t shirt was
initially bought for 1.5 BTC, and returned a week later, should 1.5 BTC
be returned, even though the valuation has gone up, or should the new
amount (calculated according to current valuation) be sent? Which
currency should BTC tied to when comparing valuation? These are still
important questions that the Bitcoin community still has no consensus
over.
- Risk of Unknown Technical Flaws
The Bitcoin system could contain
unexploited flaws. As this is a fairly new system, if Bitcoins were
adopted widely, and a flaw was found, it could give tremendous wealth to
the exploiter at the expense of destroying the Bitcoin economy.
- Has Built in Deflation
Since the total number of bitcoins is
capped at 21 million, it will cause deflation. Each bitcoin will be
worth more and more as the total number of Bitcoins maxes out. This
system is designed to reward early adopters. Since each bitcoin will be
valued higher with each passing day, the question of when to spend
becomes important. This might cause spending surges which will cause the
Bitcoin economy to fluctuate very rapidly, and unpredictably.
- Buyer Protection
When goods are bought using Bitcoins, and
the seller doesn’t send the promised goods, nothing can be done to
reverse the transaction. This problem can be solved using a third party
escrow service like ClearCoin,
but then, escrow services would assume the role of banks, which would
cause Bitcoins to be similar to a more traditional currency.
- Physical Form
Since Bitcoins do not have a physical
form, it cannot be used in physical stores. It would always have to be
converted to other currencies. Cards with Bitcoin wallet information
stored in them have been proposed, but there is no consensus on a
particular system. Since there would be multiple competing systems,
merchants would find it unfeasible to support all Bitcoin cards, and
therefore users would be forced to convert Bitcoins anyway, unless a
universal system is proposed and implemented.
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