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Ask CryptoVantage: What Are the 5 Biggest Challenges for Bitcoin in the Next 5 Years?
Since its creation in 2009, bitcoin has made significant strides in becoming a legitimate method for storing value. Today, bitcoin is being traded on many exchanges, and plenty of well-respected investors are becoming increasingly involved in the digital currency. But despite all of its traction as a form of investment, the initial purpose behind bitcoin was to become a reliable payment method that is backed by a digital currency. In order for bitcoin to gain widespread adoption, there are certain challenges that need to be overcome in the short-term. These challenges range from technological, to social, to security-based issues. This article addresses five biggest issues that bitcoin needs to tackle in the next five years if it is going to succeed at becoming a widely used currency.
1. Scaling
Currently, bitcoin is only capable of managing about five transactions per second globally. In comparison, Visa can handle roughly 10,000 transactions per second. This large discrepancy in transaction through-put creates an issue when we consider how bitcoin might scale to become a widely used currency. Some technologies are being created to address this issue. For example, the Lightning Network is a technology that enables many payments to be combined into a single bitcoin transaction. The Lightning Network also reduces the need to wait for “transaction confirmations” and allows bitcoin to be more readily used for smaller “day-to-day” transactions. You can read more about the Lightning Network here.
In addition to the transaction through-put limitations, bitcoin’s nature as a digital currency means that it requires significant computational resources. For example, bitcoin requires substantial bandwidth, storage, and CPU usage in order to properly record and validate transaction histories. These computational requirements might inhibit the adoption of bitcoin in some geographical areas, communities, or countries.
2. Social Acceptance
Although bitcoin is over a decade old, the idea of a digital currency is still a relatively new concept to most. There is undoubtedly a social hurtle that needs to be overcome if bitcoin is to be adopted by the general population. One way to begin addressing this issue is to develop a user experience for Bitcoin that can be more easily adopted by people who do not have an interest in the technological side of bitcoin. Certain aspects of bitcoin could be abstracted away to make using it feel more familiar. The more that the learning curve involved in using bitcoin is decreased, the more likely it is that bitcoin will be adopted as a mainstream currency.
In addition to the user experience difficulties, it is imperative that bitcoin become useful in a circular economy. People need to be able to earn and spend bitcoin directly in exchange for necessities.
3. Over-Regulation
It is possible that with an increase in popularity of bitcoin as a currency, governments may begin to heavily regulate bitcoin transactions, or even ban the use of the digital currency all together. Government intervention could make bitcoin difficult, or impossible to use. At the very least, government surveillance of transactions would negate some of the benefits that bitcoin has to offer as a currency.
4. Price Volatility
Some people believe that bitcoin can never be adopted as a mainstream currency because its price is too volatile. With the current price fluctuations of bitcoin, it’s possible that one day you could buy a coffee with bitcoin, and the next day that same amount of bitcoin could have bought you something much more valuable.
One thing that would help stabilize bitcoin’s price is more widespread adoption of the currency. A circular economy involving bitcoin would increase liquidity, and more diverse market participants would help stabilize the price. Figuring out how to balance these two opposing forces on the pathway to widespread adoption will be crucial to bitcoin’s success in the near-term.
5. Security
There are certain security concerns involved in using bitcoin that could completely prevent it from being adopted. For example, it is very difficult to use bitcoin privately. Anyone who knows your public keys can see where you are receiving / spending your money (i.e. your boss could see where you spent your money on the weekend). Other people can estimate your total bitcoin balance quite easily if you aren’t careful. This is a serious security concern that needs to be addressed in order for bitcoin to be useful to the general population for day-to-day transactions.
Additionally, better methods of private key management will decrease the risk involved in using bitcoin – specifically for users with a lower technical aptitude. Better methods for private key back-ups, and protection from other people accessing your funds are needed because there are currently known computer viruses that can steal your private key.
Conclusion
Despite the significant progress that bitcoin has made in recent years, there remain many technological and social challenges that bitcoin must overcome in order to be adopted as a widespread currency. Additionally, bitcoin might encounter challenges that are outside the control of those who are involved in its development, such as government over-regulation. Given the progress that bitcoin has made in the short decade it has been in existence, there are plenty of reasons to believe that these challenges will be addressed
