🪙 5 Risks of Owning Bitcoin: What an Investor Needs to Know 💼

Bitcoin has been an incredible success this year. It started at $1,000 and rose 17-fold, peaking at $17,000 on December 7, before falling 10%. CME Group and NASDAQ announced the launch of Bitcoin futures in December.

Five Risks Associated with Owning Bitcoin

Volatility

Like other cryptocurrencies, Bitcoin is extremely volatile and volatile, even more so than stocks. While maintaining high volatility, the coin is constantly on the rise, but that doesn't mean it can't suddenly collapse.

The reason for the fall of Bitcoin may be either a ban at the legislative level or an “overheated” market. A price drop of even 20% will catch investors by surprise, although they have earned more than 900% since the first day of the year.

History has shown that the higher the rise, the bigger the correction, so Bitcoin owners should be aware of this risk.

Cyber ​​attacks

Storing Bitcoin in an online wallet, exchanger or on an exchange will not provide confidence in the security of encryption tools. Reuters reported that a cryptocurrency exchanger was hacked and the platform was forced to close its business due to a shortage of virtual currency.

Store Bitcoins Online exchange is a serious risk.

Attacks from quantum computers

In early November 2017, a group of experts sounded the alarm – the Bitcoin blockchain could suffer from an attack by quantum computers in ten years. New transactions to hack will be carried out by 2027.

To have the best possible understanding of cryptocurrency, be sure to read up on what blockchain is.

Many of the existing Bitcoin accounts and all new transactions will be at risk in ten years, decisions need to be made now.

51% attack

One of the real problems for Bitcoin is the so-called “51% attack”. In this scenario, only one organization will control 51% of the power. 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 hashing power is today? The five largest mining pools produce 70% of the hashing power in total. There are three large miners – AntPool, DiscusFish and Bitfury. They joined forces and reached the fatal mark of 51%.

Loss

Once a Bitcoin is lost, it cannot be retrieved again. And this also applies to transactions – once confirmed, Bitcoins cannot be withdrawn or cancelled.

More than 3.8 million bitcoins have already been lost forever, which is 23% of the total.

In 2009, James Howells, a British IT specialist, mined 7,500 Bitcoin at home without much effort. He then threw away the hard drive of his Dell laptop. Today, the hard drive, worth around $75 million, remains in the rubbish heap of a Wales landfill.

Comparison of Bitcoin with gold and dollar

Now that you understand the main risks of owning Bitcoin, it is necessary to clarify which currencies are better alternatives 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 issues more and more money, particularly after the 2008 crisis, with an interest rate of 0.3 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 first issued banknotes. Bitcoin is not at risk of inflation, making it one of the most valuable assets for savers.

The US dollar is dependent on banks – although the Forex market is decentralized. In May 2016, the world’s ten largest banks, including JPMorgan, Citi, UBS, Deutsche Bank, HSBC and Goldman Sachs, accounted for about 66% of the total Forex trading volume. These banks control the money flows. No single entity has control over the Bitcoin blockchain.

USD can devalue – The US dollar undergoes a gradual devaluation based on inflation, legal assessment suffers from hyperinflation in case of loss of petrodollar status. This happens if a number of oil producers refuse to sell their goods in exchange for dollars. Bitcoin is not prone to such a risk.

You can calculate the potential profit from buying and selling cryptocurrency using

Bitcoin vs Gold

Bitcoins are a type of digital currency that is used all over the world. Transfers are made through a network of computers connected via an application: peer-to-peer (P2P means equal to equal).

Resume

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 strong development of the rate, the “soap bubble” syndrome cannot be ruled out. Investors should take into account the corresponding risks when investing funds.

Cryptocurrencies are limited in quantity. When the maximum amount is reached, new coins cannot be formed. Until then, Bitcoin account users have the opportunity to participate in Bitcoin mining. Anyone who wants to trade Bitcoin can do so through their own account on any exchange: EXMO, Yobit or Livecoin.