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A Bitter Pill for Bitcoin

Unless you’ve been living under a rock for the last year or so, it is almost inevitable that you would have seen the blanket media coverage about Bitcoin and its phenomenal rise in value.

Now, just in case there are any rock-dwelling folk waking from hibernation and reading this blog, here is a link to what Bitcoin is and how it works.

So, what is the point of having Bitcoins? Maybe I’m slightly naive, but I can see only a few situations that it would be truly advantageous to buy in to the concept of Bitcoins.

  1. You are a criminal and you want to hide behind the anonymity of Bitcoin. This would include all the people who were using sites like Silk Road to sell drugs, weapons, contract killing, etc.
  2. You want to buy a product or service totally anonymously. Maybe from the people selling the items above, which kind of pushes the buyer into the description of “criminal” too
  3. You are an investor and you think you will make a lot of money from the fact that only a finite number of Bitcoins will be issued (or “mined” as they call it in the trade) and the value of them has gone through the roof in recent years.

I’m sure there must be plenty of other reasons to use Bitcoin as they are becoming more and more mainstream now, but aside from the super fast rise in value – a Bitcoin worth 34p in 2009 was worth £122 four years later – I can’t see why you wouldn’t just use a credit card. Yes, it’s open to fraud, but at least you can usually claim your money back if somebody nicks it.

The problem is, that by the very nature of what Bitcoin is and how it works, it will attract some interest from some fairly tech-savvy organised crime networks. And while there are indeed many people who would genuinely fall into the “investor” category, above, there are also a number of unsavoury characters who will be planning to separate you from your hard-earned Bitcoins as quickly and ruthlessly as possible.

You might be wondering whether this blog actually has anything to do with new business? Well, yes, because like some other now household names in the digital age, such as Facebook, Twitter and Google, Bitcoin has acquired huge new customer interest and massive growth in a relatively short space of time. A real new business success story for its founders. But maybe not so for all of its customers today.

Sadly it seems that just like cash, once somebody has stolen your Bitcoins, there is not a lot you can do to get them back. One of the perils of it being untraceable.

There was a pretty interesting blog warning of the dangers for Bitcoin investors published back in January, but what prompted me to write a blog about Bitcoin was a news bulletin I had through in my email on Tuesday.

It seems as if BitCoin’s biggest bank has fallen in spectacular style. Management Today described it as “the equivalent of RBS, Barclays and HSBC going down all at once, but with no one to bail it out.”

A leaked internal document (which has not been authenticated) described the situation as a “slow hack” meaning that money was stolen unnoticed over a number of years from MtGox, the Bitcoin bank involved, which could go bankrupt at any moment. The value in “real life” of money lost is around £210 million (as of Monday’s prices) – or 6% of all Bitcoins. Further interesting reading can be found here.

Being a very cautious investor, I think I will stick to something a little safer and more traditional for now. Like sticking my savings in a biscuit tin under the bed and hoping I don’t get burgled.

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