by Sarah Smith, edits & additions by Jeff Campbell
Wondering about the risks of Bitcoin investing or how Bitcoin works?
The idea of a person just creating a new form of money is concerning to most people.
After all, most of us rely on some sort of government entity to create our currency or at least something tangible like gold and silver.
You’ve no doubt heard of Bitcoin and likely heard the term cryptocurrency (digital payment method).
Maybe you’ve even bought or sold something and used Bitcoin as the method of payment? Or maybe you’ve invested in Bitcoin?
So today, we’re taking the mystery out of Bitcoin.
We’ll talk about who invested Bitcoin, how it works and how to use it or invest in it. Specifically, though, we’re looking at the risks of Bitcoin investing. That way you can make an informed decision as to whether or not this might be a good investment for you.
How Bitcoin Works
For everyone who is not aware with what bitcoin is, let me explain you a little bit about it.
Bitcoin was introduced by an anonymous group of people who operate under the name Satoshi Nakamoto in 2009. They wanted people to be in charge of their money and eliminate the middle man to save everyone from corruption.
Thus unlike more traditional payment methods, Bitcoin is a peer-to-peer method with no central governing body in between.
But it didn’t start to get popular until 2013 and then really exploded in 2017.
Just like any other payment method, they can be exchanged for your national currency.
This all happened after Occupy Wall Street accused banks of misusing their client’s money.
The most popular place to buy or sell Bitcoin is Coinbase.
CEX was a popular site too but they recently ceased trading in the US (but may still trade in other countries). Later this year Goldman Sachs is planning to launch a Bitcoin trading option too.
People who like this investment may argue that risk is a necessary factor in every investment.
But before we buy, sell or trade Bitcoin we have to know the risks involved and not just hop on the bandwagon blindly.
So let’s review the . . .
5 Worst Risks of Bitcoin Investing You Should Know
1. CUSTOMERS COULD STOP USING IT
For now, Bitcoin is a hot item and seemingly unstoppable, but the financial experts are not sure that for how long it is going to be this way.
The major reason behind Bitcoin’s rise is the retailer (those who use and/or buy and sell it) and their interest in this sort of investment.
For now, the users and buyers & sellers of Bitcoin seem to be growing daily, but the question arises; for how long?
Because the track record of investors and Bitcoin is not lengthy, it’s hard to know how long they will maintain interest. If another Cryptocurrency falls into favor, customers, retailers and investors could all move away from Bitcoin and its value could plummet.
2. MERCHANTS MAY STOP ACCEPTING IT FOR PAYMENT
Bitcoin can only operate if there are enough stores and sellers who accept it as a payment method.
Obviously, it’s only been in the past few years that any merchants existed who would accept Bitcoin. But again the question arises for how long?
If merchants stop taking it, or a large influx of new retailers doesn’t start accepting it, people may stop buying it.
Thus you could have a downward spiral of each trying to guess where Bitcoin is going and trying to minimize the damage to themselves.
3. NO OVERSIGHT OR REGULATION
We often criticize our banks and government.
But let’s be honest. With a central governing body we feel more secure. We know if anything goes wrong we have protection and someone to ask questions of.
Bitcoin could fail us here because of the lack of oversight or regulation.
Bitcoin is a self-governing body with no governing oversight whatsoever. Thus when dealing with any digital currency, you have to be very careful because you are on your own.
4. PRONE TO FRAUD
Because there is no governing body, you may not have any recourse with fraud, and this is one of the top risks of bitcoin investing.
With no regulatory body, fraudulent individuals may be drawn towards Bitcoin because it is just you and that other person behind the blue screen.
Be very careful with what you are getting yourself and take steps to only deal with companies and individuals who are reputable.
We have been hearing this for quite some time now that Bitcoin is safe because of the USB shaped wallets that are available.
But let me ask you one question; As a Bitcoin user does it even feel like you are using a currency system?
These types of innovations have no end. So for now, the money is safe, but there is still so much that we do not know this new era of payment methods.
Analysts around the globe are excited to see what is next with this system because even the best of them are not completely sure of the ecosystem of this digital currency.
If you are interested in the best Cryptocurrency Wallet available on Amazon Prime, check out the Trezor Bitcoin Wallet. It’s 4.5 stars with well over 400 reviews. “It offers unmatched security for cryptocurrencies & password management while maintaining an absolute ease-of-use.” Slips onto any key ring for easy carrying.
The perfect way to combat one of the risks of Bitcoin.
— Zloadr — Bitcoin, ICO & Cryptocurrency News (@zloadr) March 15, 2018
Author Bio: Sarah Smith has been a personal finance author for the last five years. She is also an independent and very passionate finance and investment advisor. She regularly posts at www.personalincome.org
Want to write for Middle Class Dad? Get all the info you need here: Guest Blog for Middle Class Dad!
Still unsure about the risks of Bitcoin investing or how Bitcoin works?
So we know Bitcoin is the “hot” new investment and payment method.
Time will tell if it becomes the new Paypal, new Euro or ends up discarded in favor of the next crypto flavor of the month.
Thus whether you plan to use, buy, sell or invest in Bitcoin it’s crucial that you know the risks of bitcoin investing and not just go in blindly due to its current popularity.
Have you invested in Bitcoin?
While both Sarah and I are heavily involved in the world of writing about personal finance, neither Sarah nor I are investment professionals, bankers or involved with Bitcoin. Like all the posts that appear on this site, this post was written based on our opinions, research and experience. If you need an investment professional, you should consult one in your area.