Problems with Bitcoin

• Basics
• Risks
• Problems
• Problems with the Websites
• Addresses, Wallets, & Passwords
• Other Cryptocurrencies, Stablecoins, Jargon

Last update:  November 12, 2023

General problems

1. ALL THE RISKS AND LEGAL ISSUES listed on the risks page.
2. TAX REPORTING FOR BITCOIN IS A HUGE PAIN.  Starting in the 2020 tax year, U.S. tax forms now ask explicitly whether you have, bought, or sold cryptocurrency (i.e., any Internet-only money like Bitcoin).  If you lie then you've committed felony tax fraud (and it might be easy for the IRS to find out, as they got access to three exchanges' records so far and are targeting others).  If you tell the truth, then you get to have fun with Form 8949, where you list each and every Bitcoin sale you made, matching up that sale with a specific "buy" of Bitcoin you made, and pay taxes on any gain.  If you bought something with Bitcoin, that counts as a "sale" of Bitcoin that has to be reported.  If you have more than one Buy of Bitcoin, then the form isn't straightforward.  Plan to spend a lot of time tinkering with a spreadsheet, or else buy some Form 8949 software.  If you got interest on your crypto and it was awarded weekly and either the exchange doesn't let you download a spreadsheet (like at Crypto.com), or the spreadsheet dates are formatted as text and can't be sorted (Celsius), you'll need to manually, painstakingly record each and every interest payment as a "purchase" of coin.  Tax compliance alone has cost me untold hours of time.  (I had Bitcoin only because one of my vendors insisted on paying with it; once I got it.)
   
3. TRANSACTION FEES.  When you send Bitcoin through the Bitcoin network, you pay a transaction fee.  The recipient doesn't pay anything.  The transaction fee is used to reward the miners to mine the Bitcoin. 

   The transaction fee is the same no matter how much (or how little) Bitcoin you send.  The current average transaction fee is $2.67 (7/26/21), though it's frequently higher; the all-time high was $55 (12/22/17).  At retail, payment processors will pool all the customers' payments together rather than send each transaction through the Bitcoin network, so the Bitcoin user won't get hit with a large fee, but there might still be a lower fee.  However, there's never a fee for paying for anything with cash, and rarely a fee for paying with a credit card.

