The one question I’ve been asked more than any other over the past few months is what do I think of Bitcoin and other cryptocurrencies. Specifically, are they the future of money? The answer is no.
There are a host of reasons why cryptocurrencies like Bitcoin will probably not supersede government fiat money. Lack of security, hackability of accounts and price volatility are foremost. Perhaps these are solvable. However there are three reasons why Bitcoin definitively cannot and will not ever be considered mainstream money.
1. The environment impact of Bitcoin (and similar blockchain based cryptocurrencies) is atrocious because the electricity requirement for Bitcoin mining is enormous. Sooner or later (and this has already begun), municipalities, governments and regulated utilities will prohibit and/or tax cryptocurrency mining due to its environmental impact. Further, private individuals will be shamed from using such currencies as the environment impact becomes more widely known.
2. There is unlimited supply of cryptocurrencies. To be clear, the supply of any single currency, such as Bitcoin, is not unlimited. In fact, for Bitcoin the ultimate supply is capped (in and of itself another problem since the quantity of money should more or less grow with the economy). But there are literally thousands of such currencies that exist today and untold more that can exist tomorrow. With the underlying technologies public knowledge, there are no barriers to entry to prevent new cryptocurrencies from being created, and no limit to the supply of money.
3. The foundation of cryptocurrencies and blockchain technology is that they are decentralized. That is, accounting and transaction records exist not on a single computer (i.e. of a government or a bank) but on many private computers. The purpose, of course, is to keep transactions private and out of the view of government agencies. How long do you think governments would allow this to continue if more and more financial transactions became untraceable, unregulatable and untaxable? Not very long, methinks. Simply put, the governments of the world will not allow cryptocurrencies to become mainstream money.
If not mainstream money, what will cryptocurrencies like Bitcoin be useful for in the future? Same uses as today. Black market activity and speculation. Nothing more, nothing less.