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What Are the Disadvantages of Bitcoin?

bitcoin disadvantages

January 12, 2021 | 

JOHN K MWANIKI |  0 Comments| 

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Bitcoin has been around for more than a decade. Despite that, this cryptocurrency is still mysterious to most people, and you may be one of them. Regardless Bitcoin has become very popular over the years and has anchored several payment platforms in the digital world. 

You may be thinking, "How do I invest in Bitcoin and profit like everyone else?" This article will highlight the cons of investing in Bitcoin. Having an understanding of both the advantages and disadvantages of Bitcoin will help you make an informed decision. 

Bitcoin is one of the most profitable investments in this era. But, it is still a cryptocurrency, which means that it suffers from several shortcomings that face other cryptocurrencies. Identifying and understanding the drawbacks that come with investing in this independent currency is crucial.

1.Disadvantges of Bitcoin users' exposure to fraud and scams

Bitcoin is the most popular cryptocurrency in the world, and with this comes scams, attacks, and fraud specific to this medium. They include;

  • Ponzi schemes - for example, Bitcoins Savings

  • Massive hacks – for instance, the Sheep Marketplace breaches

Cybercriminals target bitcoin more because the other digital currencies lack a large mass of users. Due to the numbers, it becomes both an advantage and disadvantage of Bitcoin. Owing to the presence of the masses, the hackers know that their malfeasance will prove profitable. 

The hackers also take advantage of Bitcoin being an independent currency. They know that law enforcement prosecutes cybercrime only if it involves traditional currencies and payment platforms. 

2. Bitcoin's high susceptibility to price volatility

Bitcoin is the easiest cryptocurrency to exchange and liquidate currently. One of the disadvantages of Bitcoin is that it has remained volatile even after price fluctuations over short periods. Following the Mt. Gox collapse, there was a 50% drop in this crypto. The value spiked by almost 50% when the FBI announced that Bitcoin alongside the other digital currencies would be validated.

In the last quarter of 2017, this crypto's value doubled several times, only for this to be cut down by half in early 2018. This has resulted in billions of its market value being wiped out almost overnight. These are some of the instances where the volatility of Bitcoin has been glaring. Although you may gain short-term benefits from this volatility, it may not prove to be suitable over the long run.

This is especially if you are a conservative investor looking at a long-term investment. As the cryptocurrency's purchasing power is varied every other week, you may have difficulty using it to exchange.

3. The risk of a damaged reputation as well as the usefulness of Bitcoin

Since Bitcoin became profitable, there has always been black market activity. It targeted at scamming miners and traders out of their money. Over the years, there have been several high-visibility prosecutions of many egregious offenders. Yet, this has not deterred criminals and participants of the gray market from trying their luck. 

The dark web marketplace Sheep, among others, has exposed several Bitcoin users to criminal prosecution and fraud. This may be the most devastating of the disadvantages of Bitcoin for you as an investor.

Apart from the cybercriminals, there have also been cases of illegal activity by actual bitcoin users. The case of Charlie Shrem is a good example. This, unfortunately, puts the reputation of this crypto on the line, which presents a disadvantage of Bitcoin. 

There are no clear indications that the international legal system is equipped to deal with such problems. Thus, if there are more illegitimate than legitimate of Bitcoin over time, the entire system may face marginalization. This is because it can not work; if the authorities cannot stop the shady business.

4. Bitcoin does not offer refunds or chargebacks

This is another one of the disadvantages of Bitcoin that you may face in case you choose to invest. The absence of chargebacks and refunds arises from the lack of a standardized policy. This is not the case with traditional online payment and credit cards. 

If you happen to be a victim of online fraud, you cannot request a Bitcoin refund. For instance, if you pay for a product and the seller fails to deliver, you must accept the loss.

Bitcoin has a decentralized structure. This makes it impossible for a single party to arbitrate a dispute between you and another user. The miners are responsible for keeping records of transactions. But they lack the qualifications to assess these transactions' legitimacy. 

5. Potential replacement by a superior cryptocurrency

There exists a host of newer cryptocurrencies since the introduction of Bitcoin. As much as most of these are like Bitcoin, they have made several improvements. There are even cryptos that make it difficult to identify users or track money flow. Moreover, there are those that have smart systems for holding shady service providers accountable. 

These improved cryptocurrencies have the potential to become an alternative to Bitcoin. Thus, if you choose to invest in Bitcoin and it stops being the dominant crypto, you may be affected. Especially as a long-term trader.

6. Disadvantages of Bitcoin not offering a valuation guarantee

There isn't any central authority that governs Bitcoin. So, there is no guarantee of its least valuation. For instance, a significant number of Bitcoin merchants and traders may decide to 'dump' the crypto, leaving the system. If this happens, the valuation of the cryptocurrency may suffer much. As a user, you may suffer losses if you invest a lot of wealth into Bitcoin. The independence of this crypto will be more of a curse than a blessing in this context.

Conclusion

Bitcoin is currently the most dominant cryptocurrency in the world. This means that you have the potential of reaping benefits from your investment. Analyzing the advantages and disadvantages of Bitcoin will enable you to decide whether to invest in it or not.

The main risks are fraud, price volatility, its high-risk nature, and the absence of refunds or chargebacks. The lack of valuation guarantee and black market activity are also risks to watch out for.

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