   Most platforms don't let you choose the priority for your transaction, but for those which do, you can choose Low, Medium, or High.  The higher the priority you choose, the faster the Bitcoin gets transferred, and the higher the fee.  The average send times, as  I write this, are 10, 30, and 60 minutes respectively, (PrivacyPros) but those are just averages.  Someone who operated BTMs told me that one customer's Bitcoin took an entire month to arrive.  (No, I don't know what priority level that customer chose.)
4. NO SIMPLE, AUTOMATIC RECORD OF TRANSACTIONS.  When you send money from your bank account, you've got an automatic record of it.  You can log in to your account at any time and easily see how much you sent to whom at what time.  Ditto for receiving money, you can see from whom it came, how much, and when.  I recently needed to send $3600 to each of 11 people, and I have a nice record of each transaction at my bank.  You don't get that with Bitcoin or other crypto.  If you send or receive Bitcoin with an app or other wallet, you'll need to remember to record the transaction manually somewhere, because the app doesn't show you the name of the other party or what the transaction was for (or, usually, the amount in USD, which is often what you want to know).  I lost untold time trying to figure out what certain Bitcoin transactions were for which I forgot to record, it's a pain.  Fortunately, some exchanges have a memo field when you send Bitcoin that allows you to see in the future what the transaction was for, and if you receive Bitcoin from another user on the same platform, you can see the other user's screen name, but these cases are the exception and not the rule.  Also, I tried numerous mobile crypto apps and without exception, they all have errors in the transaction history:  double transactions, missing transactions, transactions with the wrong amount.  It's insanity.
5. IT'S CONFUSING AS HELL.  The terminology in the wallets is daunting.  As one crypto enthusiast admits, "They ask you to sign messages that are just a bunch of gibberish code. They talk to you about gas limits, nonces, hashes, block explorers and other foreign terms. You came here to store your crypto, not to learn a foreign language, didn’t you?
6. IT'S HARD TO USE.  Let's say you have some USDT (a crypto stablecoin), because you either bought it, someone paid you in USDT, or someone gave you some.  You'd like to buy something with it, or just give some to someone else.  Well tough, you can't, not until you also buy some ETH (Ethereum) crypto, because the fee for sending USDT is almost always charged in ETH.  And those rare wallets that let you pay in USDT rather than ETH charge exorbitant transaction fees.
7. BITCOIN USES HORRIFIC AMOUNTS OF ENERGY.  If Bitcoin were a country, it would be in the top 30 energy-using countries worldwide.  This is a big topic, so I cover it in its own section.
8. A MASSIVE AMOUNT OF ELECTRONIC WASTE.  The chips that power Bitcoin mining become obsolete quickly, with the lifespan of mining hardware being only about 1.3 years.  As a result, estimates are that the Bitcoin network is responsible for 30.7 metric kilotons of trashed equipment per year.  That equates to trashing about two iPhones for every Bitcoin transaction. (Guardian)  “The moment [Bitcoin computers] become unprofitable, there’s nothing you can do with them. You can’t repurpose them, you can’t use them as a home computer.  It’s [landfill] trash.” (The Verge)
9. RANSOMWARE ATTACKS ON HOSPITALS SHUT DOWN EMERGENCY ROOMS.  Hackers break into hospital computer networks, shut them down, and demand a ransom (in Bitcoin) in order to turn them back on.  When this happens patients with life-threatening situations might have to be diverted to distant hospitals, and might not survive. (ThreatPost)  Bitcoin enables this kind of ransomware attack, because it's the payment method that's hardest to trace. (NPR)
10. RANSOMWARE ATTACKS ON INFRASTRUCTURE.  Hackers shut down the largest fuel pipeline in the U.S., demanding $5 million in Bitcoin ransom to turn it back on.  The attack resulted in gas shortages and a state of emergency in multiple states. (NPR)  As per above, the existence of Bitcoin facilitates these kinds of attacks, because Bitcoin payments are the hardest to trace. (NPR)
    
11. SEXTORTION LEADS TO SUICIDES.  Scammers threaten to expose nude images of victims unless the victims pay a Bitcoin ransom.  Sometimes the scammers actually have the images, and sometimes they're bluffing.  Either way, a number of people have taken their own lives when they've received the threats.  (e.g., Ronan Hughes)
12. ENABLES CHILD PORNOGRAPHY, SEX TRAFFICKING, ILLEGAL DRUG SALES, AND TERRORISM.  While tying bitcoin transactions to individual people isn't always impossible, it's difficult and often impractical.  As a result, many people doing horrible things are delighted with Bitcoin.  One website, funded by Bitcoin, sold media of children as young as six months old being raped. (FP, DoJ)  Researchers estimated that as of April 2017, 44% of all bitcoin transactions were for illegal purposes. (Univ. of Oxford)  And money laundering with crypto is only getting worse:  In 2021, criminals laundered 30% more money with crypto than the previous year. (BBC) 
13. ENABLES WAR?  Experts say that Russia wasn't deterred in its invasion of Ukraine by financial sanctions because they easily avoided the impacts by using crypto instead.  If this is true, this means that people are literally dying because of crypto. (CNN)
14. BITCOIN MADE LOTS OF WHITE SUPREMACISTS FABULOUSLY RICH.  They got into Bitcoin because of distrust of "Jewish-owned banks" and because they wanted to be underground.  It paid off for them. (NBC) 
15. CONFIDENCE AND ROMANCE SCAMS ABOUND.  Con artists have always been around, but Bitcoin makes it a lot easier for them to fleece their marks, since the payments are so much harder to track.  It's estimated that between 8/21 and 4/22, 5000 people were cheated out of $66 million. (WaPo)
16. ENCOURAGES HACKS ON HARDWARE MANUFACTURERS.  Hackers stole the source code of the graphics card maker Nvidia, and threatened to release it unless Nvidia allowed their cards to mine crypto faster. (source)
17. MUCH OF THE BITCOIN COMMUNITY IS A CULT.  Some common characteristics of cults are hysterical reactions to criticism, a belief by the members that they're part of something unique or special that will revolutionize the whole world, and that the members are personally singled out for greatness or huge rewards.  (I know about cults since I was born into one.)  That fits a good chunk of the Bitcoin community to a T.  As Financial Times put it, "Crypto's most ardent proponents predict it will eradicate inequality, wipe out corruption, and create untold wealth."  Right.  In fact, it's quite the opposite: as noted above, crypto helped Russia with its genocide in Ukraine. (FT)

