Will The Bitcoin Bubble Burst?
Is the blockchain the next big thing?
I want to treat this topic without first of all comparing the old and the new worlds. This article is not convicting hype and speculation. It focuses on the underlying concepts.
The first time I became aware of Bitcoin was around 2011 when the cryptocurrency made its first headlines in some blogs. Frankly, I did not care too much, as I was worried more about finding a real job in IT after my career in banking during the financial crisis in 2007/2008.
The second time I got a deeper look at cryptocurrencies and the underlying blockchain in June 2017 when Artificial Intelligence hyped in the news, as the processor speed of the GPU's (Graphics Processors) became fast enough to handle the new tasks of Maschine Learning and Cryptography.
Bitcoins then traded around 2500$ and I was actually fascinated by some of the underlying concepts.
Since then I observed the industry and went through a process of discrepancy and finally came to the conclusion I want to describe in this blog.
Bitcoin, as well as the Blockchain, do have some major issues, letting the architecture be inoperative at the scale it would have to grow to unleash its full power. The moment will come when it will collapse!
The underlying idea will survive and I would bet, there will be a successor of the technology. Like MySpace in Social Media was killed by Facebook, some kid will develop a new system, eliminating the conceptual problems.
Problems and Limits of Blockchain
The underlying concept of Bitcoin is the blockchain and it could be used for many different purposes, besides being used to store cryptocurrency transactions.
The blockchain stores clusters of transactions in blocks, distributed over the entire network to avoid manipulation.
Watch the video below to get a short and simplified introduction.
This looks great and prosperous, doesn't it?
Well, it makes a lot of sense and I do think, we need a distributed system to store information in the generation of the IoT (Internet of Things) and AI (Artificial Intelligence), but if you dive into the details there are popping up some major issues/questions:
1) What happens if the volume of participants, as well as the block sizes grow?
2) The blockchain concept uses a technique called HEARTBEAT (8 minutes) to distribute and verify its blocks in the network. Is this working for financial transactions at scale, where the current stock exchange systems are optimised for instant trading?
3) Cryptography is a very processor power intense Mathematical calculation, consuming a lot of energy.
These 3 points have huge implications in my point of view.
Have you ever heard the noise of a Bitcoin Mining Data Center?
I do not need exact numbers to be convinced about the craze of energy consumption. This is insane, while politics are discussing clean energy strategies and while we are urged to switch the power off all our own small devices at home to save energy.
Please also consider the energy used to produce the required GPU's, cooling systems, and infrastructure in general. Costs are eating up profits of the miners, earning their share in Bitcoin.
If you think about all the stuff, people want to store in the blockchain in the future, like contracts and maybe even video, the size of the data is a lot bigger than just numbers as in the case of Bitcoin.
=> This is a NO GO
I don't think, the Heartbeat concept will work through a market crash scenario when millions or billions of transactions have to be handled at the same time. I have observed moments like this during the financial crisis in 2007 when Lehman Brothers had to file bankruptcy and in the following market turbulences. In times like these, the panic and the number of transactions will bring down the entire system due to the main facts:
a) If there is a seller there has to be a buyer
b) There will not be enough processor power on GPU's to handle the transactions fast enough
There will be nobody around to stop trading as it was done during the financial crisis in 2007!
If the system is programmed intelligent enough it will process one calculation after the other and regulate itself sooner or later. If not it will just get corrupt and will never be able to recover again.
=> This will lead to the maximum credible accident we have seen so far!
If the volume of participants increases, the distribution of the cryptographic calculations will grow exponentially as well as the energy consumption.
=> Can we afford this for producing hot air?
Solutions for a system in the future
1) I suggest it would need a limitation of parties to be in charge of storing the block information with randomized distribution in the network.
2) The seller/buyer approach looks to me like a major issue in a panic scenario and unfortunately, I do not see a solution for this one, without a political instance, pulling the trigger and stop transactions as ot is possible in the actual trading environment.
3) Energy consumption will be a major challenge for mankind anyway and will be directly connected to climate change and our planet heating up. Maybe somebody finds a solution to store heat for reuse ...
Problems and Limits of BITCOIN and other new Coins
1) The hype around Bitcoin caused an entire new industry to grow. The FinTech industry.
In my point of view, this industry does not generate anything of value and is just a big casino.
2 days ago the first FinTech USI TECH got shut down by US, Canada, and England (and maybe other states) as a fraud.
Switzerland still allows these constructs and I hope there will be action soon, to destroy this nonsense industry.
Many individuals and affiliate marketers try to get there pice of the pie. I recommend searching a sustainable market for products to sell.
2) The Bitcoin concept is a direct attack on our global economy, where states build their wealth on the basis of taxes. As seen during the financial crisis when Greece became insolvent, wealthy people started to transfer funds from the banks in Greece over to foreign banks. The consequence was, the EU had to finance the state of Greece with billions.
Getting more popular and gaining market share it will become a real threat to our wealth in case of the foreseen collapse, as there will be destroyed more wealth then in the CDO market in 2007
If you like to speculate, keep your bitcoin (and other coins) investments but don't blame anybody if you lose your gambling stake!
Support the real industry instead
If you are looking for products with the real value I recommend the EDUCATION MARKET. The speed of change will make it mandatory for everyone to practice LIVELONG EDUCATION.
Another lucrative industry would be the gaming world, providing lots of options as well besides the trade of traditional goods, needed in a wealthy society.
It would be even more favorable if you sell and promote things that help to save our society by solving real problems like dirt and cleaning, health, transportation, and so many more problems we need to solve in the coming years!
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Just enter your e-mail and watch the process carefully!