With Bitcoin’s crash late last week causing its stock to plummet to its lowest price since July 2021, the topic of cryptocurrency has once again been brought to the attention of the public.
Alongside the rise of non-fungible tokens, cryptocurrency and the blockchain have become all the rage.
Talk of its immense, yearly fluctuations has caused some to be speculative while others see it as the perfect buy and hold investment; however, because of the financial and technological jargon that surrounds the space of cryptocurrency and NFTs, it can be a daunting task trying to understand what’s going on.
As a result, for the next several weeks, I hope to shed some light on these topics while also warning you about why it’s a bad idea to get invested in something this broken, corrupt, and cultish.
In turn, before we can even begin to mention NFTs, we need to first discuss the technology that underlies it all, the blockchain, and because you can find adequate explanations through credible sources like the AICPA, I don’t want to spend much time going through how the base technology works.
Instead, I want to talk about the technologies’ inherent flaws and how that reduces many of its upsides to mere fantasies.
In looking up “Blockchain pros,” some of the results you’ll find include immutability, lack of regulation, high speeds, reduced costs, decentralization, security, and privacy, but it doesn’t take much research to realize that these aren’t truly the case.
In this article, I want to focus on the arguments about the immutability, lack of regulation, high speeds, and touch on the reduced costs and decentralization.
One of the features seemingly inherent to the technology, immutability, doesn’t seem to be true on the blockchain. A look at why there exists Ethereum, the second-most valuable cryptocurrency, and Ethereum Classic shows us that the blockchain can be changed.
Following the creation of the first decentralized autonomous organization, a type of enterprise that helps interpret the chain and make decisions on the behalf of its members, a decision was made to launch it despite being open-source, holding a significant amount of its members’ Eth, and having security concerns.
This amount, a total equaling roughly 5% of the entire cryptocurrency at the time, was stolen by someone who’d taken advantage of these flaws, and after Ethereum’s stock value plummeted, a decision was made to fork the chain.
As a result, the blockchain is truly only immutable if it benefits the true owners, the people who actually built the system because in the end they have final say.
For those who don’t know what a fork in a blockchain is, then here’s a quick explanation. When consensus doesn’t exist among participants of the network, then a fork is made where multiple chains exist simultaneously until one is chosen as the correct chain.
This can come about accidentally when two miners, those who are trying to validate blocks in the chain to earn a reward, succeed at the same time, causing two chains to appear.
However, if both miners validate the block and get the reward, there, by default, needs to be a system in place that reverts the effects of the fork, and while there is one that exists, the miner whose chain wins out gets the reward and the other doesn’t.
By definition, this is both regulation and mutability as a third-party authority, the system, is coming in to decide who earns the reward and is throwing away the work of the other.
More importantly, it shows flaws in the proof-of-work system that many blockchains and cryptocurrencies are built upon, mainly that they are slow and prone to a lack of instantaneous consensus, resulting from their sluggish scalability, causing these forks in the first place.
Because proof-of-work blockchains have a multitude of users racing to validate new blocks and store the chain, there is a massive amount of duplicated work, meaning that there are opportunities for lag and synchronization because of heavy amounts of simultaneous transactions on the chain.
This leads to another issue, which is that the reduced costs of performing transactions over blockchains through cryptocurrencies just isn’t true.
Putting the energy costs of these systems aside, the storage costs of blockchains are simply not sustainable. Because every participant has a copy of the chain, there will come a point where the average user simply can’t store that much data.
In turn, if someone wants to maintain access to the entire chain, they must continue to increase their storage costs.
Of course, this is a problem that has come up, yet I haven’t seen a single, feasible solution that doesn’t, in some way, centralize the data and make it harder to access or maintain complete security. Because of this, the claim about blockchains being decentralized simply can’t last into the foreseeable future given the massive increases in storage costs needed to maintain a growing chain.
All together, these complaints reveal a disturbing pattern, a pattern of deception rooted in fantastical expectations that lack the grounding needed for revolutionizing society and business as claimed by some blockchain fanatics. Hence, these issues are only the beginning of a much bigger problem.
