Think you know currency? When it comes to Bitcoin, you don’t know nothing yet… Always volatile, the Bitcoin currency holds many advantages and some disadvantages. Since Bitcoin isn’t a national currency, it is subject to the same laws and restrictions of other currencies. This makes it attractive for investors but also risky. A little common sense and due diligence can prevent scammers and thieves from dipping into your stash of Bitcoins.
The Bitcoin Internet Currency in a Nutshell
For those unaware of this economic and technological phenomena, the Bitcoin is a virtual currency, created and exchanged for goods and services in a virtual marketplace. New Bitcoins are rewards earned by ‘miners’ solving complex math problems with computers. Bitcoin miners create the currency, with each Bitcoin possessing a unique key code, and these Bitcoins are “held” in virtual wallets, which can be online or offline. Transactions are accomplished as simply and instantaneously as Paypal.
Avoid Black Market Use of the Bitcoin
Probably the greatest source of publicity for the Bitcoin is the infamous ‘Silk Road’ association. This site The Silk Road used Bitcoin as its chief currency to sell illegal products ranging from heroin to murder-for-hire. Although its use in this transactions doesn’t reflect on the nature of the currency itself, the anonymity and cryptography of the Bitcoin means it’s virtually untraceable, a very attractive feature for criminals.
Like any currency, once found in a black market (such as the $24 million found when the SIlk Road closed), it is confiscated and removed from circulation. Even innocent buyers and sellers lose their money. If you want to keep your Bitcoins, spend the currency only at reputable sites. Since the use of Bitcoin is not technically allowed by US businesses, that means relying on transactions overseas, a daunting prospect for some.
Buying into Bitcoin Escrow Accounts
One of the safest measures available for today’s Bitcoin users are simple escrow accounts. One of the difficulties in Bitcoin exchanges is the lack of chargebacks. If you purchase an item on Paypal, Paypal can charge back disputed funds, giving buyers a level of security in transactions.
That’s not the case with Bitcoin. With the Internet currency, all sales are final. Escrow accounts bandage that weakness (although some users see it as a strength). Typically, these escrow services only guarantee a limited amount in each transaction (BTCrow will secure up to $500 per transaction). Larger escrow services like Coinguard charge a small percentage of each transaction, but higher fees typically means higher security.
Bitcoin Wallet: To Cloud or Not to Cloud
A contentious topic among Bitcoin owners, you can choose to save your virtual wallet on a cloud service or directly on your computer or hard drive. A cloud service sometimes requires a fee and a background check, but the currency is safely stored in a secure cloud. Cloud services can be hacked, as was seen at the Tokyo Bitcoin exchange Mt. Gox. Nearly half a billion Bitcoins disappeared from the exchange (most likely by hacking thieves) and forced its bankruptcy. This was followed by theft at the Flexicoin exchange in Canada.
The solution for the cloud hacking is simple: storing Bitcoin on physical drives, such as a laptop or portable hard drive. Without actual access to the drives, hackers will have a much harder time stealing the coins. However, the security of a cloud system is gone. Theft, fire or old-fashioned misplacing can cause a fortune in virtual currency to simply disappear.
Do Your Homework and Research Bitcoin Buyers and Sellers
Like any other investment, the best method of prevention is simple due diligence. If a deal sounds too good to be true, it probably is. Research sellers, look for reviews or, best of all, speak to the person if the opportunity arises. Introverted hackers aren’t always thrilled by social communication. Although the Bitcoin stands to be one of the most exciting revolutions in currency, strategies to keep it secure are no different than those used twenty years ago, or even two hundred.
