You’ve undoubtedly heard about Bitcoin and other virtual currencies. Maybe you’re reading this article because you’re interested in owning, trading, or investing in Bitcoin. Today, people are receiving and sending Bitcoin to other people. Others are using this virtual currency to pay for services and goods.
What’s more, some people use platforms like Bitcoin System to purchase and sell Bitcoin as a speculative investment. Additionally, some people mine this virtual currency using computers. But what is Bitcoin, and what risks should a consumer bear in mind when using it?
What is Bitcoin?
Bitcoin is virtual or electronic money. That means when purchasing Bitcoin, you don’t get an actual bill or coin that you can hold in your wallet or hands. Instead, you get electronic units that other entities may decide to accept or treat like fiat money.
However, Bitcoin is not regular money. That’s because no government or central bank issues and backs it. Most governments do not require their citizens to accept Bitcoin as a payment or exchange it for their traditional currencies.
To function, Bitcoin depends on a vast network comprising private, unidentified computers across the world. These computers have the high processing power, and they update and maintain a public ledger, known as the blockchain.
Additionally, people don’t keep Bitcoin in credit unions or banks. You require a digital wallet that uses public keys to identify the user to use this virtual currency. Accessing Bitcoins in the digital wallet requires private keys. For instance, you use private keys to send payment to another digital wallet holder.
Essentially, private keys are like this virtual currency. Therefore, focus on keeping private keys secure as long as you own and want to use Bitcoin. You can entrust a wallet provider with private keys or store them yourself.
Bitcoin Risks for Consumers
If interested in buying or using Bitcoin, the following are the risks to be wary of before you spend money in acquiring it.
- Hackers: Sophisticated hackers are targeting virtual currencies like Bitcoin due to their sharply increasing value. In recent years, criminals have hacked crypto exchanges and stolen bitcoins worth millions of dollars. Therefore, be careful when choosing the Bitcoin exchange to purchase this virtual currency.
- Fewer protections: Perhaps, you want to trust a company to hold your Bitcoin. Unfortunately, something can go wrong, leading to the loss of your tokens. If this happens, the company might not provide any compensation or help you recover the funds as you would expect from a credit or debit card provider or even a bank.
- Scams: The hype surrounding Bitcoin has attracted fraudsters too. Today, many criminals are opening fake Bitcoin investment schemes and stealing money from unsuspecting investors. Therefore, be careful when choosing your crypto investment programs.
- Loss: You need private keys to access your digital wallet and complete a Bitcoin transaction. That means you will lose your funds if you can’t recall the private keys. What’s more, somebody can transfer all the funds in your Bitcoin wallet if they get the keys.
Bitcoin and other digital currencies lack the legal tender status in most jurisdictions. That means the law does not require entities to accept Bitcoin payments in most countries. However, Bitcoin is decentralized, meaning it’s not subject to control, manipulation, or regulation by any entity. Additionally, more online retailers and local stores are gradually accepting Bitcoin payments. What’s more, people are purchasing and holding onto this virtual currency as an investment. The growing Bitcoin’s popularity has also caught many regulators’ attention. Countries like El Salvador are also considering making Bitcoin a legal tender. All these developments predict a bright future for this digital currency.
