Bitcoin: a risky currency

Anyone buying bitcoins risks losing their entire investment in a number of different ways. While they can be used to pay for small purchases, bitcoins are extremely risky tools.

It seems that US and Canadian investors have not learned anything about the sudden closure of MtGOX in February. The company, which was one of the world’s leading bitcoin exchange platforms, filed for bankruptcy protection in Japan after losing the $650 million equivalent of its clients. Yet California and Canada have just lifted the legislative obstacles to using this virtual currency.

California repealed the ban on doing business with alternative currencies on June 28, and Canada has just created a framework for regulating virtual currency transactions. As it is not protected by any of these states, 100% of the risk of each transaction is left to individuals.

The Bitcoin protocol is a value trading system without external regulatory authority, without a central bank or bank account. Even after the MtGOX case, it’s still worth $600.

The storage and exchange sites are not subject to any quality of service guarantee and are not obliged to hold a minimum amount of capital. While a bitcoin was worth less than a dollar in 2011, it reached $1240 in 2013. In addition, any transaction is irreversible, even if hackers infiltrate the account. About 500,000 people lost hundreds of millions of dollars after the closure of MtGOX.

Making more sense than America’s financial regulators, the Thai government has banned all purchases and sales of bitcoins. The European Banking Authority, for its part, said on July 4 that banks in the European Union should stop offering their customers accounts denominated in virtual currencies until regulatory protection is created. Of the 70 risks identified by the organization, some directly target the person who buys the currency.

The anonymity of all actors prevents the control of their solvency.

We already know that companies that own supercomputers can take control of the currency. Rules that do not currently exist are therefore necessary to prevent those with significant computing power from being able to modify this virtual money system as they see fit. As it is not protected by any state, the currency is at the mercy of the first computer genius that passes.

That’s not to mention the countries that are already engaged in electronic espionage like the United States, Russia and China. As past actions are always the best indicators of those to come, it is a safe bet that they will not deprive themselves of these free resources.

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About the Author: BJ Hetherington

BJ is the lead editor of Crypto Post Gazette. Fluent in French and proficient in Spanish and Arabic, he focuses on mobile trends and tech innovations. BJ is a graduate of York University In Toronto. BJ was an early adopter of cryptocurrencies having bought 100 bitcoins in 2010. To contact BJ, just click here

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