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Is Bitcoin safe? This question is pretty unsettling because there’s no straightforward answer. Not only do you face the risk of dramatic price swings, but fraud and scams are on the rise. This isn’t surprising since Bitcoin has become more valuable than ever.
The Federal Trade Commission has seen a surge in crypto-related scams. Since the beginning of 2021, more than 46,000 people have reported losing over $1 billion in such scams. This shows that crypto investors need to take steps to make Bitcoin safe, or at least safer.
What Is Bitcoin?
Bitcoin is a decentralized digital currency, launched in 2009, and it’s the largest and most tracked among thousands of cryptocurrencies. It uses cryptography for security and operates on a public ledger known as the blockchain, which records all transactions and account balances. When Bitcoin was first issued, it was capped at 21 million coins, most of which are already in circulation. Miners verify Bitcoin transactions and are paid in Bitcoin, effectively increasing the supply.
What Is a Blockchain and What Does It Have to Do With Bitcoin?
The blockchain is the network on which Bitcoin operates, existing entirely online. It records all transactions without needing intermediaries like banks. Each participant has a private key, a unique string of alphanumeric digits created by a mathematical algorithm, which enables transactions. Losing this key means losing access to your Bitcoin.
What Are the Risks Associated With Bitcoin?
Bitcoin’s price can skyrocket 100% and then plummet 75% in the same year due to its speculative nature. Transactions, although more private than credit cards, aren’t completely anonymous. If someone gets hold of your private key, they can drain your balance. Losing your private key or cold wallet (external storage) means losing all your Bitcoin. Crypto exchanges can also get hacked, leading to an irreversible loss of funds. Phishing schemes, where hackers pretend to be legitimate organizations, are another risk. Some vendors who insist on Bitcoin payments might be scammers. Finally, if a crypto exchange fails, your funds are gone since there’s no FDIC or SIPC protection.
What Are Common Myths About Bitcoin?
People often believe that Bitcoin’s value will always rise, that transactions are entirely private, and that lost or stolen Bitcoin can be recovered—all myths. Another myth is that Bitcoin will replace traditional money, which is unlikely. Some think Bitcoin might be made illegal due to its competition with national currencies, though this seems improbable for now.
What to Consider Before Buying Bitcoin
First, consider your risk tolerance due to Bitcoin’s price volatility and security concerns. Only invest what you can afford to lose, and be prepared for significant fluctuations. Study the risks and adopt measures to protect your investment and transactions.
How to Keep Your Bitcoins Safe
- Never invest more than you can afford to lose.
- Use a cold wallet for long-term storage.
- Store your cold wallet and private key securely, like in a fireproof safe.
- Keep minimal amounts of Bitcoin on exchanges.
- Maintain strong computer security practices.
- Never respond to phishing schemes.
- Only deal with trusted parties.
- Use established crypto exchanges.
Where to Hold Bitcoin
Since cryptos aren’t available through traditional banks, you need to use cryptocurrency exchanges. Popular options include:
eToro: Offers global investment securities but focuses on crypto for US investors. They offer 27 cryptos and a $100,000 virtual trading account for practice.
Coinbase: One of the largest, offers trading in 70 cryptos with various fee structures and a Visa debit card for up to 4% cashback on purchases.
Robinhood: Allows commission-free trading of stocks and seven popular cryptos, but you can’t move your crypto to another exchange or access it with a loan or card.
Bottom Line: Bitcoin Safety in 2024: Assessing Risks
In 2024, Bitcoin investing remains complex and risky. With soaring values come growing frauds and scams, leading to significant financial losses. Despite the decentralized nature and blockchain security, vulnerabilities like price swings, hacking, and phishing persist. To safely invest in Bitcoin, it’s vital to understand these risks, limit your exposure, use secure storage methods, protect your private keys, and only engage with reputable parties. Staying vigilant and updated on new threats is essential for safeguarding your investments.
