How Secure is Bitcoin? And Other FAQ’s

Bitcoin’s massive growth, despite a few minor setbacks along the way, has lead to a huge amount of mainstream exposure in recent months. But for every positive headline, you can be sure to find several negative ones. Sorting fact from fiction (or personally driven agenda) can prove tedious when you are not active in the industry, or have little understanding of the technology.

Every day I am approached by peers and acquaintances who are interested in learning more about Bitcoin, and often have similar concerns. Here are a few questions I am asked most often.

Your Top 6 FAQ’s About Bitcoin, Answered

1. Is Bitcoin a Scam or a Pyramid Scheme?

In short, no, Bitcoin is not a scam or a pyramid scheme.

Bitcoin has no level of recruitment to it. If I, as an individual, introduce you to the technology and you elect to buy or invest in bitcoin, I do not receive any referral fee or commission for introducing you to bitcoin.

However, there is a caveat.

Bitcoin-related businesses may operate slightly differently, and you are advised to exercise extreme caution here. Because of its exponential growth in the last year to 18 months, Bitcoin has become viewed by some as a means to ‘get rich quick’. There are definitely a good number of unscrupulous characters and businesses out there using this as a lure for people looking for short-term returns, and I urge you to tread carefully before entering any agreements.

Common ‘red flags’ include:

  • Guarantees of excessive returns, especially over a short time frame (no-one can predict with absolute accuracy how this market will perform from one month to the next)
  • Promises of bitcoin growth by means of offering microloans to external or 3rd parties and ‘earning’ accrued interest (where you have no direct contact with the lendee)
  • Pooled accounts, where you have no ability to view your individual holdings, preferably using the blockchain as a means to do so (certain legitimate funds do pool balances, the key is a view of your personal performance)

Here at Bitstocks, we do charge for trade transactions, however this is fully transparent and only as part of our ‘no performance, no pay’ policy. This means that we share proceeds with you on profitable trades at a rate of 25%, and you retain 75% of the crystallised profit. We do not charge a fee based on the full trade amount.

2. Who is in Control of Bitcoin?

Bitcoin is decentralised, meaning there is no central body, organisation or individual that holds ultimate control. This is one of Bitcoin’s most appealing characteristics: it offers you individual financial sovereignty, away from permission-based Central Banks and Governments.

Bitcoin operates as a distributed network. There are thousands of computers across the world that run a full copy of the blockchain on their hard drives, verifying transactions and adding blocks to the blockchain. Essentially this means that if, in the highly unlikely event of the entire Internet going down, it would take just a single computer to restore Bitcoin in its entirety.

There is a group of developers who have made it their life’s work to take care of the Bitcoin code, however, they are not able to make any changes without a majority consensus of the computer nodes and miners. We saw this play out recently with the hard fork and creation of Bitcoin Cash, when all were not in agreement with certain development plans.

3. How Secure is Bitcoin?

The Bitcoin protocol — that is the underlying technology of the network — is exceptionally secure. In fact, it would take an incomprehensible amount of computational power to ‘hack’ the network, making the effort needed heavily outweigh any potential gain to be had.

Exchanges and computer-based wallets, however, are a different story.

When you hear about ‘Bitcoin hacks’ in the news, what they are referring to is not the Bitcoin network itself, but rather that the systems of the exchanges have been compromised. In contrast to attempting to break into the network, an attack on an exchange could prove rather lucrative for cyber criminals. The same applies to bitcoin wallets stored on hard drives of personal computers or mobile devices. Once security has been breached, these hackers can — and will — get away with your bitcoin holdings; with irreversible transactions, you have no recourse in trying to reclaim them.

This is the risk of sovereignty over your individual finances that many people do not realise until too late. Independent control means that you become ultimately responsible for the security of your funds.

Fortunately, there are options such as deep cold storage and hardware wallets that will keep your cryptocurrency balances (and private keys) offline and therefore not susceptible to these attacks. When investing in bitcoin, or any cryptocurrency for that matter, it is in your best interest to research the security measures needed to keep your funds protected.

