Why Bitcoin is Not the Future of Currency

While Ether remains far behind Bitcoin’s $800 billion market value, it will not be long before the runner-up dethrones Bitcoin as the world’s biggest cryptocurrency, which currently represents 48% of the total crypto market according to CoinGecko.

Over the past few months, we have seen how Ether has been decoupling from Bitcoin; that is, their price movements are becoming distinct from each other. This is the first sign that things are going to change for Bitcoin’s unrelenting market dominance and Ether will move out of the original crypto’s shadow.

But why do I believe the currency of the future will be Ether and not the oldest, most battle-tested, and largest cryptocurrency? To answer that question, we have to look at Bitcoin.

How we can trust Bitcoin, and why that’s bad

If we want any commodity to act as a store of value, we need to trust it. Traditional money has our trust because everyone has reached a consensus in that we agree that it has value. We reached this consensus because traditional money is managed by the government, which is allowed to create, destroy and replace money, acting as a third party in any transaction involving money, providing trust in the value of what would otherwise be colorful pieces of paper.

Bitcoin is decentralized, which means it doesn’t run on a central server but on individual nodes. Anyone, anywhere, can start allowing their computer to act as a node for the Bitcoin network and use its processing power to help process and verify transactions. That raises an issue; how can we trust an asset which runs simultaneously on millions of nodes, all operated by different people?

To establish trust, Bitcoin uses a decentralized consensus algorithm known as Proof-of-Work (PoW). Whenever a transaction is made on the Bitcoin network, its details are added to a forming block. When the block is full, the forming block is added to the decentralized blockchain and a new block begins to form. However, the transaction has to be verified if we want to trust the network, and so the process of verifying transactions is delegated to special nodes in the Bitcoin network called miners.

The details of how mining works are not too important, but the central part of mining relies on miners solving a mathematical puzzle known as a hash function, which is a one-way cryptographic function. The network provides a specific output, and the miners compete to find the input to a hash function which will yield that output, with the winner receiving a prize, which in the case of the Bitcoin network, is a small amount of Bitcoin.

Equations in a PoW model are difficult to solve, but once an answer is found by a miner they are easily verified by the remainder of the network, as hashes are one-way functions. They must be solved by brute force, which ensures that miners all have an equal chance to solve the equation.

However, it also means solving the equation in a reasonable amount of time requires an exceptional amount of computational power. PoW is notoriously inefficient, with Bitcoin consuming about 111.7 terawatt-hours per year according to the University of Cambridge’s Bitcoin Electricity Consumption Index, which is similar to the amount countries like the United Arab Emirates and the Netherlands consume annually.

Wait, it promotes centralization?

Bitcoin was created to be decentralized, with a vision of millions of nodes worldwide contributing computing power. However, the system which Bitcoin runs on, PoW, actually promotes centralization. The more you invest into your mining equipment, the more processing power you can contribute to solving the hash function, which leads to a higher probability that you will be the first person to solve the block.

Due to the economics of scale, if you 10x your investment into mining equipment, you will be more than 10x more likely to successfully mine a block, as you will buy rigs in bulk and receive discounts.

This is why PoW blockchains are more prone to 51% attacks, which is when a miner or a group of miners control a simple majority of a blockchain, giving them the complete ability to approve or deny blocks from being added to the blockchain. You can check out Crypto51 to see how much of a hashrate is needed to successfully launch a 51% attack on some of the largest PoW blockchains.

What Bitcoin aspires to be

Bitcoin has been struggling to define itself as more than just a store of value. It has next to no utility apart from sending funds between people, as not many merchants currently accept it. Additionally, critical updates to the Bitcoin blockchain are too little and too late, with the Taproot upgrade scheduled later this year bringing basic utility to the Bitcoin blockchain.

Source: https://routsiddharth.medium.com/why-bitcoin-is-not-the-future-of-currency-a576029c11c5?source=rss——-8—————–cryptocurrency