Opinions

Downsides of a Hypothetical Bitcoin Economy

The advent of cryptocurrencies brought the idea of decentralization into the financial systems. This not only seeded the idea of building an economy in the future that merely depends on these decentralized currencies which eliminate the need for banks but in present times countries are moving towards digitizing their financial systems based on these digital currencies.

People have introduced currencies that can act transactional currencies for countries, but the idea of using the leading currency bitcoin as the transactional currency didn’t gain much popularity. A number of reasons can be jotted down that explains the reason why the idea seems absurd, the foremost being the issue of volatility. Economies are only as stable as their native currencies. Where the valuations of fiat depend on debt, inflation and a number of other parameters, bitcoin’s historic data related to valuation clearly states that the currency is inherently volatile, and its volatility can be triggered indirectly even by popularity on the internet, statements made by influencers, adoption, halving, etc.

The second reason and the one that most concerns the environmentalists around the world is the impact of bitcoin mining on the environment. Bitcoin mining is a process where complex cryptographic puzzles are solved by using costly GPUs and high-speed machinery in exchange for bitcoins. This way, transactions are verified on the network with the possibility for any illicit activity or double-spending dropped to a bare minimum. This high computing requirement soaks up a lot of energy and hence increases the demand for more. This way non-renewable sources are used which highly damages the environment. If an economy is to be made, more miners would enter the mining pools and the amount of energy required, and the money spent would be unimaginable. Switching to other consensus algorithms before forming such an economy would be a good idea.

Another issue with bitcoin is the constant threat of a 51% attack due to the consensus algorithm loopholes. If one party manages to generate a high enough hash-power they can control 51% of the chain, which can allow them to add transactions on their own. These events have been seen previously in the cases of Ethereum Classic and Bitcoin Cash where people managed to take control of these blockchains.

SEE ALSO: 51% Attack on Ethereum Classic has Been Successful, According to Bitfly

One of the prime examples of an economy moving towards a digitized future is Bahamas, who have announced that they aim to free their country from cash dependency. They aim to form strict policies that would stop tax evasions, terror financing, and money laundering. But the system is based on forming a transactional currency backed by their native currency. Using stablecoins for this purpose seems to be a better idea, as the volatility would make it really difficult for the transactions to be made practical.

SEE ALSO: Bahamas to Introduce their own Fiat Digital Currency to Solve Post Disaster Economic Issues

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Shehryar Hasan

Performing artist, guitarist and sub-editor at BlockPublisher. Shehryar is an electrical engineer and blockchain enthusiast. He holds investments in bitcoin, ethereum, OST, TRX and Ripple. Email: shehryar@blockpublisher.com or contact the editor at editor.news@blockpublisher.com

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