If you look this question up on the internet, you will find that the results are mixed.
There will be some articles that take a neutral position on the matter and describe the financial risks as well the benefits of trading Bitcoin. But there are also traders out there that oppose Bitcoin with a passion and are not at all shy to share their opinion of it.
So is Bitcoin a safe investment or not? There should be an objective answer to that right? Unfortunately, there isn’t.
Bitcoin, being a cryptocurrency, is highly volatile in nature and its price shifts are simply outrageous. To this, there are optimistic traders who feel they can tame the beast and land an enormous profit if the numbers are in their favour.
Then there are the more conservative traders who simply cannot see it as a risk worth taking.
If you want to excel at trading Bitcoin, you should arm yourself with as much information as you can to gain an edge in a very unpredictable trading situation. And we have not even got started on the subject of hacking.
But whatever the risks, we reckon the technology behind Bitcoin is trustworthy so long as you understand what it can and cannot do, and what it probably will do.
Any of the notorious hacks you may have read about are not the result of faults in the technology, but rather the carelessness of Bitcoin users as well as incompetence and dishonesty on the part of corporations they trusted. To put things into perspective, you are better off betting your money on Bitcoin than you would be with a legal banking platform like SWIFT.
A hard-drive crash describes only one-half of the risks faced by a Bitcoin trader.
The other major threat is that posed by online hackers. In order to buy and sell Bitcoin, traders will open an account with a Bitcoin exchange.
And just like any service that is available online, these are subject to hacks. The most famous hack that everyone keeps going back to is that of Mt. Gox which was forced to shut down altogether following a major hack in 2014.
Meanwhile, in the United States, the most prominent cryptocurrency exchanges currently are Coinbase and Gemini.
The latter was founded by the Winklevoss, better known for filing a lawsuit against Mark Zuckerberg on the launch of Facebook. However, they are now also billionaires themselves having shifted their focus to Bitcoin.
Both of these exchanges take protective measures to secure Bitcoin deposits. Most of it is kept in cold storage which is off limits to hackers and only a small fraction is stored online at any given moment.
However, the skeptics are quick to point out that while exchanges are great buying and selling Bitcoin, they do work particularly well as storage devices. That is why you need a cryptocurrency wallet.
A cryptocurrency wallet is in many ways like a private bank account. It has a public address which works just like a bank account number and private key which works like an ATM PIN number. The latter must never be revealed to the public.
There are 2 types of wallets to be aware of:
- Hot wallet
- Hardware wallet
The hot wallet is one that you can install on your computer or mobile phone and affords complete control over your cryptocurrency. But since it stores these funds online, it is not hacker-proof. So storing Bitcoin here does come with an element of risk.
The latter resembles a USB drive and is slightly more expensive to obtain but it does enable you to store your Bitcoin away from the internet and hackers. Getting one will cost around $100. Plus, there is a process of recovery you can go through should misplace it somewhere.
But perhaps we have saved the most ominous threat for last: a sudden plummet in the price of Bitcoin.
In the event of this, there is no safety measure we have described above that can be of any aid.
So indeed, while we do maintain that Bitcoin can be a highly profitable investment if you know how it is played, you could just as easily end up being the one who got played.
Bitcoin image via Shutterstock.