There’s been quite the fuss about Bitcoin in the news lately. They’re a form of currency – like dollars, euros or pounds – but you don’t carry around actual bills. Instead, you get a digital “wallet” to carry around “change” to spend at merchants that accept bitcoins as a form of payment.
Sounds cool, right? If your money is stored online, password-protected and secure, then you don’t need to worry about thieves on the street or even technologically advanced methods of stealing money, including card-skimming and identity theft.
But there’s a bigger question that needs to be addressed: Are bitcoins safe? Unlike the currencies of most countries, bitcoins are not backed by anyone. The dollar is worth something because the U.S. government says it is. Bitcoin, on the other hand, is just a platform of digital currency artificially created in 2009 to quickly trade money.
You can spend your dollars to buy bitcoins as you could buy euros or Canadian dollars. (Why anyone would want to buy Canadian dollars, I don’t know). If you are Jordan Belfort and you want to hide millions of dollars in a Swiss bank account, bitcoins could be useful as an intermediary between the U.S. and Swiss currencies. Thus, the Bitcoin platform has attracted a lot of attention from groups involved in illicit activities.
Since no credible authority, or no authority at all, is backing Bitcoin, if its servers were to suddenly crash or the NSA were to hack into its network and steal the financial information of its users, then the currency would instantly become worthless. Bitcoins have become so controversial that China banned trading them.
Think of it in terms of your email account. Say you use Gmail. If Google decided to shut its servers down, then you wouldn’t be able to access your email to send and receive messages. If Bitcoin servers fail, you have no money. That is a much bigger problem than not being able to access your email – and Gmail’s servers fail pretty often.
All around the web are reports of companies that have invested millions into Bitcoin, losing money because of hackers. To be honest, your money can be stolen from anywhere – under your bed, your chest drawers, a safe, the bank – and Bitcoin is no exception. Therefore, it would be wise to keep your money in a location that is at least insured, like an FDIC bank.
The only reason you know about Bitcoin is its current high market value, as a result of people using it as a convenient method of payment. People have made millions by using the Bitcoin platform since its 2009 inception, but those individuals represent only a small subset of the user base.
Bitcoins are a form of highly volatile currency that are especially helpful to those involved in shady business or looking to make money without putting in any effort, much like the lottery. It may become the future of how you buy things, but not for a long time since its value keeps changing.
Ravi Jain is a freshman majoring in chemistry.