Is Buying Bitcoin Safe?
If you buy bitcoin as a long-term hedge against the inevitable inflation of fiat currencies and know how to store it securely, it is a safe investment. You have to bear in mind, however, that despite being safe, it is a high-risk asset.
The crypto world is a magnet for scammers, hackers, phishers, and other unsavory cybercriminals. Before you buy bitcoin, understand from whom you buy it and how.
To buy digital assets, you need a crypto wallet, the public address of which you can share with anyone wanting to send you bitcoin or other cryptocurrencies. When you buy bitcoin from a crypto exchange, the exchange gives you a hosted wallet where you can store your digital assets. To keep your bitcoin safe, you should withdraw your coins to a hardware wallet of your own as soon as possible.
When you buy bitcoin from an ATM-like solution, you start by providing your wallet address to the machine. After that, you can give money to it and confirm the transfer.
As long as you buy your bitcoin from a trusted, reputable entity, you shouldn’t have any problems. Scammers abound, however. And if someone manages to convince you to give them money in exchange for bitcoin they will send later, you may be in for a nasty surprise.
Bitcoin is a Safe Asset
What do we mean when we call bitcoin a safe asset?
Bitcoin is a digital asset and network based on a blockchain. Millions of bitcoin miners verify and secure the bitcoin blockchain all over the world. Bitcoin is the only truly decentralized digital asset, despite the existence of thousands of other cryptocurrencies bitcoin itself inspired.
Hacking the bitcoin blockchain is a monstrous undertaking and a fool’s errand in the best case. Attempting a 51 percent takeover would entail huge costs, and the blockchain would fork off the hijacked part and continue within a few blocks.
Hacking the bitcoin blockchain to double-spend coins and thus destroy its utility is highly impractical and improbable. Any foul play directly involving the bitcoin blockchain would probably require quantum computing to stand a chance to succeed. In this respect, bitcoin is the safest digital asset. And as its hash rate grows, it becomes more and more secure.
If anything happens to your bitcoin, it won’t happen directly on-chain. There are more vulnerabilities hackers can exploit after you gain control of the private keys that secure your control and ownership over your bitcoin.
Private keys are nearly impossible to hack, yet they represent a weak link in bitcoin’s security because they expose assets to human folly stemming from greed and gullibility.
How Most People Lose their Bitcoin
Most people who lose ownership of their bitcoin do so because they choose to give out their private keys to someone. It is much easier to trick people into giving out their private keys than hack their wallets or the bitcoin blockchain. Hackers and thieves make up intricate schemes to get gullible users to hand over their digital assets.
- Scammers contact people through email, promising them to double their bitcoin if they send it to an address they provide. This scam is old, and many people know about it, but scammers still use it in the hopes of happening upon people who aren’t yet aware of it.
- In another variant of phishing, scammers contact their would-be victims, telling them that their crypto wallets have been compromised and they must provide their private keys to allow the wallet maker to correct the vulnerability.
- Bitcoin investment scams are almost as old as cryptocurrency itself. Investments scams range from fake celebrity endorsements to investment opportunities that require upfront payments. When they grab the crypto from their victims, the scammers disappear with the funds.
- Rug pull scams get people to invest their money in newly launched cryptocurrencies. After they generate enough hype and get enough people to invest, scammers cash out, leaving their coins to crash to zero.
- Middle-man attacks are among the most dangerous. Hackers can install viruses on users’ computers that rewrite crypto addresses when someone sends cryptocurrencies, landing the transfers in the hackers’ wallets.
- Social media giveaway scams have plagued the crypto industry for years. Scammers post videos touting cryptocurrency giveaways, preferably by a celebrity, and get people to send their bitcoin to an address they provide. Once sent, the bitcoin is gone for good.
- Fake cryptocurrency exchanges lure in potential victims by promising attractive promotional rewards. Once enough people make deposits, the exchange vanishes.
An additional risk to owning bitcoin is that you may lose your private keys without any foul play. Bitcoin history is rife with horror stories of people who lost their keys to thousands of bitcoin. Not thinking much of it when they first acquired the digital asset, people took no precautions to keep their keys safe somewhere and ended up losing them.
Bitcoin is a Highly Volatile Asset
The volatility of bitcoin and other cryptocurrencies is notorious. The blue-chip crypto has gone through several cycles of boom and bust, by-and-large coinciding with its halving cycles. Over the last few months, the price of the leading cryptocurrency fluctuated between $20,000 and $60,000. If you are looking for a safe investment with guaranteed returns, investing in bitcoin or cryptocurrencies is not for you.
Why is Bitcoin so Volatile?
Although it has been around since 2009, bitcoin is still a relatively new asset, going through its price discovery period. The technology is new, and no one knows whether one coin should be worth millions of dollars or none at all. With so much uncertainty surrounding bitcoin, it is subject to the caprices of many price-influencing factors. Some of the factors currently responsible for the bitcoin price volatility are:
- Supply and demand are the natural driving forces behind everything of value. Bitcoin’s supply is capped at 21 million coins. Of these, several million have been lost irrevocably.
- Investor sentiment. Many people who invest in bitcoin fail to see the promise of the technology and think of it as merely something the value of which may go up and thus create profits. Such investors are quick to pile in when the price goes up and just as quick to fold when the price starts to drop. Such investors add to the natural volatility of the asset.
- Government regulation. Some bitcoin advocates like to think of it as the asset that will bring about the separation of money and state. Understandably, some state actors aren’t delighted with such an outlook. And they may try to hinder innovation and disruption through regulation. Others may adopt a more constructive approach.
- Media hype. Celebrity investors have opinions and are quite eager to voice them through the media. Unlike regular people, celebrities have millions of followers, and their words carry a disproportionate amount of weight, even when they have no idea what they’re discussing.
Theoretically, bitcoin’s price can drop to zero. There is no limit to how high it can go, however. The investor who buys $100 worth of bitcoin can only lose $100. That $100 worth of BTC may be worth millions someday, however.
As long as you buy your bitcoin on a regulated exchange like Coinbase, you will be safe. No one can guarantee, however, that the value of your bitcoin won’t drop to zero or close to it. No one can guarantee that you will profit. As an investment, bitcoin is everything but safe.