Bitcoin is a virtual digital currency that is decentralized in nature. Bitcoins are virtual coins that provide user anonymity to all the users and offers faster payments. As compared to traditional currencies, bitcoins and other cryptocurrencies are expected to take over the financial markets. It is highly convenient to store and transfer bitcoins because the only thing that you require is a bitcoin wallet. You can easily initiate transactions at anytime and anywhere. To understand more about the evolution of bitcoin, you can visit bitcoin profit.
Challenges of bitcoin
The main challenge that is faced by users is the volatile market of bitcoin. There are wild fluctuations that happen in the bitcoin market. It is also a digital currency, which makes it vulnerable to theft and attacks, which is a major issue.
- Costly Transactions
The bitcoin transactions are subject to the transaction cost fee, which creates a pending line of transactions. The transactions are implemented according to the transaction fee that is paid to verify the transaction fast. Users who want to complete their transaction first need`s to pay an extra transaction fee to get it completed. This will in turn, make the transaction expensive. Businesses hesitate to accept bitcoin as a payment method because of the slow and costly transactions it offers. Due to this issue, people are switching to other methods or currencies to complete transactions quickly and easily.
Without getting too deep into the technical details, bitcoin has a serious scalability problem. The underlying technology behind bitcoin, the block chain, limits the amount of information that can be contained in each block to 1 megabyte of data. This limitation allows for a maximum network capacity of about three transactions per second.
In other words, as more and more bitcoin trades and purchase transactions are executed, the network will have a more difficult time keeping up, which could result in serious processing delays. For comparison, Visa's network processes roughly 2,000 transactions per second. So if bitcoin ever wants to achieve a larger scale, something will need to be done. There are several proposals on the table, but the eventual long-term solution remains unclear.
- Less privacy
Another major challenge that bitcoin users face is the lack of privacy. Each transaction is recorded on a distributed public ledger, i.e., on the block chain, making users switch from bitcoin to other cryptocurrencies. People trust bitcoin because they have heard of a misconception that says bitcoin is a private system. But the reality is completely different, and users must understand that the bitcoin network is anonymous but not completely private.
In reality, bitcoin transactions are hashed and not encrypted, and this makes all the transactions available for analysis and public scrutiny. People consider it a privacy concern that must be linked to bitcoin transactions. Many wallets and other projects have reported less privacy, and therefore, it is important to know the wallets and choose the one carefully.
Volatility can both be a technical and economic challenge and is currently a major hindrance to cryptocurrencies becoming a widely adopted payment system as it creates difficulties relating to all three functions of money, but especially the function of store of value. Even though problems faced in traditional financial systems such as ‘bank runs’ are relatively similar to those being faced by crypto-exchanges, the very high volatility of crypto assets has the potential to negatively affect perceptions and hamper their use in all kinds of long-duration transactions. The financial and operational transparency of the scheme is limited and token holders must place their trust in, amongst other factors, the solvency and integrity of Tether Ltd and their custodian.
Can these problems be solved?
The bottom line is that bitcoin and the general concept of a digital currency is still very much in its infancy, and several problems need to be solved before bitcoin achieves mainstream adoption as a form of currency. It's also important to point out that this isn't an exhaustive list -- there are other challenges facing bitcoin. As one example, there's always the lingering threat of government regulation that could render bitcoin illegal in certain areas of the world.
However, most of the problems facing bitcoin can be solved or worked out, and the recent news involving Square Cash is certainly a step in the right direction. Just be aware that it will take some time before you can walk through the mall or local craft market and see crowds of people all paying for their various purchases with bitcoin.