Is Bitcoin Safe?
What is Bitcoin?
Bitcoin (BTC) is the world’s number one widely adopted cryptocurrency. Bitcoin is digital
currency, unlike cash, is not controlled by centralized banks or any one central authority. Bitcoin is a decentralized cryptocurrency in which the Bitcoin network runs simultaneously on multiple computers in multiple locations to perform transactions. Every Bitcoin transaction is recorded in a distributed ledger called a blockchain. Every transaction of Bitcoin is tracked on the blockchain. The supply of Bitcoin is finite and the maximum amount of circulating supply of Bitcoin is 21 million.
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Is Bitcoin Safe?
Bitcoin is very safe due to the blockchain technology and no central authority to facilitate peer-to-peer transactions. However, hackers can gain access to crypto wallets or breach cryptocurrency exchanges to steal holdings. Therefore, it is best to store your Bitcoin in a safe place and practice good security habits like you would with your debit pin code.
Cryptocurrency exchanges offer storage for your coins in a hot wallet that is online and susceptible to hacking. Make sure you use a platform that has enhanced security features like its own cold storage and two-factor authentication (2FA) for users.
The best protection against fraud is cold storage or cold wallet where your Bitcoin is stored on an offline device not connected to the internet like a USB drive. The cold wallet stores the user’s address and private key to access your Bitcoin wallet. Even the cold wallet storage method has risks if you forget your password or lose your offline device. This is like stashing your money in your mattress and forgetting about it when you replace your mattress.
Is Bitcoin Real Money?
Bitcoin is a digital currency and is not physically real money like the US Dollar. However, you can send Bitcoin as payment or convert your coins into FIAT currency for cash. Cryptocurrency is still in the early stages and eventually it is believed that the world will adopt Bitcoin as legal tender.
Can You Get Scammed on Bitcoin?
According to the Federal Trade Commission (FTC), cryptocurrency crimes are on the rise as more first-time investors enter the market. You can get scammed on Bitcoin into giving away your coins. Hackers will pull every trick in the book to steal and secure your personal information for identity theft. As a precaution, keep your cryptocurrency wallet’s private key secure and never share it with anyone.
What Are the Dangers of Bitcoin?
Bitcoin is bad for the environment because the process uses a tremendous amount of electricity especially since many power plants supplying that power run on fossil fuels. There have been incidents where Bitcoin has caused major power outages in foreign countries. However, there is a push toward renewable energy sources to power the growing demand for cryptocurrency.
Can You Lose Money on Bitcoin?
Just like traditional investments of mutual funds, you can lose money on Bitcoin as well.
It is encouraged to take profits as the price of Bitcoin rises to protect against future losses when the value of Bitcoin drops. You can dollar cost average (DCA) by selling a little at a time.
Is Bitcoin a Pyramid Scheme?
Bitcoin is not a pyramid scheme. A pyramid scheme is a business model that encourages the recruitment of members by promising them payment or rewards for enrolling or recruiting others.
Bitcoin is not a pyramid scheme because there is no reward and no guaranteed returns on Bitcoin coins. There may be some referral rewards involved (like virtually any service or retailer), but there is no MLM (multi-level marketing) scheme.
That said, there are still cryptocurrency scams that you need to be aware of like fake websites and phishing attacks. These scams will try and access your personal data and steal Bitcoin from your digital wallet.
Is it Too Late to Buy Bitcoin?
It is not too late to invest in Bitcoin because the value of one Bitcoin is currently down from its all time high (ATH) of $68,789.63 on November 10th, 2021. The only time that it is too late to invest in Bitcoin is when all 21 million Bitcoin tokens are mined and staked away in crypto wallets.
How Do Beginners Invest in Bitcoin?
It may seem out of reach to invest in Bitcoin at its current high valuation. However, beginners can invest in Bitcoin because you can purchase fractional amounts of Bitcoin.
The best strategy for anyone is to start to dollar cost average (DCA), as much as you comfortably can, every week or every month into Bitcoin.
Dollar cost averaging is where you’re investing a total sum of money in small increments over time instead of all at once to reduce risk. You may need to change your spending habits, like forgoing Starbucks each day and invest that money saved to buy Bitcoin.
It is advised to never spend more money than what you are willing to lose because cryptocurrency is extremely volatile.
Can Bitcoin Make You Rich?
Bitcoin has made millionaires out of early investors, and it can make you rich as well. The very first Bitcoin transaction of 10,000 Bitcoins was used as payment for 2 Papa John’s pizzas to prove Bitcoin technology as a working concept. 10,000 Bitcoins today at Bitcoin’s highest would be worth roughly $687 million. You just need to follow the golden rule of “buy low and sell high” to be on the right path.
What Are Some Reasons Why Bitcoin Could Be a Bad Investment?
Investing in Bitcoin is subject to more risk and may result in significant losses. Cryptocurrency is considered a volatile investment because of how quickly its monetary value goes up and down daily. Bitcoin as a stable investment is not there yet.
Bitcoin could be a bubble that pops at any time. You may be excited to see the price of Bitcoin consistently go up but what comes up must come down as a healthy consolidation.
A Bitcoin investor tends to sell Bitcoin when the price is high which can trigger a selling frenzy because other investors have the same mindset to take profits and secure Bitcoin gains. All these Bitcoin transactions of selling on the blockchain will cause the price to crash and negatively impact investors who got Bitcoin at a much later time with huge losses.
Filing taxes can get even more complicated when you invest in Bitcoin. Every Bitcoin transaction will trigger a tax event depending on how you received your cryptocurrency.
If you use fiat currency to purchase your coins and hold them as a way to store money, your coins will be treated as capital assets, and you have to figure out whether you owe short-term or long-term capital gains taxes after you sell.
However, if you receive Bitcoin payments for goods or services, then it’s considered taxable income. It is advised to consult with a tax professional to avoid the headaches with the IRS later.
It is advised to do your own research when it comes to investments and please consider this content for educational purposes.
Final Thoughts on the Risks and Safety of Bitcoin
More and more people around the world have been buying Bitcoin. As the cryptocurrency market keeps growing, more businesses and people will adopt Bitcoin as payment. Bitcoin adoption will eventually become a more integral part of our lives. El Salvador has become the first country in the world to make Bitcoin legal tender and other countries will follow suit.
Nothing in this article should be construed as financial or tax advice. Please consult a qualified financial professional and/or tax advisor for direct advice relevant to your personal situation.
*Cryptocurrency will be offered to members as a reward option in 2022. Members will be able to redeem eligible earnings for a gift card to buy cryptocurrency on a platform that sells Bitcoin and other cryptocurrencies.
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