4 Reasons Bitcoin Hoarders Are Screwed
In the last several months, you might have heard stories about people striking it rich and losing big by speculating on virtual money -- or cryptocurrency, if you want to sound all fancy-pants cyberpunk and shit -- known as Bitcoin.
Despite Bitcoin's volatile busts and booms (one bitcoin cost $13 in January 2013 and is valued at roughly $900 now) and the fact that governments around the world are giving it the legal stink eye, some of you may still be curious about it. After all, who wouldn't want to invest in a magical pinata that seemingly explodes into a geyser of fine topaz every few days?
Well, before you get too giddy, know that Bitcoin isn't wizard money and has some pretty significant downsides, namely ...
Bitcoins Are Easy to Lose
Being a virtual currency, Bitcoin doesn't exist in the real world. The reason why Bitcoin and other cryptocurrencies like Dogecoin (no, seriously, this is a thing) are so popular is because users transfer the currency directly between each other and don't require a middleman like PayPal or a bank. (This also explains why Internet drug dealers are oh so fond of cryptocurrencies.)
Other people required a little more convincing.
So what's the problem? A systemic lack of safeguards against fraud. In other words, you have basically zero recourse if an 11-year-old in Turkmenistan decides to hack you and caper off with all of your bitcoins. Anecdotally, users have been hoodwinked out of millions upon millions of dollars' worth of bitcoins, and one news anchor even got ripped off when he accidentally flashed his info on live TV.
"Up next: weather, our Social Security Numbers, and the cameraman's wife's bra size. Stay tuned!"
Sure, you can store your bitcoins offline, but that presents its own set of challenges. Just ask this poor bastard in Wales, who procured 7,500 then-worthless bitcoins in 2009, stored his account information on an old hard drive, forgot about it, and accidentally threw it out this past summer, leaving a few million dollars stuck under a landfill.
A Few Really Devoted People Could Tank Bitcoin
Unlike real-world currencies, Bitcoin isn't regulated by a central bank or government. So where do bitcoins come from? Here's an extremely pared-down explanation: When Bitcoin was programmed into existence, a massive "mine" of bitcoins popped into the virtual world that is the Internet. Bitcoin miners obtain new bitcoins using incredibly powerful computers that consume insane amounts of electricity.
But now let's imagine that one group of miners all band together and suddenly take the majority of the mining power, or 51 percent. If that were ever to occur, it would allow them to essentially crash the currency, rendering the value of Bitcoin worthless. But no one could ever accomplish that, right?
"Shit."
Well, earlier in January, a group of miners known as Ghash.io reached 45 percent mining power. Ghash.io later claimed that they would never knowingly crash Bitcoin, but what they've proved now is that it is possible. So if James Bond's rogues' gallery were real, you'd all have made the jump to Dogecoin right now.
Yes, You Have to Pay Taxes on Bitcoins
Taxes don't disappear just because you flipped your country's currency the bird. Every single transaction you take part in using Bitcoin must be listed with your taxes, and the entire process is confusing as fuck. Hell, even the IRS isn't 100 percent sure what the deal is.
"If you look at the form, it all falls under Article: Fuck You, Subsection: Pay Us."
Think this isn't serious? Professional Bitcoin miners are already one step ahead and have started treating the currency as more of an investment with commodity trading, as overall miners spend $17 million per day in electricity costs to mine $4.4 million worth of Bitcoin. (It also means that if Bitcoin's value doesn't skyrocket, more than one miner is looking at a field trip in the back of their neighborhood mafioso's limo.)
And It's Not Entirely Anonymous
If nothing else, everyone should know the biggest praise of Bitcoin -- anonymity. Well, too bad that's bullshit. Every transaction that is made is stored on a public record, with information from both accounts and the number of bitcoins exchanged. And this isn't just a minor mistake that can be fixed with a few code changes. The structure of Bitcoin requires records for everything to ensure that the same coins aren't being used more than once, and recent university studies suggest that users are more traceable than they think.
"Wow, this guy really likes Space Jam."
So while we're not saying that Bitcoin is definitely a no-go, we are saying that it's a bit more like Mars: The first colonizers are probably fucked, but down the pike it could be viable for everyday folks. Y'know, after all the space cannibals die off.
The third part of XJ's epic science-fiction novel is out now on Amazon. The first $0.99 novella can be found here, with Part 2 out here. Or leave a review and get a free copy! Poke him on Twitter and follow him on Facebook.
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