Is Bitcoin & Cryptocurrency Safe?

money in a safe
Is bitcoin really safe to hold?

A year or so ago, an alternative to bitcoin came out called Dogecoin. It was big news at the time, and managed to grab a lot of headlines. Amused by the concept, I started mining it, buying it, and selling it. I made a little money, but then one day it began to decline in value quite aggressively. I was holding a good chunk of coins, about £2,000 worth. Fine, I thought, the value will go back up eventually.

About a year passed, and I decided I was sick of waiting and was going to sell those coins. I traded them to bitcoin, getting about £500 worth, and sent the bitcoin to coinbase, a major online exchange. The bitcoin appeared on the account, and happy to hold it as bitcoin I logged out. The next day I decided I would transfer it to a local wallet on my computer, and logged in. My bitcoin was gone. There was no transaction record showing on coinbase. No deposit, and no withdraw in the history. They claimed it never existed. Scumbags.

I never did get that money back. The worst thing was if i’d waited just a few more months before selling the Dogecoin, i’d have ended up with £20,0000, as it later shot up in value. But such is life.

Not too long ago, another major exchange, Bitfinex suffered a major theft losing bitcoins worth $66m at the time. They solved the problem by spreading the loss evenly across all customers, debiting them around 30% of the net value of their holdings. You probably already know about the Mt Gox theft, in which they lost 744,408 bitcoins- which at today’s value stands at $3.2bn.

So, don’t trust an exchange. If you want to deal with crytocurrency, bitcoins, or mining at some point you will have no choice but to use an exchange. Just know when you do so that there really is very little stopping them from helping themselves to you coins. For what it’s worth, i’ve been making use of Poloniex a lot over the last few months, and they are yet to screw me.

The problem with bitcoin, and cryptocurrency in general is that it is unregulated. The decentralised nature means that no one government or body holds control of the currency. The net result is a rather gold-rush like situation. There are massive financial gains to be made, I think everybody knows that by now. However there is also a huge intrinsic risk.

Even the value of the coins themselves is hugely speculatory. Almost all crytocurrency coins are hard to spend right now in a retail type situation. Yes you can walk into some tech savvy joints and maybe pay with bitcoin. They will let you because it’s cool- but certainly not because it’s practical. If I hand you a ten pound note, you will know quite instantly that you have been handed a ten pound note. With bitcoin getting enough confirmation that you really do have that money may take an hour or more. Of course there is new technology coming around which is quicker, but the question is will it really hit the mainstream for use as money? The value then of most of these coins is entirely people buying them in the hope that somebody else will buy it off them later for more money. Maybe somebody will. Or maybe one day the whole house of cards will come crashing down.

That being said, I already called bitcoin a goldrush. Well, gold actually bears an incredible number of similarities to bitcoin, in that it lacks many practical uses but is considered valuable regardless. That value has stood the test of time. Yes gold has decorative use, and some technological use in electronics too, but not enough to justify it’s monetary value. Gold is rare, but then so really is bitcoin. Of course much like gold which does have a use, it’s fair to say bitcoin has at least one valid use also.

Bitcoin, or more modern untraceable coins like ZCash are good for the shady sort of transaction. The fact is that if  you’d like to buy something without anybody knowing, crypto currency is the perfect solution. Perhaps you’d rather not pay your taxes, or you’d like a government not to see how much money you have. In many ways the Silk Road (a long since shut down site for trading illicit goods) was the first thing to start to give bitcoin real value.

So then, back to our original question. Are these coins safe? I think no is the answer. If you are looking for a safe investment, stick with all the old fashioned sort. Buy your property, stock and shares, or whatever else. If you do want to hold crypto, realise there is really no perfectly safe way to do it. Look into local wallets, private keys, offline storage and whatever else, make sure you’ve done your homework. If you are going to hold money on an exchange, do it only if you can afford to loose it. Holding coins to make money takes a certain amount of willingness to take a risk. That’s not to say you should not invest in crypto, you absolutely should- lots of people are making lots of money doing so. Just make sure you know what you’re getting into, do your homework, and trust nobody.

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