We could, in turn, ask whether it’s safe to use the US dollar.
As with any other type of money, there are specific issues Bitcoin users need to know about in order to keep their funds as safe as possible. They include Bitcoin price changes, storage of this cryptocurrency, the use of third parties to exchange coins, and technological threats like hacking.
Let’s leave questions about the value of bitcoins aside (you can read about that here) and focus on the technological side of the matter.
Certain steps are vital to ensure that you’re storing your bitcoins safely:
Rule No. 1 is take good care of your secret “private key” – the password for accessing and using your bitcoins. (For more on choosing a wallet, read here). If the private key is secure and no one else can get it, then your bitcoins are safe. But keep in mind that if you lose your private key, you yourself won’t be able to access your funds, either. Unless you can guess the code with its dozens of characters.
Take care in choosing a so-called “wallet”, which is similar to a bank account in letting you access your funds and can be either online or offline.
Exchanging and spending
When spending and exchanging your bitcoins, it’s important to choose only reliable and trusted parties (read more here). If you fall victim to fraud when using a traditional bank card, laws and regulations exist to help you recover any losses. For Bitcoin, though, such protection is yet to come. Also remember that payments with bitcoins are non-repudiable – once you pay, the money’s gone. If you make a mistake – say you pay USD 222.2 instead of USD 22.22 or send the bitcoins to the wrong address – you can only rely on the good will of the receiver to get your money back.
You may have heard about the anonymity Bitcoin users enjoy. Well, it’s only partly true. While everyone can see every wallet and its contents and follow every transaction, they don’t know who the owner of a wallet is. Bitcoin wallets and transactions aren’t linked to personal data or identity. But there are ways to find out who the holder is. You may, for example, be required to reveal your identity when using the services of a cryptocurrency exchange. Still, if stronger privacy is needed, the TOR browser and other technological solutions can help. There are also other cryptocurrencies that offer more privacy, like Dash, Monero and Zcash.
Other Bitcoin risks are harder to control, but it’s still important to know about them and follow the news, since the technology itself is experimental and still in development.
One such hypothetical risk is that of a hacker attack on the Bitcoin network. In theory, that would be possible if a group of Bitcoin miners controlled more than 50% of all the computing power needed to run the Bitcoin blockchain. A hack is also possible with a smaller share of the computing power, though the likelihood of it succeeding would be lower.
There was in fact a moment, in 2014, when the mining pool Ghash.io came close to obtaining 51% of the whole Bitcoin network. But then some members of the pool voluntary left, decreasing its share. Still, Bitcoin experts believe a “51% attack” is very unlikely as its cost would exceed the possible benefits and it would most likely hurt the very attacker. Also, such an attack can’t be used to steal bitcoins or change older transactions. Only the most recent transactions could be affected and the work of the network could be disrupted. Any attack would only last for a short time before being quickly fixed by the Bitcoin community. The biggest damage would be to the currency’s image.
Hacking poses a bigger risk when it comes to cryptocurrency exchanges, which are not regulated and, as history has shown, can be hacked and large sums can be stolen.
The threat of a hack of the Bitcoin network may become real once a quantum computer is built, as that would be much more powerful than today’s computers. But building it is expected to take years, and ways to withstand such attacks are already being developed.
Another key issue to watch is regulation. More and more countries are likely to start introducing Bitcoin regulations, which could affect how the cryptocurrency can be spent and have related legal and tax implications. At the same time, along with possible restrictions, new regulations may also bring Bitcoin users more protection and clarity.
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