Is Bitcoin Safe To Use?
Even with bitcoin leading the way in the world of cryptocurrency, a large majority of the world is still asking one specific question - is bitcoin safe to use? With billions of bitcoin transactions and millions of individuals using the digital currency around the world, you would certainly hope that the answer is yes. While this may be the short answer, the real answer to the question is impossible without first understanding the basic guiding principles of bitcoin and how it is used. Just as with any other currency in the world, traditional or digital, there are best practices for maintaining your money. There are also steps you should take to protect your privacy and properly protect your funds. Using bitcoin is vastly different than using a fiat currency because it is completely digital, but it is still just as safe to use in many ways.
When it comes to tackling the initial question of bitcoin safety, it really comes down to what you mean by safe. A person that is looking to invest in bitcoin will be looking for a different answer than someone looking to make everyday purchases. In both cases, the widespread use of bitcoin makes it imperative for those that use the currency to fully understand how to use bitcoin responsibly. We will walk you through all aspects of bitcoin safety, from keeping your bitcoins secure to exploring bitcoin as an investment.
When discussing the safety in this review of bitcoins, there is a bit of background information that you should first know. There are several distinguishing characteristics that have made Bitcoin attractive to over 2 million users worldwide. While the cryptocurrency definitely has its benefits, it would be impossible for the payment system to be completely perfect. We will cover in detail the more positive and negative aspects of using Bitcoin that will help paint a clearer picture of why its safety sometimes comes into question.
Compared to traditional fiat currencies, the price of Bitcoin is extremely volatile in nature. The currency can go from reaching an all-time high one day, to quickly plunging the next. There are several explanations for this unpredictability, which include controlled supply, illiquid markets, and the absence of a centralized authority. The consistent ebb and flow of Bitcoin make it one of the highest-risk, highest-return investments currently on the market. Some experts believe that this unpredictability will eventually stabilize as bitcoin matures and expands into more industries.
One of the notable features of bitcoin that receives praise from advocates and disapproval from critics is that payments are irreversible. When you send bitcoins, the currency is first verified by BTC miners before the transaction is then added to the blockchain. This can be an instant process or take up to 10 minutes, but once the transaction has been cleared there is no way of canceling it. The miners are not third party arbitrators that you can contact if you run into any issues. They work strictly to mine the bitcoins and make sure that there are no discrepancies between the block and the blockchain. Generally, the only way to get a refund is if the recipient chooses to do so, or you are using a multi-sig bitcoin address which we will discuss in our ‘Securing Your Bitcoins’ section.
One of the major draws of bitcoin for many users is that there is a high level of anonymity. When you send or receive payments, you are using a bitcoin address that consists of alphanumeric characters and contains no personally identifying information. The bitcoin payment system as a whole is very transparent in that all XBT transactions are maintained on a public ledger. Every transaction associated with a bitcoin address is traceable and permanently stored on the blockchain. When you make a purchase for a good or service, you will almost always have to reveal your name and shipping address to the merchant.
When you start using bitcoin, you will be given two keys. The first is the public key, which is actually a hashed version of your BTC wallet address. The second and most valuable key is your private key. You should not share your private key as it authorizes withdrawals and payments from your wallet. Your private key is arithmetically linked to your public key, and together they make your bitcoin wallet address. Don’t worry, the strong encryption of the key pair would make it nearly impossible to decipher them individually. The wallet address is what you will give other people when you are to receive bitcoins. The entire bitcoin transaction process relies heavily on complex mathematical equations, but understanding these basic principles should give you an overall understanding.
In the same way that you take care in protecting your bank account, you will need to protect your bitcoins. Some of the more exceptional features of the digital currency are its transferability and worldwide acceptance. While these characteristics make bitcoin one of the most popular digital currencies in the world, the virtual aspect of bitcoin puts it at high risk for security issues. Fortunately, there are plenty of ways for users to protect their bitcoins and keep them safe. There are basic precautions you can take such as not initiating transactions over public networks, but there are much more advanced methods that you should be implementing. We have listed a few ways to secure your bitcoins and keep them where they belong.