Problems with exchanges

1. DIFFICULTY WITHDRAWING OR SPENDING YOUR COINS.  If you deposit Bitcoin to an exchange and then later try to withdraw or spend any appreciable amount of it, they might demand to know where you got the Bitcoin.  (And no, I don't know what their threshold is for asking.)  If you purchase the Bitcoin on the exchange with cash, then they might demand to know where you got the cash.  This is because exchanges are regulated and must follow KYC ("Know Your Customer") and AML ("Anti-Money Laundering") regulations.  If they're not satisfied with your answer, they might require you to close your account (though they'll let you withdraw your money first).  If they found anything about your answers suspicious, they'll file a SAR (Suspicious Activity Report) with FinCEN (the Financial Crimes Enforcement Network), and they're not allowed to tell you that they've done so.  (I know this because I'm registered with FinCEN myself.)  Three different exchanges closed my accounts because when they asked where I got the Bitcoin, I truthfully said that it was payment from an advertiser on one of my websites, then they asked if that advertiser was an online casino, and I don't lie so I said yes, and then bingo, they closed my accounts.
2. HORRIBLE WEBSITES.  The websites of exchanges are comically bad.  They typically don't even provide running balances in the transaction history (unlike every single actual bank), they're confusing, and they're buggy as hell.  Here's a whole list of problems I encountered at numerous exchanges.
3. HORRIBLE CUSTOMER SERVICE.  You're used to being able to call your bank if you have a problem, but with Bitcoin exchanges, forget it.  They generally don't have a customer service phone number.  You can email them, but in my experience with multiple exchanges, you wait literally days for a reply, and when you get it, it's often a form letter that has nothing to do with the query you actually sent.  I wrote to Crypto.com about not being able to get their advertised interest rate, and four days later still haven't gotten any help.  I wrote to Bittrex about my BTC balance being wrong (meaning I'd lost $2000), but four days later I haven't received a reply.  In chat at Kraken, multiple agents didn't listen to me and gave me the wrong instructions, and one outright refused to escalate a problem to management.  Two separate sets of customers are suing Coinbase and Binance because the exchanges inexplicably denied customers access to their funds, and adding insult to injury, don't have customer support phone numbers and were useless with their email-based support.
4. DIFFICULTIES GETTING THE ADVERTISED INTEREST RATE.  Crypto.com advertises 4.5% interest on Bitcoin, or 6.5% if you "stake" 50,000 of their CRO coins ($10k as of 4/6/21).  However, they don't bother to define "stake" on the page that advertises the interest rate, or even link to an explanation, and the interest rate page leads you to believe that "staking" means depositing your CRO coins for a 3-month interest term.  But that's not actually what they mean by "stake", so if you dutifully buy the $10k of CRO coins and deposit them as I did, then not only do you not get the advertised 6.5% rate on your Bitcoins, but your CRO coins are locked for three months and can't be withdrawn.  I finally found out by Googling this issue (because, as with most exchanges, Crytpo.com's customer support is nearly non-existent, see next topic), that "stake" means to use your CRO coins to buy a prepaid Visa card, and maintain your CRO balance on the card for at least six months.  Again, that's explained exactly nowhere on the page that advertises the interest rates, nor even linked to.
5. THEY WANT YOUR BANK ACCOUNT LOGIN.  Most of the larger exchanges (e.g., Bitflyer, Bittrex, BlockFi, Coinbase, and MyConstant) have the audacity to ask you to supply your bank account login in order to link your bank account to process deposits and withdrawals!  Security 101 is to never give your bank login to anybody, at any time, for any reason, under any circumstances.  So shame on the exchanges:
1. For rudely asking you to play fast and loose with your bank login.  It's ridiculous and wildly offensive.
2. For essentially teaching customers that sharing their bank login with another party is normal and proper.  It's absolutely not.
3. For not providing any other option to link a bank account.  For example, at Bittrex and BlockFi, you're forced to hand over your bank login if you want to link your bank.  There is no option to link your bank account manually by having them make small deposits into your bank account which you then verify.
4. For essentially lying about the process.  In the same breath that they breathtakingly ask you to fork over your bank login details, the forms have the temerity to say, "Your data belongs to you."  Not when you hand it over to another party, it doesn't!
6. CONFUSING EMAIL COMMUNICATIONS.  The email messages that exchanges send are often a hot mess of technobabble and marketing B.S., often not understandable by normal humans.  Worse, they're sometimes horribly misleading.  For example, on 5/13/22 Crypto.com sent out a message suggesting that customers had 24 hours to repay a failed transfer.  In fact, what they meant to say was that as the result of a policy change, if a transfer failed then customers would have 24 hours to repay.  Crypto.com was forced to send out a clarifying message since the original was clear as mud.

