I love cryptocurrencies, but I don't love Bitcoin. While Bitcoin pioneered the cryptocurrency movement and brought the idea of digital currency into the mainstream, I hope that Bitcoin itself soon comes to an end. Better cryptocurrencies exist—cryptocurrencies that were able to learn from Bitcoin's successes and mistakes—and we should use those, instead.
Through various social and design flaws, Bitcoin has struggled to be a currency. It is beautiful as a proof-of-concept. But I don't believe that Bitcoin is anything more than simply a proof-of-concept for cryptocurrencies. Other cryptocurrencies like Ethereum and Ripple have taken the ideals of Bitcoin—decentralization and freedom—and improved upon them. Neither are perfect, but they are both more likely than Bitcoin to be adopted as standard, everyday currencies. And to change the world, Bitcoin needs to be more than a immobile long-term store of value.
Unlike some cryptocurrencies, Bitcoin is inviable as a day-to-day currency.
Bitcoin has skyrocketed in popularity, price, and volume. The number of transactions on the peer-to-peer network is rapidly increasing, but the infrastructure hasn't been able to keep up. Bitcoin blocks, the cryptographically-secured subdivisions of the blockchain that are generated every ten minutes or so, can only hold 1 megabyte of transactions. This means that space in the blockchain is expensive.
Miners decide which transactions to include in each block based on the transactions' fees. Every transaction leaves a small amount of Bitcoin for the miner as an additional incentive to mine, but this transaction fee has historically been very low. High prices of Bitcoin, however, and increased activity on the network has driven up the demand for space on the blockchain, thereby also driving up transaction fees. In recent days, transaction fees averaged $26 dollars.
A $26 dollar transaction fee—on every transaction, no matter how small—makes the transfer of small amounts of Bitcoin inviable. Bitpay, a company that made Bitcoin payments more accessible, imposed a $100 minimum transaction amount out of necessity. Because of major congestion on the Bitcoin network, it has become inviable as a day-to-day currency.
Bitcoin Cash was created as a solution to this problem. There is eight times as much space in a Bitcoin Cash block as there is in a Bitcoin block, so more transactions can be fit in. This increase in supply drives transaction fees down, and Bitcoin Cash users pay on average about fifteen cents per transaction. Ethereum’s transaction fees (calculated through a system called gas) are similar to those of Bitcoin Cash.
Bitcoin can’t do work.
In and of itself, Bitcoin holds no value. This isn’t a problem—the dollar is no different, after all—but other cryptocurrencies do have innate value. Ethereum, through its “smart contract” system, can be used as a network for other cryptocurrencies and can be used to do computational work.
The Ethereum Foundation itself puts it best:
Ethereum is a decentralized platform that runs smart contracts: applications that run exactly as programmed without any possibility of downtime, censorship, fraud or third party interference.
These apps run on a custom built blockchain, an enormously powerful shared global infrastructure that can move value around and represent the ownership of property.
This enables developers to create markets, store registries of debts or promises, move funds in accordance with instructions given long in the past (like a will or a futures contract) and many other things that have not been invented yet, all without a middle man or counterparty risk.
If Bitcoin is gold, Ethereum is oil.
Bitcoin is volatile.
Bitcoin—and cryptocurrency in general—is notorious for its rapid and unending price fluctuations. This is not an issue isolated to Bitcoin; the entire cryptocurrency market experiences these swings. Still, until cryptocurrencies are seen more as an investment or currency and less as a bet, these price swings won’t cede. And unless the price of Bitcoin stabilizes, it has no hope of mainstream adoption.
Bitcoin is a waste of energy.
The Bitcoin network uses more energy than all of Norway. It’s the most powerful compute network in the world and it spends its time guessing cryptographic hashes. Ethereum, though similarly energy-intensive, does more than simply uphold its own payment network. And Ripple, though similar in transaction volume, by design uses far less energy than either Bitcoin or Ethereum. Until Bitcoin becomes the payment network of the global economy (which is more likely to be a title reserved for Ethereum, given its advantages), I cannot personally justify its expenditure of energy.
Bitcoin is slow.
When making everyday purchases, we expect for our payment process to complete within seconds. Bitcoin transactions require at best ten minutes and, at worst, days to complete. Other cryptocurrencies have made strides toward improving these wait times, called confirmation times, and often with great success. But Bitcoin remains burdened with long transaction confirmation times, and therefore will not see everyday use anytime soon.
To be fair, many Bitcoin proponents tout the cryptocurrency not as an everyday currency instead as a decentralized store of value. This argument is not without its own problems, however: Bitcoin is decentralized, yes, but a handful of major exchanges control most of the market liquidity. As a result, Bitcoin is only truly decentralized until you try to convert your Bitcoin to something else.
Bitcoin is decentralized as a peer-to-peer payment system, but not as a long-term store of value. It’s true that no single entity can come and take your Bitcoins, but if you want any serious amount of liquidity, you’ll have to go to one of the big exchanges—like Coinbase (GDAX), Gemini, or Bitstamp.
Does Bitcoin hold value? Plenty of people seem to think so. Does Bitcoin have a purpose? Of course — as a semi-decentralized store of value. But Bitcoin's days as a decentralized currency fit for everyday use are long over, and better cryptocurrencies—like Ripple and Ethereum—have taken its place. And unlike gold, Bitcoin isn't shiny. Will it stand the test of time?
Personally, I think the answer is no. The future of Bitcoin—though more accurately, cryptocurrency in general—is not Bitcoin but Ethereum or Ripple.