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Bitcoins: The Risks of Online Investments

Nyasha Velez, Staff Writer

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These days it seems that you can do everything online. The wonders of computer programming have put most of the physical world at our fingertips in a smartphone or a computer, even matters so secure as monitoring a bank balance. Encryption services have made it safer to connect bank accounts to personal devices, making online shopping or apps like Apple Pay possible.

However with the rise of online encryption, entirely new currencies have risen based off online wallets instead of a tangible bank account. Called cryptocurrencies, the iconic Bitcoin is the pioneer of this kind of software. Unfortunately with innovation comes an inherent risk, those of which Bitcoin is in no short supply of.

First off- the basics. A cryptocurrency is pretty much a type of program that carries monetary value. Similar to coins in a simulation game, they do not exist in the real world. Bitcoin is so special because it is the first successful cryptocurrency that used a unique kind of security to maintain its stock in the emerging business.

There is a stunning amount of encryption behind the coins themselves, designed to make transactions as untraceable as possible while remaining secure. Secondly the entire system requires users to agree on the rules- all of them. This is the basis of Bitcoin itself.

Unlike at its launch in 2009, Bitcoin is no longer the only cryptocurrency out there in the modern world.

To make a cryptocurrency takes far less effort now that the innovation has already been done, one simply has to write the proper code and send it out into the world. It’s so easy that there are currently about 1500 known cryptocurrencies on the web, each picking away at Bitcoin’s value as time goes on. There is even a meme-based cryptocurrency, Dogecoins, which holds an actual stake in the overall market. For the same reason printing money is not a solution to debt, flooding a market based on value caps and data will only lead to an inevitable crash.

It is the very nature of Bitcoin that which makes it so vulnerable. Yes, the security between individual transactions is near air-tight. The disparity is in the complicated processes that come after. For instance, all Bitcoin transactions are irreversible. If anything should happen that inspires a refund- tough luck. Bitcoin is not recognized as an actual currency by most countries and has no laws to insure the user’s online wallet, so refunds are at the two parties’ discretion. To highlight- there is no insurance for Bitcoin.

When the value fluctuates, it is all part of the risk, and does it fluctuate. With these changes happening in a matter of minutes, the value of a single Bitcoin to a US dollar can shrink thousands of dollars- more than 9 thousand overall in the past 2 months, with prices changing daily.

In the event of a massive price drop, there are no protections to those holding large stocks of Bitcoins except the hope that the market will go back up again. Of course, there is one more probable cause of a coin-crisis, and that is simple computer error. Or more specifically, human error at a computer keyboard. The entirety of Bitcoin is reliant on a kind of “consensus” among users as to how the system works, what software is updated and what stays the same.

The links that form a long chain of users must be in agreement for the programming to make sense. Any one disparity can send the whole thing crashing down. Coupled with the lack of security for one’s coin wallet, the glaring risk here is obvious.

Bitcoin has no tangible value. There are plenty of things that can happen to damage the system, and given the growing user base and interest by the modern world, it is not a matter of “if”. It’s when.

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