In less than 20 years, the value of Bitcoin has soared from literally nothing to a market cap worth billions. While this is no small feat, and cryptocurrencies are finally gaining attention from the crowds, the biggest challenges for the crypto economy are still to come.
While Bitcoin, and cryptocurrencies overall, and more widespread today than ever, the path forward could prove challenging. We’re going to look at the biggest challenges on crypto’s road ahead.
KYC and Legal Requirements
KYC, or “Know Your Customer”, is a legal requirement for many businesses in many regions of the world, including the UK. For users hoping to stay anonymous, this is naturally a point of conflict. The fact that cryptocurrencies aren’t governed by any centralised organisation means there is no compliance with these laws, but if crypto were to become more popular, this would create friction.
One main advantage of Bitcoin is the privacy, security, and anonymity that comes with it. Users enjoy playing at anonymous casinos, making payments to strangers in an easy way and simply not having to give out information to companies where they don’t find it necessary.
How the implementation of Bitcoin in more and more businesses would handle the KYC aspect without compromising the integrity of Bitcoin is a big challenge that could prove tricky to take on.
The Issue of Scalability
For blockchain technology to become a larger part of the financial system, it would naturally have scale – something that could turn out to be a problem. Due to the fact that the very mechanism of blockchain technology requires all nodes in the network to validate transactions, the number of transactions that can occur per second is limited.
This means that external programming and new solutions will be needed for currencies like Bitcoin to become part of the financial system. Around 11 million transactions on UK cards alone occur every single day, adding up to around 7,500 transactions per second – compared to the 7 transactions per second that Bitcoin can handle.
Environmental Impacts of Bitcoin Transactions
Taking the example of Bitcoin again, we’re already seeing a big environmental problem. Bitcoin consumes an estimated 91 terawatt-hours (TWh) of electricity every year – and growing. This is more than the whole country of Finland uses!
While there are more environmentally friendly coins, crypto transactions by nature take up a large amount of energy. Removing the blockchain approvals would compromise the whole decentralised nature that crypto is based on.
Lack of Consumer Protection and Governance
The absence of consumer protection, fraud prevention, and governance is already causing trouble, and would only continue to do so if crypto became more widespread. While a big part of the appeal of cryptocurrencies like Bitcoin to many people is that there is no governmental authority, this feature also leads to trouble and makes any kind of intervention impossible.
For those that have lost the keys to their wallets, the money is gone forever. People who have fallen for fraud or have their information stolen don’t stand a chance of getting their money back. And when illegal activities occur within the Bitcoin ecosystem, there’s also no way to investigate and intervene.
Many believe in crypto due to the lack of governmental authorities regulating cryptocurrencies, but as adoption spreads, these gaps in protection and governance could become very problematic.
The Future of Crypto – Can These Challenges Be Overcome?
Transitioning the traditional finance system into something that takes advantage of technological innovation to automate tasks and increase security, we need solutions, compromise, and experimentation.
In its current form, Bitcoin will never take over due to severe limitations, but that doesn’t mean blockchain technology won’t ever have a place in everyday banking systems. All it means is that we have to solve complex problems and figure out the path forward as we go. In the end, isn’t that what technological innovation is all about?
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.