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Fundamental Problems With Crypto Currencies

|Includes: BITCF, BTSC, COIN, Bitcoin Investment Trust (GBTC)


Cryptocurrencies based on blockchains are not suitable for what they've been marketed as: payment networks or even stores of value.

They are good as black market payment networks however.

Bitcoin is fundamentally inferior to cash/credit/debit for personal use in several ways - and it can NEVER be better, by design.

1. Bitcoin has no concept of fraud protection like a credit card or bank account - and it can't. Once something is written in the distributed ledger, you CAN'T reverse it. This is useful - IN SOME NARROW SITUATIONS, for the daily use of cash by people this is ABSOLUTELY OUTSTANDINGLY CRIPPLINGLY HORRIBLE. Even if bitcoin had MANY advantages over cash/credit/debit for personal transactions, (which honestly I can't think of any), this would weigh so heavily as to make it impractical.

2. Bitcoin has high transaction times and will always have high transaction times. Other coins don't but there are always trade offs to be made.

2.5 given 2 and some other properties of bitcoin unique forms of attacks are possible. For instance, if a restaurant accepted bitcoin, bitcoin transactions can take tens of minutes to process, so either you have to sit around waiting for that time after your waiter processes your transaction, or you could just walk out of the restaurant without paying - either way the restaurant loses, so why would they accept BTC?

3. Bitcoin doesn't have perfect privacy and never can - there are some other coins designed with this in mind (gov's CAN track you if they are sufficiently dedicated)... but bitcoins risk of getting made illegal is already very high, for those coins it's even higher.

4. Bitcoin's design means anyone who can hack your computer and get to your bitcoin wallet can steal your money. I have bad news for you guys, you suck at not getting hacked, and even if you were a computer security genius you'd know that it's really impossible to make a computer unhackable without bricking it (cold storage and 2 factor authentication are not exactly convenient and even then bitcoin is less secure than gold as a store of value, except for very narrow threat profiles e.g. you're worried about the government coming after you). And guess what? After 4 take a look at 1.

5. ICO's and similar deals are often illegal equity offerings or similar scams - they're not ground breaking or efficient, they're just quicker because they're breaking the law...

6. Bitcoins have high fees to get transactions processed, and as transaction volumes grow fees will only go up. Some coins alleviate this but there always trade offs made in the process.

7. With bitcoins you don't know who's really in control of the blockchain - and control can shift very suddenly. Because it's distributed. Could a government take over your coin without telling you? Yes. Could they suddenly dissolve it? yes.

8. Properties of bitcoin are not stable - they fundamentally can't resolve any of the above properties, but on top of that new issues pop up over times as bitcoin takes on additional properties (which it's user's don't understand) in response to technological changes. Bitcoin is not secure as a store of value.

9. Here's an example of a real world use for a blockchain: example.
settling inter-bank payments... guess what... none of the 'coins you can buy publicly are involved... and almost all real uses for blockchains will look similar to this... so the intrinsic value of your coin... is probably way under it's current value... uh oh.

10. Bitcoin (and by bitcoin I mean blockchains in general) IS good as a payment network for one class of payments: illegal ones. Digital extortion, drugs, prostitution, etc. Basically any black market transaction. One way transactions are very nice for these kinds of things, enhanced privacy is a major bonus, and there is no single node the authorities can seize to take your ill gotten gains. This is why I believe crypto currencies will eventually be made illegal by pretty much every government.

I own no crypto currencies and won't for the foreseeable future. 

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.