Is It Bitcoin Safe to Use Bitcoin
Is It Bitcoin Safe to Use Bitcoin?
It is more than a decade since Bitcoin was launched and yet one of the common questions that always come up is whether Bitcoin is safe. The blockchain technology behind Bitcoin ensures that it is transparent, anonymous, and immutable. However, many headlines have been run of people losing their funds to Bitcoin-related scams. Is Bitcoin really safe? Here is what you need to know about Bitcoin safety.
Bitcoin is Immutable
Bitcoin is based on blockchain technology, which is the most secure digital network ever created. The data entered in the Bitcoin blockchain is permanent. Therefore, no one can change, illegally add, or delete any transaction that is recorded on the Bitcoin blockchain network. This feature makes Bitcoin resistant even to the most sophisticated attacks.
Bitcoin is Safe from Any Influence by Centralized Authorities
Bitcoin network is fully decentralized. Therefore, no single authority controls the creation, distribution, and usage of Bitcoins.
Bitcoin is thus safe from bad management and mistakes by central authorities that control traditional finance. For example, a government can decide to print and supply more money to its economy and thus causing harmful inflation. Governments such as Weimar Germany (1922-1923), theKingdom of Hungary (1945-1946), and Zimbabwe (2007-2008) suffered hyperinflation when they decided to print excess money for their economy. When that happens, the money loses value.
Such cases cannot happen with Bitcoin. There is no single authority that can decide to supply excess bitcoins into the network. Instead, Bitcoin creation is regulated through a program. Unless a block is mined, no one can introduce new Bitcoin. Additionally, Bitcoin has a fixed maximum supply of 21 million.
Additionally, Bitcoin is censor-free. Anyone from anywhere can use Bitcoin without the fear of a financial institution or a government freezing their accounts.
Despite having these string security features, Bitcoin is not free from any risks. Here are some of the common risks that you need to know.
Bitcoin is Volatile
Bitcoin prices can change significantly in days and even months. The prices of Bitcoin are determined by the interplay of the demand and supply market forces. Additionally, the prices are highly speculative. Any issue that affects people’s trust in the future of Bitcoin can cause significant market movements. These factors may include news headlines about the future of Bitcoin, activities by the whales (those who hold many Bitcoins), or even developments in government regulations.
The volatility of Bitcoin can make investors lose funds when the market goes against them. For example, the price of Bitcoin dropped by over 75% within one year (between November 2021 and November 2022). The investors who bought Bitcoins in November 2021 and sold them about a year later experience huge losses.
The Regulatory Environment of Bitcoin is Rapidly Changing
Bitcoin is still new, and various authorities have different stands on its legality. Bitcoin is legal in some countries, regulated in some, and illegal in others. A couple of countries have even made Bitcoin a legal tender.
Regulations are significant to the safety of Bitcoin. Currently, many countries are formulating policies regarding the possession and use of Bitcoin. The policies include tax regulations. Positive regulations will give increase confidence in Bitcoin.
Bitcoin faces Cybersecurity Threats
While the Bitcoin protocol itself is secure enough to withstand any attack, there is still news surrounding Bitcoin hacks. The attacks often occur through third-party services such as exchanges, wallets, and private key managers.
51% Attack Risk
Theoretically, Bitcoin can suffer a 51% attack. This can occur when a group of miners controls 51% or more of the hashing power that runs the Bitcoin blockchain. If that happens, then this group of miners can alter the latest transaction data on the Bitcoin blockchain.
In 2014, a mining pool Ghash.io came close to obtaining 51% of the whole Bitcoin network. However, some members left the pool decreasing its share and influence.
While it is possible theoretically, some Bitcoin experts believe that a 51% attack is unlikely since its cost will outweigh the benefits.
Is Bitcoin Safe to use?
Bitcoin has significant risks that may trigger the question of whether it is safe to use it. However, the risk is not an uncommon factor when dealing with any technology, especially emerging technology. Furthermore, even traditional currencies share some risks that Bitcoin users face. For example, money laundering and other fraudulent activities are still conducted by using traditional money.
It is upon you to weigh the risks and decide whether you want to involve in Bitcoin or not.
Additionally, as an individual Bitcoin user, you must take all the necessary precautions and measures to ensure that your coins are safe.