Bitcoin is a revolutionary technology that is already changing the world — but it is not perfect. Most notable are its ease-of-use issues that may make mainstream adoption difficult, if not impossible. Listed below are some of the existing faults with Bitcoin and its practical usage.
Bitcoin is hard to understand
Bitcoin’s purely digital existence, newness, and technical complexity are large hurdles for most people. A lot of people (especially older generations) struggle with the fact that you can’t hold a Bitcoin in your hands. Or that it doesn’t come from a bank, company, or government. Engaging in Bitcoin requires a computer or device. And giving an in depth explanation of how Bitcoin works to a non-technical listener can leave them with a glossy eyed stare. These barriers to entry contribute to ignorance, misinformation, and distrust for those new to Bitcoin.
The technical complexities of Bitcoin may not be simplified anytime soon, but there is a large community effort working to dispel myths and provide Bitcoin education (ie. Bitcoin 101 videos, Bitcoin Stack Exchange, etc.). Third party services and businesses have sprung up to facilitate Bitcoin usage, such as online wallet services like Coinbase and blockchain.info.
Bitcoin requires users to be well versed in computer security
Typically, a single file on Bitcoin user’s computer is the ultimate key to accessing that user’s bitcoins. If this wallet file is lost or stolen, all of the person’s bitcoins are most likely gone forever.
Encrypted wallets? Cold storage? BIP0038? Bitcoin security terminology reads like another language to the layman. Learning the best practices for protecting one’s bitcoins can be overwhelming.
Many online wallet services and businesses have been founded to offload the security requirements from the user. People can deposit their bitcoins with a service to avoid having to secure and backup their own Bitcoin wallets. Yet using these services still requires a basic understanding of computer security, like using strong passwords and two-factor authentication to prevent unauthorized account access. Additionally, these private sector services are constantly targeted by attackers, and some have been successfully hacked and had user deposited bitcoins stolen. The primary issue with these services is trust: if depositing bitcoins with someone else, you must trust them to securely hold your funds (much like a bank). Unfortunately, there have already been many instances of Bitcoin service operators running off with depositors’ bitcoins.
Bitcoin is slow and impractical for retail transactions
After a new transaction is broadcast to the Bitcoin network, it is usually visible to the recipient within a few seconds. But in some cases, it can take a number of minutes for the transaction to travel across the network and reach the recipient’s connection, causing an inconvenient wait for both the buyer and seller.
Additionally, unless the buyer agrees to wait around for about an hour for the transaction to be sufficiently confirmed, the sale of physical and digital items are susceptible to double-spend attacks. An evil purchaser could transmit two conflicting transactions using the same bitcoins at the same time: one to pay the seller, and a second transaction to pay themselves. The seller might see the first transaction initially, and consider the order paid without waiting for transaction to confirm, and allow the buyer to walk out the door with the item. Then the second transaction becomes permanently confirmed in the blockchain after the fact, invalidating the first transaction! In this case, the seller is basically the victim of a theft.
The current solution for this scenario is for merchants to use a 3rd party Bitcoin payment service provider like bitpay.com to handle transaction processing. Bitpay absorbs all double spend risk for the merchant and claims to have “experienced zero cases of payment fraud”. While it’s not entirely clear how Bitpay mitigates double spend attacks, it’s estimated that Bitcoin payment services such as these are well connected to the Bitcoin network via a large number of Bitcoin nodes throughout the world, which assist in detecting double spend attacks.
Bitcoin has no built-in consumer protection
Credit card companies and payment processing companies (such as Paypal) can protect buyers from fraudulent sellers with chargebacks. If a consumer makes a purchase using the payment processor services, and is able to show that they’ve been ripped off by an untrustworthy seller, the payment processing company will often refund the buyer their funds.
Bitcoin offers no such protection: transactions are irreversible, so the buyer must trust the seller to deliver. Many Bitcoin users say that this is a feature, not a weakness, and simply requires the buyer to do their due diligence before sending a seller their money. Plus, irreversible transactions protect sellers from fraudulent chargebacks.
Bitcoin has technical weaknesses vulnerable to orchestrated attacks
Sybil attacks, 51% attacks, and Denial of Service attacks are not capable of “breaking Bitcoin”, but they could temporarily disrupt nodes on the network or allow for double spend transactions. Pulling off organized attacks on a large scale would require a lot of expensive computing power, and becomes increasingly improbable as more and more honest nodes and miners join the network. As of yet, there have been no known widespread outage or double spend due to these types of attacks.
See the Bitcoin wiki’s “Weaknesses” page for an entire list of vulnerabilities.
Bitcoin is not for everyone… yet
Bitcoin was designed to be trustless: you don’t need to place your confidence in a central authority to create, distribute, and manage the money. The side affect is that Bitcoin requires more responsibility from the end user to be knowledgeable about its properties and safe usage. And since Bitcoin is a completely new and complex idea, it will take some time for most people.
But that knowledge does not need to be absolute; you can choose to trust 3rd parties to handle the more technically in-depth responsibilities for you (just as many people choose to use Paypal, wire transfer services, and banks to secure, handle, and transmit their money). New businesses and entreprenuers are building these types of infrastructure to fix some of the above weaknesses and make Bitcoin more accessible to the general public.
If you use one of these services, make sure it has a trustworthy reputation first. Google the shit out of them to find out things like:
Where is the service located?
Do they publish a physical address?
Do they disclose their identities or are they operating anonymously?
What are other people saying about them in forums and reviews?
The bottom line is that Bitcoin is still very new, and should be considered an experiment. People who are not yet comfortable with the issues addressed above probably shouldn’t use Bitcoin.