To the uninformed, Bitcoin is a scary currency used on the black market to get guns and drugs shipped to your home. In reality, however, it’s a marvelous invention: a currency not tied to the success or failure of any one country’s economy.
Bitcoin can’t be counterfeited. It can’t be tracked after it’s spent or sent. It can’t be physically stolen from you (unless you’re storing it on a personal hard drive). It can even help you save money on certain purchases. Best of all, if you buy bitcoins at a certain price, their value could increase in a short period of time.
Yet Bitcoin isn’t without its faults. The virtual currency can increase faster than traditional investments, but it can also decrease faster than most securities. If you’re trying to minimize your risk with your investments, Bitcoin is arguable the last thing you’d want to put your money in.
As a consumer, should you exchange a small amount of money for bitcoins? If you’re looking to purchase products online and maybe save a few bucks, then it could make sense. New investors, however, should stay away from Bitcoin. Here’s why:
Bitcoin is a digital currency that is only accepted by a handful of businesses.
You can buy from certain legal (and, yes, illegal) online stores using the currency, but your options are somewhat limited. Sites like Newegg and Overstock accept Bitcoin payments, but to buy stuff on major sites like Amazon, you need to buy gift cards at whole dollar amounts using Bitcoin first. You can use services like Bitpay to spend bitcoins using a special debit card, but there are always fees incurred with each transaction. Brick-and-mortar locations that accept bitcoin are few and far between.
Bitcoin is also rather volatile, and numerous factors can impact its value.
If you buy $1000 worth of bitcoin today, it could be valued at $1100 or $800 tomorrow, in an hour, or in a minute, as the Bitcoin market never closes. While Bitcoin isn’t tied to any single government, countries like the U.S. and China are experimenting with regulations and legislations tied to Bitcoin. This caused the price of a single bitcoin to fluctuate in the last few weeks, increasing its value past $1000 a bitcoin and then dropping to around $700 a bitcoin in a matter of hours.
There are a million and one fees involved in buying and selling Bitcoin.
Unless you’re mining your own bitcoins and keeping them in your own wallet, you’ll always have to pay a fee to Bitcoin exchanges to buy the cryptocurrency. If you want to sell bitcoins, you’ll be charged a fee. If you want to buy bitcoins, you’ll be charged a percentage of the transaction, too. In the end, you never just pay for the value of a bitcoin when buying the currency.
People can still steal your bitcoins, too.
Bitcoin is tamper-proof and impossible to forge or trace. Since it’s really just data living on a hard drive. however, it’s also susceptible to hackers. Many Bitcoin adopters use secure online Bitcoin exchanges and wallets, but those systems are not hack-proof. One could argue that real money is subjected to identity fraud and theft, but there are at least systems in place to trace theft of currency from banks. Once bitcoins are stolen from you, they’re gone forever.
If you’re new to investing, you probably don’t want to put too much money into Bitcoin. Bitcoin is a relatively new currency, and its value changes every second of the day. As of this writing, the value of a single Bitcoin decreased by $1.11 in the last hour and $37.83 in the last day. This is considered a relatively minor decrease for the cryptocurrency, as it’s seen decreases by over $600 in a single day.
While all investments go up and down throughout the trading day and their lifetime, Bitcoin is significantly more volatile than traditional stocks and even more unpredictable. If you want to invest in Bitcoin, we strongly suggest you research the virtual currency market, the current factors causing it to rapidly change, and how to minimize the many fees involved. Otherwise, you might want to stick to the stock market for now.