This is a post I wrote in July 2014, and I would still write the same today:
I’ve been interested in Bitcoin for more than half a year now, amazed by it’s technology and it’s social implications.
But after watching Bitcoin gain visibility across the world, I have started to see some problems with it’s implementation. There are a few things that are not so great if I think about Bitcoin being used by all people in the world as the main payment method:
The initial idea of Satoshi Nakamoto was to have a widely distributed mining power spread across all the PCs running a Bitcoin node (bitcoin wallet). Randomly one of these PCs would have been quicker than others solving some math problems and would have got the reward for that block. As the price of Bitcoin increased, the race to have a faster processing speed became fierce, and new dedicated hardwares were introduced on the market, the ASICs.These hardwares, at the current difficulty increase pace of the network, become obsolete after few months and do not pay back their price. Having ASICs doesn’t anyway help if you don’t join a mining pool which merge the power of single miners into a single extremely powerful mining entity. Currently only few of them are able to compete, which means that the decentralisation Satoshi had in mind is not really there, and recently some of these pools reached the 51% of total network mining power which could cause serious problems to the Bitcoin network, known as the 51% attack. But more severe that the 51% attack, the loss of decentralisation and the need to trust the mining pools crashes one of the main pillars of the Bitcoin idea.
Besides the distribution problem caused by the mining pools, all the ASIC miners around the world cause an enormous power consumption. Securing the Bitcoin network is not worth that amount of wasted energy.
Bitcoin is very fast and cheap compared to a bank transfer which takes days, but for the daily life it’s too slow! It’s not acceptable that you go and buy your item in a shop and when you have to pay, the shop can only be (almost) sure of your transaction after 10 minutes (target time for mining 1 block). Imagine a fast food… you will generate huge queues except if the restaurant is fully trusting its customers and doesn’t want to wait to see the money come in.
Bitcoin is what it is. Development of the Bitcoin software is mainly targeting security issues. There are no additional features for the end users (at least I don’t see them, do you?). All new features are developed by other entities that use the Bitcoin blockchain as their “hosting” ledger, but that’s not Bitcoin, that’s something else. Which means these other entities have to stick to the Bitcoin speed, development, etc. They are not entirely free to do everything they want.
There is no chance to cancel a transaction and there is no place to go ask for help in case of a thief. It’s a consequence of the trust-less technology Bitcoin is. But if I try to think ahead in the future, I believe that a lot of people, authorities, companies would like to feel more secure. People can do mistakes, mistype an address, use a simple password, etc but this cannot be the reason to keep that people out of the crypto world, if we want the world to forget about fiat currencies.
There has to be in the future some development in this direction. There are brilliant minds in this space and I’m sure they will come up with some idea.
Probably a side-chain that is used for double authentication? I don’t really have a clue, but this is the first thing that comes to my mind.
For sure there has to be also the possibility to “certify” an address, so that the information of the owner of that address is known to everybody and can be recognised by the client (like a global address book) so you can be sure that it’s the correct address and person you are sending your funds to.
This for sure will help regulators to regulate cryptocurrencies.
After being interested in Bitcoin and having these thoughts, I realised that there actually is something out there that has a very enthusiast group of people and that makes progress at an impressive pace. It’s NXT. It’s a relatively new cryptocurrency out there that was taking from Bitcoin only the (brilliant) blockchain idea, but the core software was re-written from scratch making it one of a kind, and not a simple fork (copy) of the original Bitcoin software and giving it another name.
What NXT has special is that it tackles most of my concerns above.
1) Mining is replaced with forging. Forging is a process that doesn’t require specialised hardware that needs an enormous amount of energy. It’s done by your PC when running the NXT client. The more coins you have the more chances you will have to be the designated forger. So problem solved. No more 51% attacks, no energy waste and no trust in pools needed. Besides that the NXT developers are improving the forging process by introducing soon Transparent Forging.
2) NXT has blocks generated every minute which makes it much faster than Bitcoin.
3) The NXT developers community is coming up with great ideas one after the other. Already in the current release you have a very interesting number of great features: a decentralised Asset exchange platform, an Alias system, a Messaging platform, etc.
Besides the heart of NXT, the look of the default client is simply gorgeous! Have a look!
This is the Bitcoin-QT Interface:
and this is the NXT client:
4) Security in the terms described above is not implemented in any Cryptocurrency. I really hope that NXT takes some steps in this direction.
The conclusion is that I have converted all my Bitcoins into NXT because I see a more valuable asset in it and I strongly believe that it will be the financial platform of the future.
What do you think?
If I would have written this today, I maybe would have written differently the “Security” part. Maybe being able to fix mistakes in the blockchain is not a good solution, but having optional external entities, like insurances, that can take over possible mistakes could be an idea.
Another possibility would be to implement technical mechanisms that reduce the mistake possibility to the minimum possible.
Besides that, after more than 2 years from the date of this post, it looks like the idea of a global currency has faded away. Today blockchain is seen more like some platform to be used in other applications.
But I believe that the global currency is still something that could work and, especially in these days when populism is getting stronger and walls are being raised, an unstoppable global currency could be our anchor to a world without borders.