5 Risks for Bitcoin Owners
Bitcoin is showing incredible success this year. It started at $1,000 and went up 17 times, peaking at $17,000 on Dec. 7, followed by a 10% decline. CME Group and NASDAQ announced the launch of Bitcoin futures in December.
Five Risks Associated with Bitcoin Ownership
Like other cryptocurrencies, Bitcoin is extremely unstable and volatile, even more than stocks. While maintaining high volatility, the coin is constantly on an upward trend, but this does not mean that it cannot collapse suddenly. The reason for the fall of Bitcoin can be either a ban at the legislative level or an “overheated" market. A price cut of even 20% will take investors by surprise, although they have earned more than 900% since the first day of the year.
History has shown that the higher the growth, the greater the correction. Therefore, Bitcoin owners should consider this risk.
Storing Bitcoin in an online wallet, exchanger or exchange does not provide confidence in the security of encryption tools. Reuters reported that the cryptocurrency exchange was hacked and the platform was forced to close its business due to lack of virtual currency.
Storing Bitcoins on an online exchange is a serious risk.
Attacks from quantum computers
At the beginning of November 2017, a group of experts sounded the alarm that the Bitcoin blockchain could suffer from an attack by quantum computers in ten years. New hacking transactions will take place by 2027.
To have the best possible understanding of cryptocurrencies, be sure to check out what blockchain is.
Many of the accounts of existing Bitcoins and all new transactions will be at risk in ten years, decisions need to be made now.
One of the real problems for Bitcoin is the so-called “51% attack”. According to the scenario, only one organization will control 51% of the capacity. Such an organization has the ability to manipulate the Bitcoin blockchain, blocking transactions or doubling Bitcoin. In this case, the entire specialized system will collapse.
Do you think this is just a theoretical threat? Do you know what the distribution of hash power is today? The top five mining pools produce 70% of the hash power in total. There are three big miners – AntPool, DiscusFish and Bitfury. They joined forces and reached the fatal mark of 51%.
Once lost Bitcoin cannot be retrieved again. And this also applies to transactions – once confirmed, bitcoins cannot be withdrawn or cancelled.
Already more than 3.8 million bitcoins have been lost forever, which is 23% of the total.
In 2009, James Howells, an English IT specialist, mined 7,500 bitcoins at home with little effort. Then he threw away the hard drive of the Dell laptop. Today, a hard drive worth about $75 million continues to be among the garbage in the Wales landfill.
Comparing Bitcoin to Gold and the Dollar
Now that you understand the main risks of owning bitcoin, you need to clarify which currencies are the best alternative compared to bitcoin.
Bitcoin vs USD
Inflation – Unlike Bitcoin, which has a supply limit of 21 million coins, the US dollar is prone to rising inflation as the Fed lends more and more money, particularly after the 2008 crisis, with a 0.3 interest rate under the quantitative easing program. This reduces the value of the USD for savers as it depreciates year after year. In fact, the US dollar has lost 96% of its purchasing power since 1913, when the Fed issued the first banknotes. Bitcoin is not subject to the risk of inflation, which makes it one of the most valuable assets for savers.
The US dollar depends on banks – although the Forex market is decentralized. In May 2016, the ten largest global banks, including JPMorgan, Citi, UBS, Deutsche Bank, HSBC and Goldman Sachs, accounted for about 66% of total Forex trading volume. These banks control the cash flows. No entity has control over the Bitcoin blockchain.
USD may devalue – US dollar goes through gradual devaluation based on inflation, legal valuation suffers from hyperinflation if petrodollar status is lost. This happens when a number of oil producers refuse to sell their product in exchange for a dollar. Bitcoin is not prone to such risk.
You can calculate the potential profit from the purchase and sale of cryptocurrencies using the cryptocurrency exchange calculator.
Bitcoin vs Gold
Gold is a valuable material. Unlike Bitcoin, gold is a raw material that is stored in coins or bars. Trading gold is much more difficult than Bitcoin. Bitcoin is a virtual currency and completes transactions in a few clicks at any time. Gold is more static than bitcoin. Ogle is dependent on multiple centralized systems, even if legally the metal looks like a decentralized currency, Bitcoin remains the winner. Bitcoin technology is absolutely reliable.
Bitcoins are a type of digital currency that is used all over the world. Transfers are made through a network of computers connected through the application: peer-to-peer (P2P means peer-to-peer).
Since the beginning of 2017, the Bitcoin trend has been able to show positive dynamics and further forecasts are more optimistic. But even if the trend is positive, with a strong development of the course, the “soap bubble” syndrome is not ruled out. Investors should take into account the relevant risks when investing.