Even though Bitcoin is the most popular cryptocurrency around its days might be numbered. There are some dangers on the horizon which might destroy the oldest and most widely used altcoins.
The threats to Bitcoin are almost too many to name but a few menaces stand out. Every investor should be aware of these risks and be ready for them. Some of these dangers have the potential to destroy the value of Bitcoin overnight.
The Greatest Dangers to Bitcoin Are:
- Government Action
- New Technologies Such as Quantum Computing
- Artificial intelligence (AI)
- Government-Sponsored Cryptocurrencies
- Power Consumption
There are many ways that governments can disrupt Bitcoin transactions and send the cryptocurrency’s price down. Regulators in the People’s Republic of China shut down all cryptocurrency exchanges in that country and blocked legal access to foreign altcoin providers like Coinbase in mid-September, The Verge reported. The actions of other governments have been less extreme but can be just as disruptive.
The most disruptive government action against Bitcoin might be taxation rather than regulation. America’s national tax-collection agency the Internal Revenue Service (IRS), is now trying to identify altcoin owners so it can tax them, Forbes reported. Just the threat of action by agencies like the IRS or Britain’s Inland Revenue might lower Bitcoin’s value.
New Technologies Such as Quantum Computing
A quantum computer is a superfast machine that has the potential to crack any encryption. Andersen Cheng of the cybersecurity firm Post Quantum thinks the advent of quantum computing would kill off Bitcoin by cracking its encryption. A major danger here would be quantum computing in the hands of criminals who would use it to steal altcoins.
Artificial intelligence (AI)
An AI might be able to track and identify cryptocurrency users using machine learning. In machine learning, AIs learn to discern patterns. If an artificial intelligence were able to identify the behaviours of specific altcoin owners it might be able to determine their identities. Like quantum computing, AI would be a huge threat to all cryptocurrency owners if it fell into the hands of criminals.
This might be the greatest danger to Bitcoin and it is an underappreciated one. Historically governments tried to suppress private currencies once they started printing paper money and minting coins. A number of governments and central banks around the world are researching the possibility of national cryptocurrencies. News reports indicate the People’s Bank of China is testing such an altcoin. Another danger from government cryptocurrencies is that consumers and investors would prefer them to private alternatives like Bitcoin.
This blockchain technology is a tremendous threat to Bitcoin because it is far more versatile. Bitcoin is simply a currency, Ethereum is an environment that lets users do a lot more including creating smart contracts, markets, and Initial Cryptocurrency Offerings (ICOs) new altcoins. Many large corporations including IBM are experimenting with Ethereum and governments are investigating the possibility of using it as a basis for national cryptocurrencies.
Bitcoin consumes about 30.14 TWh of electricity per year. This is an enormous number, more power than all of Ireland’s electricity use in a year. A single Bitcoin transaction uses about 300 KWh of electricity – roughly what the average American household consumes in a week. Just as the diesel engine has become unpopular from an environmental point of view, Bitcoin is already making headlines about its carbon footprint (apparently equal to 16.9 gallons of gasoline burnt for every transaction). It should therefore be irrational for the typical Prius driver to be a hardcore Bitcoin investor or miner.
Many critics believe that in the end, bitcoin is not a sustainable, scalable solution and that it is merely a question of time till another coin with a friendlier processing footprint overtakes it and become king of the crypto hill. Others believe that the Bitcoin community won’t just allow it to be disrupted by the iotas and cardanos of the world with their faster/newer blockchain technologies. Staying ahead of the competition is after all just a fork in the road…
How to Protect Yourself from the Bitcoin Dangers
There is a simple means of protecting yourself from the Bitcoin dangers. It is a classic investment strategy called diversification.
Diversification simply means putting your money in a variety of investments, so all of it will not be lost to a danger. A great way for cryptocurrency users to diversify is to own a number of kinds of altcoins. Another is to keep some of your money in a hardware wallet so it will be safe from dangers on the internet.
A final step every altcoin investor should take is to keep some of your money in something besides cryptocurrencies. Good alternatives include stocks, government-insured bank accounts, and investment funds.
Understanding the potential dangers to Bitcoin can keep you from losing all your money.