In the wake of 2022, the IMF officially urged El Salvador to unlist bitcoin as a legal tender. Although, that trend started in 2021. China also banned Bitcoin last year for some economic reasons which sound legitimate. In Nigeria as well, it’s up to a year since the Central Bank banned crypto transactions using local bank accounts.
In some countries, mining of Bitcoin was completely banned and miners fled for greener pastures. Even the World Economic Forum had a say in the negative impact of Bitcoin in the world. If it was a human, Bitcoin would be in the ICU of the worst hospital as most national governments will not give it access to the best medical attention. Yet, it seems like it practices self-medication.
While we observe the road Bitcoin will take to emerge better, we need to look at these problems facing the “Okpara” (word for the first son in the Igbo language) of all cryptocurrencies. They have ethical, social, technological, and political dimensions and these include but are not limited to:
Volatility
First, between Jan 2009 and March 2010, it had no meaningful price, then by May of 2010, it became less than $0.01. Sounds hopeful? Nine to eleven months later, it was at $1.00. The skepticism was still there. People still doubted it until it rose from $150 in October to $200 in November of 2011, “mooning” to $1,242 on 29 November 2013. The news went viral but still hidden. By April 2014, it had rover around $340 and $530. Huge loss right? Wait for it.
On 20 May 2017, bitcoin was traded at $2,000. Joy, sadness, and confusion came together here. CNBC published an article and titled it, “If you bought $100 of bitcoin 7 years ago, you’d be sitting on $75 million now” during that period. We thought we had seen enough not knowing that 1 September, 20 November, and 17 December of the same year will see the prices become $5,013.91, $8,100, and $19,783.06 respectively. Like a rush, it plummeted to $6,200 by 5 February 2018.
This has gone on this way until recently. The all-time high of bitcoin is $64,800 while the current price as of 7 February 2022 is around $42k plus. This is volatility in practice. So the question is if we accept bitcoin, how do we protect our assets against this volatile market? This is one major reason behind the fight against this game-changer. Although, the cumulative graph movement of the “big brother” shows an upward trend.
Cyber security
Let’s lay this foundation that Bitcoin as a blockchain is safe and cannot be “hacked”. This has been explained in a previous post. However, bitcoin can be traded on several exchanges which can become a threat to your asset if you save your bitcoin in the wallet of such exchanges.
How does this work? Exchanges have hot wallets in the systems. So, when you buy or sell crypto assets in such exchanges, and they have options of wallets in such exchanges, they can be hacked. There have been several hacks over the years. Bitfinex, Crypto.com, Binance, Coinbase etc have all been hacked.
Now, this is not just a bitcoin problem. It affects all cryptocurrencies. Yet, if it affects bitcoin, then it is taken more seriously because of the value attached to bitcoin and what it represents. This means that your bitcoin can be hacked and stolen if placed in hot wallets or if the key phrase of your wallet is exposed.
Regulations
This is another major challenge Bitcoin is facing. Check the beginning of this post and you’ll see links to previous articles we’ve written on this. So, if the US is finding it hard to have stable regulations for crypto, what do you think will happen to other nations? This does not mean a slam of superiority but it explains how seriously nations are taking steps to get crypto regulated.
Because it has not been done or the process is yet to start, governments are banning transactions around the asset or asking their citizens to be careful and be liable to any loss or gain from any transaction with the crypto market. Bitcoin transactions need regulation. How do we do that? Nobody has a perfect clue other than the instigation of discussions around the steps to take, creating regulations, and adjusting along the road of implementation.
Scalability
Ethereum which happens to be one of the “children” of Bitcoin (Vitalik, Co-Founder of Ethereum, was inspired by Bitcoin development) has become a favorite because of its attribute to provide a layer on which scalable blockchains can be built. The “grandchildren” of Bitcoin like Cardano, Solana, and Avalanche have shown a huge capacity for this. What is the reason behind the scalability challenge?
This is connected with the limited capability of the Bitcoin network to process huge amounts of transaction data on the network within a given amount of time. Remember that this is supposed to be one major advantage of blockchain technologies – a faster transaction rate. However, Bitcoin has not overcome it yet.
So its TPS (Transaction Per Second) is between 3.3 and 7. If more and more transactions are sent to the network, it’ll cause a delay in processing speed. The question now is how can Bitcoin be made faster without jeopardising decentralization and security?
All challenges listed already are triggers for the adoption challenge. But let’s see statistics. The Bank of England has declared that it doesn’t recognise cryptocurrencies as money because they lack some definite characteristics of money – 69 out of 195 countries permit cryptocurrency as being legal however, there are countries in this list that don’t allow their banks to participate in crypto transactions. Examples include Nigeria, Canada, Thailand, and India. Also amongst over 7.9 billion people on earth, only about 106 million people have cryptocurrency of any sort.
Troubling right? For every statistic that is mentioned, you’ll realise that the same goes for Bitcoin which is considered the most popular of all crypto brands. Transaction rate is also another reason that makes it feel like Bitcoin is slow for adoption. Don’t forget that the global voices from environmental activists also hinder the adoption of Bitcoin as well as other cryptocurrencies, especially those that use the Proof of Work model.
These are the major hindrances to the progress of Bitcoin globally. Thanks to initiatives on crypto education that is on the rise primarily because of the adoption of cryptocurrencies with projects like earnathon by CryptoTvPlus, #21daysofbitcoin by Bitcoin Magazine with the presence of SatoshiSarah (where people are incentivised with Satoshis to learn about Bitcoin), European Blockchain Convention, Blockchain Africa Conference, Asia Crypto Week and Bitcoin Conference which is the most popular conference dedicated to discussions on Bitcoin.
The dynamics of the crypto markets are also affected by how healthy bitcoin is. In a few years down the line, there are speculations that the crypto market will be free of the “bitcoin effect”. Personalities like the President of El Salvador, Nayib Bukele; Michael Saylor, and Jack Dorsey are at the forefront of those who think that this revolution is a good one and has come to alter the financial systems for the progress of humanity.
How far will this go on? We can’t tell. Yet, it’s going to be a good drama of global push for control between central banks and the people with the introduction of CBDCs, stablecoins, and regulations.
Which of these challenges do you see as the most terrible for Bitcoin?
