Overview:
Bitcoin is the asset with the largest market capitalization in the cryptocurrency space.
Which in other words means that investors have allocated the most money into this asset compared to all other crypto assets. Thus, making it the most trusted and valuable of them all. Today we are going to analyze the strengths, weaknesses, opportunities, and threats of Bitcoin and the Bitcoin network as a whole.
Bitcoin Strengths 2021:
- Νo centralized control, resulting in permissionless and borderless transactions.
This is the core advantage of Bitcoin, and cryptocurrencies in general. Transactions can’t be disapproved by any central authority e.g like a traditional bank. Each user transacts directly and freely with the other user, as there isn’t a single authority that controls it. - Established trust and proven network reliability.
Since 2009, users have completed millions of transactions successfully. During 2020 and 2021 there were around 300,000 daily transactions. As a result, bitcoin has currently the largest user base. - Bitcoin’s Value is derived from actual scarcity.
There is a finite number of coins in existence. The total number of which is 21 million. So far, about 18.5 million are in existence and there 2.5 million left to be mined. The mining rate is being reduced roughly every four years. As a result, the last bitcoin is expected to be mined in 2140. - Hedge against inflation and store of value.
This is a scarce asset, and no more can be created or printed out of thin air. As a result, the asset’s value is protected against inflation. This means that overtime the purchasing power of a set amount of bitcoin remains the same or increases. Many investors choose it as a store of value, in a similar way they do with gold. - Can be stored safely offline and be transferred physically with ease.
Unlike traditional hard assets like gold or other precious metals, billions of dollars in value can be easily transported via a hard wallet that can fit in your pocket. Your private keys are stored in this hard wallet. In this way, they are isolated from the internet. Thus, the risks of online attacks or exchanges denying access to your assets are minimized.
Bitcoin Weaknesses 2021:
- Price Volatility.
Bitcoin’s price volatility means that your wealth fluctuates on a daily basis. If you need to liquidate part of your holdings to cover an emergency expense, you might have to even sell at a loss if the timing is bad. Holders are aware of that and plan their moves accordingly. - Transaction time and cost due to the scalability issue.
Each bitcoin transaction in order to be completed has to be added to the public ledger of all transactions, the blockchain. This is accomplished through the miners. They validate and add each transaction to the blockchain while receiving a reward that compensates for the needed energy and computing power. This reward is the fee that users have to pay with each transaction. However, there is a limit to the number of transactions that each new block can contain. Transactions with the highest fees are prioritized. The network congestion makes users want to spend more and more on fees in an attempt to get their transaction confirmed faster. - No middleman type of buyer protection when you make a purchase with Bitcoin.
If you use Bitcoin in order to buy goods or services with it you have to keep in mind that all transactions are irreversible and final. There is no middle man like a bank, or Paypal that can freeze funds or force the other party to provide a refund for whatever reason. You have the sole responsibility to trust the other party you are transacting with. As always, with great power comes great responsibility. - If you lose your hard wallet or forget your password, you permanently lose access to your wealth.
If you decide to store your private keys in a hard wallet you have once again the sole responsibility for it. It’s the digital version of having physical gold in a safe. There is always the possibility of someone stealing it. If you lose your wallet, or it is destroyed you can lose access to your coins forever.
Unfortunately, it is also very common for users to forget passwords they have set to wallets. Most of them are designed to encrypt everything after a set number of failed login attempts. One of the most known cases is that of Stefan Thomas. He has 2 attempts left in order to access his IronKey wallet containing 7,000 Bitcoin. All in all, access to 20% of the total mined bitcoin is estimated to be permanently lost according to Chainalysis.
Bitcoin Opportunities 2021:
- Mass adoption, Rapid User Growth & Institutional Investors.
Cryptocurrencies in general are becoming more and more popular. The overall yearly user growth οf bitcoin, is greater than the growth rate of the internet was! It took 7.5 years for the internet to go from 130 million users to 1 billion. Bitcoin is expected to do the same in the next 4 years. Active addresses have in fact doubled from 2020. This growth has a lot to do with the increasing institutional investors & corporations that want a piece of the pie. This gives even more confidence to the rest of the retail investors, and everything moves in an upward spiral. - Solving the scalability problem fast enough.
As we priorly mentioned, bitcoin has a transaction per second limitation. Which means that the ever-increasing user base will start facing a constant increase in delays and fees.
Developers are trying to address this issue by introducing the lightning network. This is a second layer added to the bitcoin network that will make transactions quicker and less expensive. This was possible because transactions could now be done outside the blockchain, thus deloading the main chain out of congestion. - Create transparency in government budgets and fiscal policy.
The blockchain technology could be used in order to reduce corruption and improve the transparency in government budgets. All transactions are public record, and therefore nothing can be hidden.
Bitcoin Threats 2021:
- Possible Regulations.
Most of the benefits of bitcoin general could be eliminated if governments around decide to force strict regulations. Their main focus is finding the right formula’s on how bitcoin and crypto should be taxed. However China has taken a step further by banning the usage of all unoficcial digital currencies. - Technical problems that we could not be aware of yet.
Many critics have already spoke about Bitcoin’s scalability problem, slow transaction times and cost of transactions. However, there could be technical problems or vulnerabilities that we are not aware of right now. Possibly resulting in hacking attacks and network damages. - Environmental impact.
Bitcoin mining is an energy based activity. Computer Proccessors working hard to solve the next problem and mine the next bitcoin. This energy currently comes mainly from coal and other fossil fuels, resulting in a big carbon footrprint. According to Reuters, the estimated yearly carbon dioxide emissions are between 22 and 22.9 milion metric tones.
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