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.