Bitcoin uses horrific amounts of energy

Anyone can become a Bitcoin miner, by downloading the software and running it on her/his computer, but a single computer has no hope of competing against the estimated one million other miners. (Business Insider)  One company runs 77,000(!) computers, (Coindesk) and another company's mining facility sits on a whopping 100 acres. (TheStreet)  All of these powerful computers  suck a lot of electricity.  Worse, lots of them are located in poorer countries where the primary fuel is coal, which is extremely polluting and which exacerbates climate change.

Miners often use the dirtiest forms of electricity.  In Montana, a coal-fired plant was slated to close until miners stepped in and resurrected it. (Guardian)  And even when miners use greener forms of energy, that means other users can't use that energy, since the supply is limited.

1. Other money production uses lots of energy, like gold mining.  I couldn't find good, recent data about gold mining's energy consumption, but it hardly matters: This argument is like some child defending his actions by saying, "B-b-b-but but Tommy did it, too!"
2. Even though Bitcoin uses lots of energy, it's not "wasted" energy because Bitcoin is so useful.  Seriously?!  Please.
3. 85% of the reward to miners is from new coins, not transaction fees, so transaction fees are responsible for only 15% of the total energy that Bitcoin uses.  That's nice in theory, but the truth is that without 100% of the energy that miners are using, there is no Bitcoin network.
4. Instant exchanges move their customers' bitcoin trades around outside the Bitcoin network, settling lots of off-network trades into a a single Bitcoin transaction.  In this way, not every Bitcoin transaction is responsible for lots of energy use, only the transactions that go through the Bitcoin network.  This is true.  Your energy footprint for Bitcoin is lower if you're buying and selling on some service that handles most if its transactions internally, rather than your transaction using Bitcoin's network directly.  However, (1) How would you even know whether your transaction is pooled with other users'?  (2) Even if your transaction is pooled, that doesn't change the fact that the Bitcoin system on a whole uses a staggering, horrific amount of energy.

• Basics
• Risks
• Problems
• Problems with the Websites
• Addresses, Wallets, & Passwords
• Other Cryptocurrencies, Stablecoins, Jargon