What are the risks with Bitcoin and other cryptocurrencies?
While Bitcoin is a very exciting technology and new form of money, it doesn’t mean that there is no risk associated with it. As a starting point, it’s important to remember that the same intuitive rules that apply to traditional money also applies to Bitcoin. For example, don’t store cash under your mattress else it might get stolen, or don’t trust your money with strangers.
Bitcoin also has some fairly unique risks: for one, it’s a brand new technology, and while it appears very secure and robust, there is always a chance that it might fail. That is also a reason why you should never put ‘all your eggs in one basket’ and never buy more Bitcoin than you can afford to lose. Bitcoin is also more volatile (i.e. it can move a lot in value both up or down in a short space of time) than many other currencies, and while this appears to be stabilising over time, it’s sure to experience many highly volatile moments in the future.
Also remember that Bitcoin transactions are like cash in that they are irreversible – so if you send Bitcoin to the wrong person, or your Bitcoin wallet is compromised and someone steals your Bitcoin, it might be very difficult if not impossible to get it back. Bitcoin is also not backed by any entity, so if you lose your Bitcoin, your service provider or ‘the Bitcoin network’ will not be able to reimburse your funds. That’s why you need to ensure you use highly trusted product or service providers to help you, similar to how you would ask a bank to help you safely store your money.
Lastly, Bitcoin’s value is determined by the amount of people or business that are willing to accept it, and this is by no means guaranteed. If it grows it will be very good for Bitcoin, but if less people want to use Bitcoin, it will have a very negative impact on the price and might lead to Bitcoin not being used at all.
To summarise, Bitcoin is very exciting and has tremendous potential to change the world, but make sure you understand the risks that go hand in hand with that.