3 disadvantages that make Bitcoin vulnerable to other virtual currencies "taking the wave"
“Bitcoin is not as anonymous as people think and Bitcoin 'mining' is bad for the environment. It also doesn't perform well as a currency.”
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According to economics professor Eswar Prasad of Cornell University, Bitcoin - the largest and most famous virtual currency in the world today - has many disadvantages that make it possible to be "overtaken by other virtual currencies".
“ Bitcoin is not as anonymous as people think and 'mining' Bitcoin is bad for the environment. It also doesn't perform well as a currency, " Prasad, who served as the head of the China branch of the International Monetary Fund (IMF), told CNBC on June 17. “ It is interesting that other cryptocurrencies find ways to address those disadvantages of Bitcoin .”
According to Professor Prasad, one of the biggest disadvantages of Bitcoin is that the process of 'mining' Bitcoin and the operation of this virtual currency payment system consumes too much energy.
“ The amount of electricity consumed when validating transactions on the Bitcoin blockchain as well as the Bitcoin mining process is definitely not good for the environment ,” Mr. Prasad said.
Last month, Tesla CEO Elon Musk said the company would stop accepting Bitcoin as a means of payment due to environmental concerns. This caused the Bitcoin price to drop by 5% in a few minutes. However, last weekend, Mr. Musk "turned 180 degrees" when he announced that he would accept Bitcoin again if Bitcoin "miners" used clean energy to mine this virtual currency.
To mine Bitcoin, “miners” must use specialized computers to solve complex mathematical equations, allowing for an efficient transaction. The reward for their effort is Bitcoin units. According to the Cambridge University Bitcoin Electricity Consumption Index, the whole process of creating one Bitcoin consumes a huge amount of electricity, even more than the total electricity consumed in countries like Finland, Switzerland.
Meanwhile, Ethereum - the second largest cryptocurrency by market capitalization and often seen as an alternative to Bitcoin - is mined in a way that consumes less energy, Mr. Prasad pointed out.
Unlike Bitcoin, which uses the Proof of Work algorithm for mining, Ethereum has switched to the Proof of Stake algorithm, which reduces energy consumption significantly. With this algorithmic upgrade, Ethereum “miners” are incentivized with rewards, paid in Ethereum to keep them online and keep the network in check. This eliminates the energy-consuming race of the Proof of Work algorithm because it does not need to use huge computing power to validate transactions.
According to the Ethereum Foundation, the new algorithm reduces the power consumption of the Ethereum system by 99.95% compared to before.
“With significantly less energy usage, Ethereum can offer more benefits than Bitcoin. This also makes Ethereum transactions cheaper and faster,” commented Prasad, but emphasized that Ethereum has not reached that level yet.
NO ANNOUNCEMENT AND NOT GOOD MEANS OF PAYMENT BILLION
According to Professor Prasad, the second disadvantage of Bitcoin is that this virtual currency is "not so anonymous" as many people think.
Earlier this month, US law enforcement agencies said they had recovered $2.3 million worth of Bitcoin in ransom payments that lead pipeline company Colonial Pipeline had to pay hackers. in the cyberattack on the pipeline system in May.
The US Federal Bureau of Investigation (FBI) said that agents have identified a virtual currency wallet that hackers used to receive ransom from Colonial Pipeline.
“ The main idea of Bitcoin is to give users anonymity. However, reality shows that if you use Bitcoin a lot, especially when using Bitcoin to buy real goods and services, your virtual identity can lead to a real address or identity ,” Mr. Prasad explained. .
The Cornell University professor also emphasized that it is interesting that many other virtual currencies overcome this drawback of Bitcoin and help users better anonymity, such as Monero or Zcash.
“That downside of Bitcoin is sparking a search for a better alternative. People seem to be looking for a medium of exchange that doesn't require them to go through a trusted institution like a government or a commercial bank - even though it hasn't actually done so yet, ” said Prasad.
The professor pointed out that Bitcoin's third major drawback is that it doesn't perform well as a currency.
“ In theory, Bitcoin was born as an anonymous and efficient exchange. However, it does not do this function well. Using Bitcoin to pay for goods and services is slow and cumbersome. Meanwhile, the market is very volatile, ” Mr. Prasad pointed out.
Last month, Bitcoin plummeted in just one session when it "evaporated" up to 30% of its value.
“ Today, you can bring Bitcoin to a store and get a cup of coffee, but the next day, with the same amount of Bitcoin, you can enjoy a sumptuous meal. Therefore, Bitcoin does not function well as a medium of exchange at all ,” he said.
Professor Prasad emphasized that many people are now buying Bitcoin because they see it as a speculative asset, rather than wanting to use it as a tool of exchange.
According to data from Coinmarketcap, Bitcoin traded at 37,771 USD at 9am on June 18 (Vietnam time), down 2.47% compared to 24 hours ago.
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