The Pros and Cons of Bitcoin
As the Bitcoin boom continues, more people are taking it seriously as an investment and usable digital currency. But should you?
We have compiled a list of 6 pros and 6 cons to help you decide whether or not Bitcoin is a good investment for you. Keep in mind that some of these pros and cons differ between Bitcoin users based on their priorities and needs.
You should read through this list with a critical eye and an understanding of your own circumstances and preferences. Getting involved with Bitcoin does involve risk, and that shouldn’t be forgotten.
There is a reason that Bitcoin has gained in popularity over the last decade; there are a lot of perks that come along with buying and using the coin.
Whether you’re considering Bitcoin because it’s decentralized and not connected to any country’s government or because you want to see what all of the hubbub is about, here are some positive aspects of Bitcoin to help you round out your decision.
Liquidity of Bitcoin vs. Other Cryptocurrencies
Because of Bitcoin’s popularity relative to other cryptocurrencies, they are more liquid. In essence, they can be more easily converted to what is known as fiat currency, or legal currency. This means that Bitcoin’s value, as compared to other cryptocurrencies, is more accessible to the user.
This is important because cryptocurrencies are based on algorithms and aren’t backed by real value. Bitcoin’s easier translation into traditional currency makes it a somewhat safer option for those that are concerned with its true value.
Bitcoin as a Valid Payment Method
More and more businesses, both brick and mortar and online, are accepting Bitcoin as a payment method. Some support other cryptocurrencies, but because Bitcoin is the most popular and widely used, it is more likely to be considered a valid option for payment.
Hugely-popular companies, like Overstock.com, have made it easier for Bitcoin users to buy physical items like laptops, jewelry, and even furniture. The expansion of Bitcoin as a valid payment method adds to its liquidity, though you’ll often find some other popular altcoins are offered alongside Bitcoin.
Bitcoin’s popularity on a global level means that international transactions are more convenient and less subject to fees than international transactions made with regular currencies.
Though there are some fees that can be applied depending on the type of international transaction you are making, they are not as significant as the fees applied to legal tender. The ease of use with international transactions also means that you don’t have to plan or work around differing holiday schedules, and the Bitcoin you are trying to send or receive can be accessed and sent almost immediately.
Decentralized and Autonomous from Politics
Because Bitcoin is not a legal tender backed or controlled by any government, it is not connected or affected in any way by politics or instability.
In fact, those who are worried about their country’s future and their traditional investments and savings might find a bit of solace in the fact that their country’s unrest doesn’t negatively affect the Bitcoin market.
Though it is important to mention that even though this might seem like a safer option for anyone living in a country that is going through a period of instability, Bitcoin is still extremely volatile. Make a small, affordable investment.
Because of Bitcoin’s reliance on the blockchain, all transactions that have been validated and added to the block are public information and therefore available to anyone who wants to see them, while still protecting the personal information of all involved parties.
And the blockchain can’t be tampered with or changed in any way due to the cryptography that connects all of the transactions and blocks together. If a block was being tampered with, the entire chain would collapse as a security measure.
Initially Easy to Invest
All you need to buy Bitcoin is a computer and an amount of money that you have allotted to your investment. There are no real waiting periods, long timeframes for account or transaction validation, or any other red tape you’d typically encounter with a bank or credit card.
- More liquid than oather cryptocurrencies
- Can be used more often to buy physical items online on participating sites
- The list of companies accepting Bitcoin is growing
- Bitcoin’s popularity relative to the other cryptocurrencies makes it more accessible in traditional currency
- Increasingly accepted as a valid payment method
- International transactions are cheaper for both parties
- Not affected by any certain country’s financial or political instability
- Information is transparent and easily provable because Bitcoin runs on a public ledger
- Easy to invest; all you need is a computer and some money to get started
Bitcoin isn’t the perfect solution to any problems that exist both in cryptocurrency or traditional currency. There are some major issues that still need to be worked out – some that are big enough to put a potential Bitcoin user off of the idea of investing.
Knowing these cons and how you can protect yourself against some of the threats and dangers of Bitcoin investments is important for your decision-making process, so we have provided 6 for your consideration.
The value of Bitcoin fluctuates drastically, sometimes plummeting and sometimes peaking. This is one of the major cons associated with not only Bitcoin but cryptocurrency in general. Bitcoin is the most popular and one of the most expensive cryptocurrencies, so it is often affected more than some of the other popular altcoins.
It is hyper-sensitive to any news or action of governmental regulation or bans, and most significant price drops can be tied to news or speculation of that nature. The volatile aspect of Bitcoin is not likely to change any time soon, and the governments of the world have only just begun to decide whether or not they’re willing to allow its use within their borders.
