What are the challenges associated with Bitcoin and its future?

Bitcoin and other prominent cryptocurrencies have gained much attention over the last several years. Globally known as digital coin and virtual currency, this cryptocurrency is gained and traded within the blockchain system. The blockchain technology adopted in using cryptocurrency has raised eyebrows within the banking sector, government, stakeholders, and individual investors. The rise of the cryptocurrency within this decade since the inception of Bitcoin in 2009 has taken the market by storm. Cryptocurrency is anticipated as the future currency that might replace the current paper currency worldwide. Even though the interest has caught the attention of users, many are not aware of its opportunities, drawbacks, and challenges for the future. Research on cryptocurrencies is still lacking and still at its infancy stage. 

Bitcoin is the oldest and currently the highest valued cryptocurrency in the market. According to Coinmarketcap.com, BTC’s present market capitalization is US$825.61 billion. However, bitcoin and many other cryptocurrencies are faced with several challenges and hurdles. Some of these issues are well-known and are spoken of quite often, but some have an ethical, social, technological, and political impact, and BTC is currently facing these issues. This article provides a list of the 10 most prominent challenges faced by bitcoin is presently facing.

Volatility: 

Bitcoin has been incredibly volatile since it was created. Experts predict that the price of BTC coins might reach as high as a million in a few years, and some say that it might even go down to zero. This environment has made bitcoin extremely popular among investors who believe that the price may rise even more, but it some fall significantly.

Cybertheft

Several guidelines exist to make BTC almost impossible to steal, but taking advantage of this system requires intricate knowledge about bitcoin’s working system and significantly more effort on the part of the user. In fact, many reports suggest that buyers lose their investments on exchanges and mining losses. Also, exchanges can be hacked despite the presence of a smart wallet.

Inability to self-regulate

Due to the lack of accountability on bitcoin, it is difficult to regulate its market behavior solely depending on the financial incentives. This causes several problems like smart contracts and other hacks plaguing the market, scammers can create fake investment crowdfunding and then run off with the money, and other related consequences. If bitcoin cannot be regulated internally, buyers will easily lose confidence to invest.

Tax issues

Presently, under the law, BTC is considered as intangible property, which means they are subjected to capital gains taxes. If the investors buy bitcoin and sell it at a higher price, they will be required to show the difference in their taxes. Every time the investors buy something with BTC, it will be a taxable event.

Scalability

The underlying technology behind Bitcoin is blockchain, which limits the amount of information that can be contained in each block to 1 megabyte of data. This limitation allows the network capacity of three transactions per second. As more and more transactions are executed, the more difficulty the network will face to keep up the records, resulting in serious processing delays.

Very less mainstream adoption

Over the years, it has become easier to buy, sell, and use bitcoin, but still there are not many user-friendly investors to encourage mainstream adoption. If an average person would want to buy BTC, he or she would have to open an account in a bitcoin exchange like Coinbase, linking their checking account, and then wait several days for the transaction to clear.

New technology

Cryptocurrency is still a new technology, which came into existence about 10 years ago. These technologies are changing every day, influencing the market to evolve. The future of BTC is still unclear. Buyers contemplate the incoming conditions of bitcoin and hesitate to invest.

Reputation for criminal use

In the early days, bitcoin was well known on the Dark Web for money-laundering activities, or to purchase illegal items. As the only source of anonymous payment, bitcoin became an easy choice for people dealing with drugs, illegal weapons, and other related items.

Fraud

In addition to hacking, there is a significant amount of fraud in the bitcoin market. With the rise in the popularity of bitcoin, scammers have created fake exchanges to steal money. Several law-abiding organizations have warned against these scam activities where unsuspecting investors are duped into fake exchanges.

Limited use

Since bitcoin has turned out to be a new mode of payment, only a few institutions and nations recognize it as an authorized mode of transaction and as a viable currency.

Patchwork regulation creates uncertainty

Finally, a lack of clear and uniform cryptocurrency regulation — both within and across countries — creates tremendous uncertainty for long-term investors. It is still unclear in the U.S., for example, when a cryptocurrency falls under the regulatory framework of a security subject to Securities and Exchange Commission regulations and when it is deemed to be an asset or commodity like bitcoin and ether have claimed.

Indeed, in some countries, cryptocurrencies are facing outright prohibition. China’s abrupt banning of all cryptocurrency trading and mining in 2021 is a prominent example, but by no means the only one. Regulators have also been concerned with the notable and repeated breakdowns in the infrastructure supporting cryptocurrency mining and trading — another area where there remains significant regulatory uncertainty.

Conclusion

No one can accurately predict what will happen in cryptocurrency markets. While it is clear that there will be increased pressure on tax compliance, there are also great opportunities for legal investment in cryptocurrency. The popularity of cryptocurrencies is growing exponentially at this time. It looks like they are here to stay if not grow even stronger as central banks begin to accumulate them as reserves. As millennials become a larger part of financial markets, expect cryptos to grow with them. Even if individual cryptocurrencies begin to fail, mass adoption of blockchain technology will continue.

As an asset class, cryptocurrencies have slowly emerged over the past decade, and are now increasingly attracting institutional investors. The rise in demand requires a more professional assessment of the underlying sources of risks and opportunities. The calls for better risk management are part of the maturation of the market, which should ultimately include, for example, replacing self-regulation and automated governance with effective supervisory and regulatory structures.

Whether cryptocurrencies will replace fiat money to some limited extent or not remains to be seen. But one truth is clear: the road toward a digital currency requires a clear, comprehensive and global set of standards as it will continue to grow despite the lack in standard regulations. 

Given the meteoric rise of Bitcoin and an increasing number of businesses accepting Bitcoin or other cryptocurrencies as payment modes, cryptocurrency has become a readily emerging currency that we should all keep our eyes on. 

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