Bitcoin: dangers of digital currency

Posted: Friday, April 26, 2013 12:58 pm | Updated: 1:00 pm, Fri Apr 26, 2013.

There are numerous ways to invest for the future, and I guarantee that most of these ways are online. Everything from stocks and bonds and 401ks, to silver and gold are just a few forms of investment.

However, there is one slight hiccup with these options. They all depend on a person’s dollar holding value. While the U.S. dollar is currently gaining strength, some people are looking into other investment options. One of those options is the bitcoin.

Bitcoin is online virtual currency. It is not anything like PayPal though. Bitcoin has been around for about five years now. The inventor is unknown because he used a pseudonym, making the bitcoin decentralized. Not even the U.S. government has control over bitcoin.

Unlike the U.S. government’s printed money, there is a fixed amount of bitcoins. That amount is 2.1 quadrillion indivisible units of value, meaning 0.00000001 bitcoins (notice the eight decimal places hence the “bit,” like eight bits to a byte).

The bitcoin system is based on complex algorithms. The device used to access the bitcoin “wallet” will run a program that slowly solve codes called “bitcoin mining.” As the codes are solved, they add a bitcoin to the account.

An easier way to gain bitcoins is to purchase them from other bitcoin operators; similar to buying and selling stocks.

The program is so unlike our modern day currency and financial institutions that some people think it may be the way of the future.

In fact, financially unstable countries, such as Greece and Cyprus, people are replacing their national currency with bitcoins, which can be used almost anywhere in the world that has Internet access. Like the stock market, bitcoins can fluctuate. Recent popularity has allowed the prospect of bitcoin ATMs. How safe is it, though?

I heard about bitcoins several years ago. I read that it was the safest way to invest money. With bitcoins, there are no worries of an account being frozen, no fears of the government seizing my assets and it seems almost too good to be true. Yet, I haven’t invested for the simple reason that it is all  based online.

I don’t trust the Internet for everything. I don’t bank online; I rarely make online purchases, and I would certainly never invest in an online opportunity that does not have guaranteed protection.

The digital world is becoming the everyday world. As the Internet takes over, there is an unsettled issue — hacking. Almost every week I hear about another hacking incident. Bank accounts, Facebook and many others are popular sites to hack.

Bitcoins decentralized stance is both a strength and weakness. With no one in charge, people don’t worry about account seizure or denied access. Bitcoins will not provide is the protection that a financial institution can. FDIC insures up to $250,000 on every bank account. Bitcoins do not beause it is an independent system, and investors may be taking a big risk.

While our modern day currencies and financial systems are not perfect, they do have their benefits. Most of the world’s banking is already online. If a one-world currency ever does occur it won’t be bitcoin, but it will be a similar concept. As for investing, I would recommend you put your money into something that will always hold value — land, skills and anything tangible.