What are the pros and cons of Bitcoin? Should I buy bitcoin? If you’re thinking about investing in bitcoin, it’s important to get a good understanding of the advantages and disadvantages of the blockchain protocol. In this guide, you’ll learn about both bitcoin’s strengths and weaknesses, so you can make an informed decision.
10 advantages of bitcoin
1. Store of value
Earning the title of ‘digital gold’, bitcoin is now accepted as a store of value by many sophisticated investors. As you’re probably aware, a store of value is a commodity, asset, or currency that keeps its value over a long period of time — a trait that’s especially important during inflationary times. Read our in-depth article to learn more about bitcoin as a store of value.
2. Outsized returns
Bitcoin has been the best performing asset class of the last decade. It even outperformed the second-best performing asset class, the NASDAQ 100, by an order of magnitude. Even small investments have generated outstanding returns for long-term investors. Naturally, bitcoin’s historic rise has generated many bitcoin success stories.
3. Self-custody
Individuals can self-custody cryptocurrencies like bitcoin. You don’t need to rely on a bank, legal documents, or a single entity to take complete ownership of your assets. This makes an incredible impact in countries across the globe without strong property rights, giving individuals more control over their future. And if you self-custody your own bitcoin, make sure you select the best bitcoin wallet in Australia.
4. Decentralised
Bitcoin is the most decentralised cryptocurrency. What does that mean? It means that the Bitcoin network is distributed across many different computers, known as nodes. Decentralisation is so important because it prevents a single point of failure to attack, making it almost impossible for any organisation or government to take down the network.\\Notably, Bitcoin was the first ever protocol to solve the Byzantine Generals problem and create a decentralised network with a shared consensus and that invention gave way to every cryptocurrency that followed, including Ethereum, Litecoin, Dogecoin and Polkadot.
5. Permissionless
Anyone can access the Bitcoin network. It doesn’t matter where you live or how much money you have, it’s an open peer-to-peer network that everyone can use. Being permissionless is important to us at Cointree, as we imagine a future in which the digital economy is accessible to all.
6. Secure
Bitcoin is incredibly secure. Its public key cryptography makes sure every transaction is authentic. Its decentralisation means no centralised power can manipulate it for their benefit. And its irreversibility means nobody can go back and change the data.
7. 24/7
Unlike traditional financial markets, bitcoin doesn’t close in the afternoon or over the entire weekend. Bitcoin is tradeable 24/7, 365 days per year. Not to mention, sending bitcoin is faster than a bank transfer. While remittance payments to family overseas can take days, people can send and receive bitcoin in 10 minutes to an hour.
8. Fixed supply
Unlike fiat currencies like the US dollar, governments cannot print bitcoin whenever they want more money. There will only ever be 21 million bitcoins. The importance of that scarcity is highlighted in the stock-to-flow model.
9. Divisible
Each bitcoin is divisible into 100,000,000 satoshis (or sats for short). That means you can use bitcoin to pay for a cup of coffee, for micro-payments online, and ‘stack sats’ with as little as $10. Being able to use fractions of a bitcoin can make it the peer-to-peer digital currency that it was always intended to be, especially with the Lightning Network.
10. Inflation hedge
Many sophisticated investors see bitcoin as an inflation hedge, including the billionaire investor Paul Tudor Jones who said it’s a better inflation hedge than gold. With ongoing money printing from central banks across the world, more and more investors are turning to bitcoin as an inflation hedge.
10 disadvantages of bitcoin
1. Volatility
Bitcoin is highly volatile compared to other assets like property. While that’s to be expected with any fast-growing asset, and has been a boon for traders, it can be hard to stomach at times for long-term investors. As always, risk management is critical in such a market.
2. Competitors
While bitcoin remains the dominant cryptocurrency (with a market cap double the next biggest cryptocurrency), there are more and more coins being created every day. And while it holds the dominant position, other competitors like Ethereum are designing their monetary policy to be more competitive with bitcoin.
3. Awareness
While bitcoin is now being covered by the biggest media companies in the world, there are still many people who aren’t aware of it or why it’s so transformative to society. For example, while many people are aware that it has been a successful asset to generate wealth with, they don’t recognise how it can empower unbanked communities.
4. Banned in China
Chinese miners and investors have played a large role in the history of the Bitcoin network, contributing significant investments and hash power to the network. However, with the government cracking down on Bitcoin, it looks like it will be prohibited in China.
5. Learning curve
There’s a steep learning curve to fully understand bitcoin, and that can be daunting to beginner investors. Luckily, there are guides that explain what bitcoin is. More and more investors are educating themselves every day.
6. Energy concerns
Bitcoin’s proof-of-work consensus system uses energy to help secure the network, with miners running specialised computers and burning energy. While more and more miners are switching to renewable energy and helping drive the green revolution, this wasn’t a big focus in bitcoin’s early history.
7. Transactions Per Second
Other blockchain networks like Solana and Avalanche operate with much higher Transactions Per Second (TPS) than bitcoin, making them more suitable for high throughput applications. While bitcoin is the dominant store of value in crypto, other blockchains can be better for different use cases.
8. History
While bitcoin is now well over a decade old, that’s still a short time compared to gold, which has been used as money for thousands of years. Still, investors are increasingly turning towards bitcoin as a superior version of gold.
9. Web3
Web3, the decentralised internet, is one of the most exciting aspects of cryptocurrency. While bitcoin may be used as a payment currency on other web3 platforms, other crypto projects are leading the way in web3.
10. DeFi
Similarly to web3, other cryptocurrencies like Ethereum are leading the revolution in decentralised finance (DeFi). And for a truly accessible financial economy for all, DeFi will play an important part in that.
Looking at the pros and cons of bitcoin, can bitcoin become the world reserve currency?
Having looked at the pros and cons of bitcoin, can bitcoin really become the world reserve currency? As Satoshi said, “It might make sense just to get some in case it catches on. If enough people think the same way, that becomes a self fulfilling prophecy.”
