Since the advent of blockchain, its has received a lot of criticism around the globe.
In this article which is the concluding part on “blockchain” as a topic, our Financial Expert Columnist, Sani Michael Omakoji, highlights some of these criticisms
Let us read what he has to say;
“ for better understanding, the criticisms against blockchain are contained in “the Bank for International Settlements” for that of 2018 Annual Report.
The criticisms include the lack of stability in bitcoin’s price, the high energy consumption, high and variable transactions costs, the poor security and fraud at cryptocurrency exchanges, vulnerability to debasement (from forking), and the influence of miners.
Though in 2015, some Economists said these criticisms are unfair, predominantly because the shady image may compel users to overlook the capabilities of the blockchain technology, but also due to the fact that the volatility of bitcoin is changing in time.
Bitcoin also received further criticism as is being described along with other cryptocurrencies, as an economic bubble by at least eight Nobel Memorial Prize in Economic Sciences laureates, including Robert Shiller,[199] Joseph Stiglitz,[200] and Richard Thaler.
Noted Keyensian economist Paul Krugman wrote in his New York Times column criticizing bitcoin, calling it a bubble and a fraud; and professor Nouriel Roubini of New York University called bitcoin the “mother of all bubbles.”
Central bankers, including former Federal Reserve Chairman Alan Greenspan, investors such as Warren Buffett, and George Soros have stated similar views, as have business executives such as Jamie Dimon and Jack Ma.
In addition, Bitcoin has been criticized for the amount of electricity consumed by mining.
As of 2015, the Economist estimated that even if all miners used modern facilities, the combined electricity consumption would be 166.7 megawatts (1.46 terawatt-hours per year).
At the end of 2017, the global bitcoin mining activity was estimated to consume between one and four gigawatts of electricity.
Politico noted that the even high-end estimates of bitcoin’s total consumption levels amount to only about 6% of the total power consumed by the global banking sector, and even if bitcoin’s consumption levels increased 100 fold from today’s levels, bitcoin’s consumption would still only amount to about 2% of global power consumption.
To lower the costs, bitcoin miners have set up in places like Iceland where geothermal energy is cheap and cooling Arctic air is free.
Bitcoin miners are known to use hydroelectric power in Tibet, Quebec, Washington (state), and Austria to reduce electricity costs.
Miners are attracted to suppliers such as Hydro Quebec that have energy surpluses.
According to a University of Cambridge study, much of bitcoin mining is done in China, where electricity is subsidized by the government.
Again Various journalists, economists, and the central bank of Estonia have voiced concerns that bitcoin is a Ponzi scheme.
In April 2013, Eric Posner, a law professor at the University of Chicago, stated that “a real Ponzi scheme takes fraud; bitcoin, by contrast, seems more like a collective delusion.”
However, a July 2014 report by the World Bank concluded that bitcoin was not a deliberate Ponzi scheme.
In June 2014, the Swiss Federal Council examined the concerns that bitcoin might be a pyramid scheme; it concluded that, “Since in the case of bitcoin the typical promises of profits are lacking, it cannot be assumed that bitcoin is a pyramid scheme.”
In July 2017, billionaire Howard Marks referred to bitcoin as a pyramid scheme.
Though, some other people have countered Howard Marks’s view as they described him as a capitalist whose view was intended to discourage others from aspiring for wealth like him.
Some other persons have also described Bitcoin as being vulnerable to theft through phishing, scamming, and hacking.
As of December 2017, around 980,000 bitcoins have been stolen from cryptocurrency exchanges.
With this development, the use of bitcoin by criminals has attracted the attention of financial regulators, legislative bodies, law enforcement, and the media.
In the United States, the FBI prepared an intelligence assessment, the SEC issued a pointed warning about investment schemes using virtual currencies, and the U.S. Senate held a hearing on virtual currencies in November 2013.
The U.S. government claimed that bitcoin was used to facilitate payments related to Russian interference in the 2016 United States elections.
Several news outlets have asserted that the popularity of bitcoins hinges on the ability to use them to purchase illegal goods.
Nobel-prize winning economist Joseph Stiglitz says that bitcoin’s anonymity encourages money laundering and other crimes, “If you open up a hole like bitcoin, then all the nefarious activity will go through that hole, and no government can allow that.”
He’s also said that if “you regulate it so you couldn’t engage in money laundering and all these other [crimes], there will be no demand for Bitcoin. By regulating the abuses, you are going to regulate it out of existence. It exists because of the abuses.”
In 2014, researchers at the University of Kentucky found “robust evidence that computer programming enthusiasts and illegal activity drive interest in bitcoin, and find limited or no support for political and investment motives”.
Australian researchers have estimated that 25% of all bitcoin users and 44% of all bitcoin transactions are associated with illegal activity as of April 2017.
There were an estimated 24 million bitcoin users primarily using bitcoin for illegal activity. They held $8 billion worth of bitcoin, and made 36 million transactions valued at $72 billion.
Note, investigations are still ongoing whether bitcoin should be banned outrightly around the globe or be regulated to make its operational legal.”
‘Congratulation if you have read all my articles on blockchain and cryptocurrency as you are no longer a novice anytime any of the term is mentioned.’
Sani Michael Omakoji
Financial Expert Columnist
Abuja – Nigeria.
