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10 Good and Bad News on Bitcoin

When bitcoin was born in 2009 following the financial crisis, the objective of early investors was straightforward: to engage in a money market that was not beholden to the whims of central banks.

But in the intervening years, the boom in other electronic “cryptocurrencies” such as ethereum and litecoin has lured day traders and momentum investors who only want to buy something that’s going higher in a rush.

While bitcoin has existed for a while, there’s still lots of confusion regarding what it is.

That only increased this week after bitcoin “forked” to two distinct currencies because of disputes over trade speed, security and other problems. Now there’s older bitcoin and Bitcoin Cash, which rocketed on its first day.

5 Good News about Bitcoin

Bitcoin is a real currency

Those who think bitcoin can not be used to get anything real are either stuck in the past or simply spreading misinformation.

Many independent companies accept bitcoin, but even some large brands are getting in on the action, such as a Pennsylvania Subway restaurant and software giant Microsoft Corp.. MSFT, +0.12 percent It simply is not true that you can not use cryptocurrencies to purchase actual stuff.

Digital monies are here to remain.

While bitcoin isn’t ideal, its potential has won over lots of the largest names of Silicon Valley and Wall Street. Icons from Bill Gates to Richard Branson to Mark Cuban find possible at least at the concept and blockchain tech behind bitcoin.

Even if volatility at bitcoin costs is the standard and competition is heating up, there clearly is a future for electronic currencies in some form.

Bitcoin transfers are flexible and fast.

While many financial institutions charge you or take days to process trades, bitcoin allows transfers from one account to another almost at no cost and at will. You should have some technology, obviously, and you have to already have your cash in bitcoin form.

However, there are no middlemen, and consumers have the ability to transfer worth more quickly and without expensive processing fees.

Yes, bitcoins leave a trail.

While there’s some degree of anonymity in the world of bitcoin, some investors misunderstand the way the currency works. That comes from the fact that the electronic currency utilizes a widespread network of users who all keep trade ledgers using blockchain technology, rather than a fundamental institution of record.

But the important point to remember is that the long chain of trade histories is shared, encrypted and independently verified by a disparate group of consumers not simply made up from thin air or subject to deletion at a whim.

Yes, it’s extremely different to jointly record who has how much money and where it’s been instead of relying on a confirmed financial institution. However, to many bitcoin users, this decentralized system is a huge part of the appeal, not a drawback.

Bitcoin has a ways to grow

While many techies are excited about the prospects of bitcoin, everybody admits the money is in its infancy.

Merchants are gradually learning the potential of linking with bitcoin, and individual consumers are gradually becoming more familiar with electronic monies; the learning curve is encouraging.

What is more, techies and other proponents of blockchain technology continue to check beyond bitcoin in the big-time potential behind the scenes.

When you examine the awesome strides in mobile payments and e-commerce within the past 15 years, it is awfully tough to write bitcoin off.

5 Bad News about Bitcoin

A fractured future

Adding to the volatility and the possibility of losses is the fact that even if digital monies become mainstream, there is no guarantee that bitcoin will, despite being a first mover. It’s not only competition from Ethereum and many others, either.

The bitcoin community itself is fractured about where to go from here and only watched a splinter group produce a competing cryptocurrency called Bitcoin Cash. After all, BlackBerry Ltd. might have kickstarted the smartphone revolution nearly 20 years ago … but it is not exactly sitting pretty nowadays.

Bitcoin is not truly frictionless.

While it’s true that bitcoin-to-bitcoin transfers are theoretically simple, it is an error to think involvement in the sector is free or without frictions. For starters, users need to exchange real estate dollars or euros for the money, and most third-party trades charge a fee for it.

What’s more, many retailers “accepting” bitcoin still do not actually deposit bitcoin in their accounts ¬†they use a similar third-party exchange to immediately convert bitcoins back to dollars, which often has a price tag.

Perhaps most seriously, the various value of bitcoins on various exchanges indicates that the market itself remains quite inefficient and bid-ask spreads remain debatable. All that may change over time, but for now the concept that there’s no “price” associated with bitcoin isn’t technically correct.

Extreme volatility

The doubt bitcoin faces as a new technology isn’t unique. However, the fact that bitcoin is readily connected to the U.S. dollar means the ebb and flow of belief is painfully obvious — and can make volatility much worse.

Bear in mind, there are loads of stocks such as Twitter Inc that are innovative and appear to have staying power … but have still lost investors a package. Don’t confuse the possible usefulness of bitcoin with a guarantee that its value should rise.

High-tech high jinks are a risk

I do not pretend to be a blockchain expert, but I do know that the tail of the series, the latest transactions, are a frequent playground for thieves. While bitcoin itself might be valid, there are loads of bad actors seeking to game the system, such as one hacker that bilked $65 million from exchange Bitfinex one year ago.

And needless to say, the shortage in public consciousness has resulted in lots of misbehavior, including fraudulent exchanges which take your money and never trouble any bitcoin in return.

Again … bitcoin has a ways to grow. Some of these fraud risks and inefficiencies may resolve over time.

Surely better systems and customer education will assist in the long term, but that begs the question of why you’d want to purchase now when the electronic money remains largely on the fringes of investing and trade.

If you like taking gigantic dangers on things like emerging-market penny stocks, then I guess bitcoin is no big deal. But for the normal investor, there are lots of reasons why it makes sense to wait until the industry is stable and established rather than chase potential benefit in a enormous potential risk.

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