Even from the very brief description so far in this series of articles you can see that Bitcoin is a kind of cool and weird form of money. However it has some very serious problems.
- Bitcoin is slow. In fact it’s deliberately slow and wouldn’t work if it were significantly faster. It’s slow in the sense that it takes a long time to process a single payment and that not many payments can be processed in a given time.
- It uses enough electricity to power a small nation, and enough computers to do a lot of computing. All that power doesn’t make it fast. The computers aren’t actually processing payments.
- There’s no easy way of checking that a payment you have made has gone through successfully. You have to wait an hour after it shows up in Bitcoin. Then if it’s still showing as having gone through where you’re looking then it probably has, but may not have done.
- Because the number of payments that can be handled is small you currently have to pay a transaction fee to get your payment processed in a timely way. At the time of writing this fee is equivalent to about 50 US cents (and has been significantly higher). This makes it uneconomic to use Bitcoin for small payments.
This series of articles will explain in detail the exact issues surrounding all of these technical issues. If you read the whole thing you’ll hopefully understand why each of them exists and why they are difficult to fix.
Can We Fix It?
It is of course possible that all of the technical problems can be solved in the future, although it may not be Bitcoin that fixes them. There are some very smart people working on fixing the main problems. However, they’ve been working on this for some time and no one’s come up with any convincing solutions yet. Again I discuss this further in later articles.
- Bitcoin’s price is extremely volatile. There’s no-one managing it to ensure it’s stable, unlike regular money which has central banks performing this function. Whilst this price volatility can be fun for the speculators it’s hard to see how something so volatile can become a mainstream form of money. It’s not a stable source of value.
- Since Bitcoin may be useful to criminals traditional banks are very suspicious of it. Of course banks get heavily fined if they aid and abet money laundering. They are expected to know where the money they are banking has come from, something that can be impossible with Bitcoin. As a result many of them won’t touch any money that was Bitcoin, even in a previous form. They’ll let you buy it (usually) but if you’ve sold it back into regular money they may not let you bank or spend the proceeds.
- Some governments, notably the Chinese, are very suspicious of a form of money out of their control and with associated claims that it will remove the need for governments. To their credit, most Western governments are more relaxed than the Chinese, possibly because they think the claims are unlikely to be true.
The next article will start looking at some of the technical features of Bitcoin in more detail.