Many myths and lies have grown up about bitcoin. All of this is stimulated by the 2018 gigantic growths. The growths that ended up with an equally huge fall in price. Since March 2019, the popularity of the currency has been growing once again. What will be the final effects of this phenomenon – time will tell. In the crowd of noisy headlines you can see the desire to attract new customers and earn quick money once again. However, we will discuss these negative aspects of bitcoin in today’s article. Aspects that indicate that bitcoin will never be a world currency. Read more about the currency itself at Bitcoin.org
A finite number makes bitcoin like gold.
This slogan is used by many. They repeat that bitcoin is like digital gold because its quantity is finite. And if the amount of gold is also finite, then …. – bitcoin is like gold! Unfortunately this is not the case. Gold has a value because of its properties. In addition, the amount of gold is finite and small compared to other metals. The finiteness of an asset itself is also of great economic importance.
Consequences of a finite amount of bitcoin
Due to the fact that the number of bitcoins was created with a limit, there is a problem. It concerns the fact that bitcoins cannot be inflated by increasing their supply on the market. If the currency does not inflate, it poses a serious threat to its use as a means of payment. If the currency does not influx and its amount is constant, its deflation starts as the economy grows. Just holding a currency means that after a year we will be able to buy more with it. As a result, consumers are refraining from spending money in a given currency. And because of this, consumption in the economy served by the currency is falling. As consumption declines, the economy shrinks and the system stops working. The problem of deflation in this case is similar to what happened to the Japanese economy in the 1990s.
Transaction costs of bitcoin
The original assumption for bitcoin was that transaction costs would be very low. Whether we transfer $10 or $10 million, we will pay the same commission. That is true. However, nobody took into account how high the costs of handling such transactions will be as the system grows. Currently, the bitcoin network uses gigantic amounts of electricity every day to calculate transactions. This means that the price of bitcoin has to rise. The price rises against the dollar and other currencies that can be used to pay for electricity. Maintenance costs for systems are gigantic. Compared to standard banking systems, the maintenance costs of the whole system are proportionally higher. A large part of the banking costs is an organization of the whole company offering loans and other financial products. Bank accounts and transfers themselves are incomparably cheaper.
Does it make sense?
Yes, despite the fact that bitcoin will never be a world currency, its properties resulting from blockchain technology. They make it possible to build dispersed systems allowing to execute some transactions in a cheaper way than standard banking systems.
I sold bitcoins and what now?
If you have been able to sell bitcoin currency and still do it profitably, you may be liable to tax. How to account for profits from bitcoin sales? Are they subject to VAT or PIT? You will learn more about this in this article – the rules of cryptocurrency tax settlement.