It’s Not Real
Bitcoin isn’t real. Well, not in a traditional sense, anyway. It is based on a mathematical algorithm and isn’t something you can physically hold or even see. So, that means it has value only for as long as people believe and think it has value.
Any digital asset that doesn’t have something with inherent and non-theoretical value backing it up is a risky investment. It has been likened to pricing items at a garage sale or on eBay. The seller assigns a value to the item, and the buyer decides if, for them, that item has the value that has been assigned. The key difference is that the items being sold at a garage sale were purchased with legal tender and their value can be placed based on what the seller paid for the item.
Of course, for Bitcoin to collapse entirely from this would mean that every single person who has or had invested in it would have to all agree that it no longer has value. And as it stands right now, this is not likely to happen any time soon.
Other Cryptocurrencies Are Coming to Take Its Place
Bitcoin was introduced to the world in 2009 by an anonymous group named Satoshi Nakamoto. It wasn’t the first cryptocurrency to hit the market, but it has been the most popular and long-lasting coin.
Bitcoin worked because it improved upon the previous models and learned from their mistakes. Unfortunately, there are still a lot of improvements to be made to Bitcoin and the cryptocurrency model in general, so there is a chance that a newer coin will be successful in implementing those changes and will overtake Bitcoin’s popularity.
It has been around for over a decade now, but its popularity has only picked up within the last few years, so there is a real chance that a newer cryptocurrency could find the holes in Bitcoin’s setup and fill them, creating a better option for investment.
Scams and Fraud Specific to Bitcoin
Scams and fraud schemes are one of the biggest concerns with Bitcoin. Because of its decentralized nature and current popularity, many scams are targeting Bitcoin and Bitcoin users specifically. So, owning any amount of the coin carries additional risks.
Bitcoin owners have fallen victim to targeted exchange hacks like Mt. Gox and Bitcoin-only investments and mining ventures that exist only to lure unsuspecting users into giving up a portion of their Bitcoin or some of their account’s security, only to have the contents of their wallet or investment stolen.
Scams and fraud exist in traditional currency but are often settled, and the victim is typically reimbursed depending on the specific situation. But transaction reversal or reimbursement are two things you are not likely to encounter in the Bitcoin world.
Black Market and Criminal Activity
Criminal activity isn’t necessarily something that the average Bitcoin user will have to deal with directly, but its presence affects the way government responds to Bitcoin as a valid currency.
China has made the trading, buying, and selling of Bitcoin illegal in order to completely remove the threat of criminal activity, and in doing so, the Bitcoin market plummeted. Even if you are not involved with or even in the vicinity of criminal activity, it can still have a negative effect on you.
Irreversible Transactions and No Refunds
The blockchain structure means that every transaction is final. If you fall victim to a scam or somehow make an accidental purchase, there is no way for you to get it back. Once the blocks have been linked together, the tampering of a block will lead to a collapse of the entire chain.
Additionally, because Bitcoin isn’t insured by any federal organization like the FDIC, you are not likely to be reimbursed for the Bitcoin you lost in a scam or hack. Even though you purchased Bitcoin with legal tender, your protection and financial insurance end after you transfer your funds from your bank account to an online exchange.
This issue is not unique to Bitcoin, because there are a lot of other coins that operate on the blockchain. The problem of permanent Bitcoin loss for victims of scams is really in the hands of the blockchain and not necessarily because of Bitcoin as a currency.
- Value fluctuates often
- Some major value drops could be connected to governmental bans or regulation
- Theoretical value
- Bitcoin has value because we say it has value
- It isn’t backed up by anything tangible or physical
- Could be dethroned by another cryptocurrency
- Bitcoin still has a lot of flaws
- A new coin could come in with solutions, and Bitcoin would no longer be as popular
- Bitcoin-specific scams and fraud
- Implication of criminal activity
- Criminals that use Bitcoin are untraceable by the government
- Governments are more likely to ban it or heavily restrict it because there is no way to limit or stop criminal activity
- Irreversible transactions
- Blockchain’s design makes it impossible for transactions to be reversed, canceled, or changed in any way
- If you are hacked or fall victim to a scam, any Bitcoin that you lost will probably never be returned to you
Is Bitcoin Right for You?
No one can tell you if Bitcoin is right for you; only you can make that decision. You may discover that, for you, there are more pros than cons because you have learned how to better protect yourself from scams and hacks. You may also find that on your personal list of pros and cons, the cons and risks far outweigh the pros.
Make this decision with your personal spending habits, attentiveness, needs, and financial situation in mind. These pros and cons should serve as a jumping-off point for you to see if Bitcoin fits well and is compatible with your life.
Though it is an easy investment to make, it shouldn’t be one made on an impulse. Take your time and check out some of our other Bitcoin pages for more information. The following pages might be of particular interest.