4. Is Bitcoin Regulated?

No, Bitcoin, as a network is not — and cannot be — regulated by any human-led institution. This is often a difficult aspect for people to grasp, as we are accustomed to a certain level of accepted regulation when it comes to financial matters. Bitcoin functions according to an algorithm, is essentially regulated by maths. The algorithm was created to provide a peer-to-peer payment system, devoid of third party involvement. As a result, it is also immune to economic influence from Governments or Central Banks.

What Governments can regulate — and are showing far more interest in these days — are the organisations dealing with bitcoin and other cryptocurrencies. As a firm, we support these initiatives as a level of regulation will do well to rid the industry of any actors not acting with their clients interests at heart, or willing to accept any accountability for their actions and systems. Japan, for example, have ruled bitcoin as legal tender in their country, and therefore have implemented regulation of exchanges, ensuring that the businesses are adhering to strict identification policies to curtail money laundering and fraud.

5. Is Bitcoin a Bubble?

Media, analysts and detractors have compared Bitcoin to the Tulip mania of the early 1600s and the technology boom of the 1990s, calling it a bubble more times than I care to count. A rapid price surge is often the first indicator of a bubble, and yes, bitcoin has certainly experienced a huge acceleration in the last year to 18 months.

But that is where the comparison ends, because Bitcoin is vastly different to tulips and dot-com companies.

During the dot-com bubble, people were throwing money at companies building commercial pursuits with the Internet as their foundation. As the Internet became more accessible and a plethora of competing businesses came to the fore, each bettering the next in terms of their offering and development, people realised that these companies would not be unique or special and the market turned.

But imagine if you had invested in the Internet itself? In the underlying protocol. After all, the Internet protocol is still thriving isn’t it? Investing in Bitcoin gives you this opportunity. Not to invest in the Internet protocol, but the money protocol of the Internet.

Bitcoin is far bigger than its individual components.

Bitcoin is not a standalone asset, nor is it an organisation set up for profits. It has broader utility than a permissionless, borderless payment system, a global currency and a store of value. It provides a viable solution to a feeble financial system falling apart at the seams. Its blockchain offers a economic and social paradigm shift in finance, and not simply ‘just another way to make a payment’. It is, in essence, the only protocol with a price feed. And as a protocol, it is unlikely to fail (or burst).

6. Do I Need a Broker or Cryptocurrency Advisor to Invest in Bitcoin, or Can I Do it Myself?

The answer depends on what your goals are, as well as your trading experience, as well as your understand of the cryptocurrency market and technology. As I already mentioned, investing in Bitcoin comes with a new set of ‘rules’ when it comes to securing and growing your funds.

If you are looking to use bitcoin as a currency, you will need a full understanding of the security protocols that keep your trades secure.

If, on the other hand, you are looking to invest in Bitcoin to grow or secure your wealth for the longer term, it makes sense to seek out a firm with extensive experience in cryptocurrency investment. The industry moves at a frantic pace and to keep abreast with developments and price fluctuations that present growth opportunities takes a tremendous amount of time. (Not to mention having to quickly discern between pertinent news and headline sensationalism!)

With a dedicated cryptocurrency advisor on your side, you are free to take a less active stance, and allow them to put in the ‘hard work’ on your behalf. And, if they are anything like us here at Bitstocks, that includes the absolute security of your holdings using offline terminals to keep them well away from those would-be hackers, as well as active asset allocation to hedge your investment, so you need not worry about the natural ebb and flow of the short-term market.

Do You Have Other Bitcoin Questions?

I hope that I have managed to address at least some of your burning bitcoin questions, but know that you probably have many more. Would you like to speak to a cryptocurrency advisor to help you? Take a look at our market advisory services to get an idea of how we assist our clients. Or get in touch. We are here to simplify cryptocurrency investment.


Originally published at www.bitstocks.com.

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