Why do i need Bitcoin ? Part 2 Risks

Seun Kayode

Kayodex2@yahoo.com

  

Why do I need Bitcoin? Part 2 - Risks

In the first part of this article, I wrote about the benefits of Bitcoin as a medium of exchange and compared it with other forms of money. In this part I will be focusing on the risks of Bitcoin in the same context.

The first Bitcoin transaction happened in January 12^th, 2009, meaning Bitcoin is still relatively new as a medium of exchange. Its use cases are not as well tested as other forms of payment like cash, credit cards, bank transfers and Paypal. Additionally, because it is a purely digital currency, it inherits some of the challenges of the digital platform on which it operates. Let’s look at these risks in more details.

Risks of using Bitcoin as a medium of exchange

1. Bitcoin is not yet widely accepted. Although Bitcoin is gaining popularity as a medium of exchange, it is not yet widely accepted by merchants. This means that the usability of Bitcoin is limited. If you are a frequent online shopper, you would have noticed that only a few online merchants accept Bitcoin for payments. It is expected that this trend will change, as more online businesses embrace digital currencies like Bitcoin. Some of the online merchants currently accepting bitcoins are Overstock, Tigerdirect, and CheapAir.
   
2. You can lose your bitcoins FOREVER. When you pay for a transaction with bitcoins, what happens in the background is that you are transferring some bitcoins from your bitcoin address to the seller’s bitcoin address, just like a bank transfer. The difference is that if you make a mistake in the seller’s address, and send the bitcoins to the wrong address, they can never be retrieved. Remember that Bitcoin is not controlled by any central organization, so the responsibility of protecting your bitcoins lies with you.
3. The price of Bitcoin is volatile. Because Bitcoin is not controlled by any central bank or government, the price fluctuates in response to environmental events like new government regulations, security breaches on Bitcoin exchanges and media announcements. These fluctuations can occur frequently over a short period of time, as experienced recently between March and June 2017. If you run a business that accepts bitcoins, you would need to adjust the prices of your offerings with the fluctuations, which can increase your operational costs.

   

   Bitcoin Price - March 2017 to June 2017
   Courtesy - Coindesk.com
4. Your Bitcoin wallet can be attacked. Keeping your bitcoins online with a Bitcoin exchange means you can access your bitcoins easily from anywhere, however it comes with a big risk. Because the Bitcoin exchanges store your private keys which provides access to your Bitcoin funds – online, they are prime targets for hackers. According to Reuters, it is estimated that one third of Bitcoin exchanges have been hacked. You are better off keeping your Bitcoin wallet offline, where the risk of a hack is much lower.
5. Bitcoin is vulnerable to technical flaws. Bitcoin is a relatively new system compared to other forms of payment, and development work on it is ongoing. This means that new technical issues that can affect your transactions may occur. Although this is rare, the risk still exists.

In conclusion, although there are a few risks associated with Bitcoin, overall it can be seen as a viable alternative to cash, bank transfers, and credit card, as a medium of exchange.

Why do i need Bitcoin ? Part 1 - Benefits

Seun Kayode

Kayodex2@yahoo.com

Why do I need Bitcoin?

A friend asked me a question last night when I told him I was a Bitcoin consultant. His question rephrased and expanded was “I have credit cards, debit cards, cash, PayPal, and a bank account, why do I need Bitcoin?

I gave him two advantages of Bitcoin over other conventional forms of payment, but as I drove home, I felt I didn’t provide him with enough reasons to embrace the use of Bitcoin and made a mental note to send him some articles on Bitcoin sometime later.

While reading a blog on Bitcoin later that night, I observed from the comments on the blog that many people were asking similar questions as my friend, they didn’t quite understand the concept of Bitcoin and were looking for someone to explain Bitcoin to them in plain language or to explain it with examples they could relate to.

So, I decided to write about Bitcoin, focusing on the benefits and risks of Bitcoin in comparison to other forms of money. This is a two-part article, where the first part talks about the benefits of Bitcoin and the second part highlights the risks.

Benefits of Bitcoin

1. You can transfer bitcoins easily. Transfer of bitcoins to your friends, family or business partners can be done very quickly. The transfer usually takes about ten minutes, no matter where the person is in the world. Although they would need to use the services of a Bitcoin exchange and a bank to convert the bitcoins to cash, they could spend the bitcoins online or with traders that accept bitcoins without going through a bank. Additionally, the fees you pay when you transfer bitcoins are usually lower than the fees banks or money exchanges charge you when you transfer funds through them.
2. Your bitcoins store cannot be stolen easily. Unlike credit or debit cards, when you make an online purchase with bitcoins, you are not required to provide any details that could be stolen later by a hacker. Your bitcoins are as safe as you keep your Bitcoin wallet, which is a software that controls your bitcoins. If you don’t keep your Bitcoin wallet on a computer or mobile phone that has access to the Internet, the chances of your bitcoins been stolen are very slim.
3. Your bitcoins cannot be taken by the government or the bank. The government cannot freeze your bitcoins as they cannot gain access to it. Similarly, the banks cannot freeze your bitcoins or charge you any kind of fees as your bitcoin transaction do not pass through their system.
4. Your bitcoins do not reveal your personal details. Bitcoin transactions are carried out through a code generated by your Bitcoin wallet. This code is called an address and is not linked to your personal details like name, phone number or physical address. Although the details of all Bitcoin transactions are available online to everybody, your Bitcoin transactions cannot be traced to you if you use a different address for each Bitcoin transaction.
5. You can hold or transport very large amounts of bitcoins. Your Bitcoin wallet can hold access to millions of dollars’ worth of bitcoins, which you can store on a USB stick and carry around without attracting attention or notifying anybody.

These are just some of the many reasons you would want to use Bitcoin. In the next article, we will look at the risks and issues associated with the use of Bitcoin.