Bitcoin, the world’s best known cryptocurrency, has a few flaws — and that’s triggered other digital currencies to come up with more viable options, according to a professor at Cornell University. It isn’t as anonymous as people think it is, and “mining” bitcoin is bad for the environment, pointed out economics professor Eswar Prasad. It also doesn’t work well as a currency, he told CNBC on Thursday. One interesting aspect is that other cryptocurrencies have come up with solutions to address some of bitcoin’s flaws, said Prasad, who was formerly head of the International Monetary Fund’s China division.
- Mining harms the environment
Bitcoin mining refers to the energy-intensive process required to produce new coins and ensure the payment network is secure and verified. The electricity used when transactions are validated on the bitcoin blockchain, as well as the mining process, is “certainly not good for the environment,” Prasad said.
- Not so anonymous after all
Earlier this month, U.S. law enforcement officials said they were able to recover $2.3 million in bitcoin paid to a criminal cybergroup involved in the ransomware attack on Colonial Pipeline in May. The FBI said its agents were able to identify a virtual currency wallet that the hackers used to collect payment from Colonial Pipeline.
- Doesn’t work well as a currency
In theory, bitcoin was supposed to provide an anonymous and efficient medium of exchange but “it hasn’t worked in that respect,” said the economics professor. Rather, it’s “slow and cumbersome” to use bitcoin to pay for goods and services, and the market is very volatile, Prasad said. Bitcoin is prone to wide swings in volatility, as seen by its 30% plunge in a single day last month. “So you could take a bitcoin to a store and one day, get a cup of coffee and another day, with the same bitcoin, be able to treat yourself to a lavish meal. So that doesn’t work well for the medium of exchange,” he said.
Bitcoin has 3 flaws — and that could set the stage for other alternatives, says Cornell economist, CNBC, Jun 18