3 reasons why the death of Bitcoin is inevitable
January 8, 2018
Possibly an even hotter buzzword than the “Cloud”, Bitcoin has been on the tips of everyone’s tongues for the last year. It’s incredible to see it’s popularity surge. There are stories a-plenty of people making huge sums of money by trading the currency, and also materialistic tragedies of those who’ve lost out.
But it’s not here to stay, and here’s why.
1. It’s expensive to trade! £22 minimum spend? No thank you.
A core concept in Bitcoin is transaction fees. Whenever a transaction is made, a cut is taken by a miner (anyone running mining software) as payment for ensuring that the transaction is valid. The problem is, the transaction fee is dependent on two factors; the size of the bitcoin network (in terms of miners) and the number of transactions waiting to be validated. In August 2017, the average transaction fee on the Bitcoin network was $1.6 USD. As of the 22nd of December 2017, it was a whopping $55 USD! It’s currently settled to around $30 as of Jan 2018. What this means, is that any transactions for amounts less than the transaction fee are essentially pointless. It’s like having a minimum spend on your debit card of $30USD (£22 GBP)! As the network grows, this fee will only increase.
2. It’s slower than my Grandma’s dial up modem
Aside from the transaction fees, another side effect of requiring a miner to validate every transaction is the speed of the validation itself. As of today (8th Jan 2018), the average time taken to approve a single transaction is 124 minutes. That’s two whole hours of wondering whether the guy who bought your second hand doo-dah has scammed you or not. Believe it or not, due to peak usage on New Year’s Day 2018, the average transaction time was a whopping 3564 minutes, or 59.4 hours. Not practical. And again, this is likely to increase with time.
3. When Quantum Computing really kicks off, it’s game over.
Quantum computing is emerging at an incredibly fast rate (Microsoft have released their Quantum Development Kit already!). It allows us massive (~10,000x) speed increases when working out certain types of problems compared to todays classical computers. The Register has a great little writeup here on exactly how fast.
Right now, only a few big players (namely Google and NASA) have access to very small quantum computers, but within the next decade, I expect to see affordable processors for SME’s on the market. Microsoft’s Toolkit currently uses a simulator to emulate a quantum processor on classic technology, but this is extremely slow.
Now, Bitcoin relies on a computer working out an answer to a complex question in order to ‘mine’ a new block, validating transactions. If an individual had access to a moderately powerful quantum computer, they could effectively take control of the entire network due to their immense processing power, and render the whole Bitcoin economy useless. It’s a little way off in the future, but it’s worth thinking about now.
Will the death of Bitcoin be the death of Cryptocurrencies?
No. Definitely no.
There are lots of proposed solutions to the three problems listed above, but nothing can really be done in the long term to “fix” Bitcoin. We will need to change our approach to Cryptocurrency.
One such approach could be a BlockDAG (or “Tangle”), as opposed to a A Blockchain is a data structure used to store large amounts of data in a private manner, in the public domain. Cryptocurrencies such as Bitcoin make use of the Blockchain to record transactions and keep track of people's balances. Individual blocks are made valid by mining, and then chained together to create a continuous ledger of transaction data. Here's a diagram from the Financial Times to explain more.... (which most popular cryptocurrencies use). BlockDAG stands for Block Directed Acyclic Graph, which can be thought of as a more decentralised version of A Blockchain is a data structure used to store large amounts of data in a private manner, in the public domain. Cryptocurrencies such as Bitcoin make use of the Blockchain to record transactions and keep track of people's balances. Individual blocks are made valid by mining, and then chained together to create a continuous ledger of transaction data. Here's a diagram from the Financial Times to explain more..... The great thing is, it’s not susceptible to quantum processing attacks, and doesn’t slow down as the network increases. As another bonus, Miners aren’t needed to validate transactions, so transaction fees don’t apply… I’d expect to see this really take off in 2018.
If you’re thinking about buying into DAG / Tangle based currencies, why not check out IOTA – a very promising new currency which is built upon Tangle tech.