Your bitcoins are only as secure as the wallet you store them in. If you are using a wallet that lacks adequate security features, then your bitcoins are automatically at a high risk of being compromised. We do not recommend using online wallets due to the vulnerability to breaches in security. There have been instances where web-based wallets have been hacked, so if you do choose to use one make sure the highest anti-theft protections are offered. We suggests using another type of bitcoin wallet such as mobile, desktop, hardware, or paper.
While every wallet type has its strengths and weaknesses, paper wallets eliminate many of the common bitcoin wallet security concerns. When you store your bitcoins online or on a computer, you are at risk of malware attacks and hackers. If your hard drive were to crash or you are the victim of theft, you would be losing all of your data and your bitcoins. Paper wallets allow you to store your private and public keys completely offline. The only cyber security precautions you need to take are to use an OS that will not track your activity, generate your keys offline, and print your wallet from a non-network computer. Setting up your paper wallet is as simple as printing your addresses and private keys onto a piece of paper and laminating it.
As you know, the blockchain is a public ledger where every bitcoin transaction is permanently stored. Your balance is also connected to the transaction, and if you have a large sum of bitcoins or have made a lot of purchases you can see how this makes you prey for hackers. It is recommended that you use a new bitcoin address every time you receive a payment. While the payment will still be posted on the ledger, it will not be attached to multiple addresses which would increase traceability.
Just as it would not be safe to walk around with thousands in cash, you should not keep all of your bitcoins in one wallet. If you were to lose your wallet, that could also mean losing all of your coins. Instead, store smaller portions of your money in different wallets and allocate larger sums of bitcoins into cold storage. Cold storage is when bitcoins are not on a web server and are completely offline. You can create a paper wallet and store the wallet in a vault, or you can set up a wallet on a laptop that never goes online. If you are already using a software wallet, it may have cold storage options.
There are various unexpected situations that could cause you to need a backup of your wallet. Stolen computer, forgetting your password, or losing your private key. In these instances, having another copy of your bitcoin wallet will ensure that you can still have options for retrieving your bitcoins. You can download a backup of your wallet, but you should always save the file to an external device such as a USB, CD, or hard drive. Passwords are important from all angles when it comes to securing your wallet, so password-protect the file and then encrypt it for added security. If your primary wallet is not paper, you can also use a paper wallet as a highly secure backup option. Also, the majority of wallet types will come with built-in backup programs.
In a typical bitcoin transaction, there is only one signature required, and that comes from the private key of the owner’s bitcoin address. Multi-sig addresses can have anywhere from 3 to 15 keys associated with a single address. Having 3 keys is most common, and when a transaction is initiated 2 of 3 key holders must give authorization in order to transact. These are known as multi-signature transactions (or m-of-n) that help to increase the difficulty of stealing bitcoins. It is more unlikely for a hacker to compromise keys that are held in separate locations. With several independent approvals needed before funds can be moved, you have more control over your money and who receives it. Some marketplaces offer multi-sig escrow services that involve a third party arbitrator that can mediate disputes between buyers and sellers.
Bitcoin is one of the most widely accepted forms of currency and is dominating the cryptocurrency marketplace. It is safe to use bitcoin in nearly every major country, though there are some governments that have been more cautious about permitting the use of the digital currency. Currently, there are more than 30 countries that accept XBT including the United States, Canada, U.K., Ireland, Denmark, Germany, France, and Spain. There are 8 countries that have been in the spotlight for having conflicting opinions towards bitcoin usage, including Mexico, Thailand, Russia, India, and China. If you reside in one of these countries, you will want to verify the current status of bitcoin. Though the majority of people from around the globe can safely send and receive bitcoins, there are certain nations where it is strictly prohibited. The only two countries where bitcoins have actually been deemed illegal are Vietnam and Iceland.
If you live in a country where bitcoins are permitted, you can safely use your bitcoins for various purposes. You can use bitcoin exchanges to buy and sell your bitcoins, or you can purchase goods and services. There are over 10,000 merchants that now accept XBT, including restaurants, hotels, and various e-tailers. You can buy gift cards, clothes, electronics, furniture, and just about everything else under the sun.
It is also possible for other users to log your IP address, whether it is unintentional or intentional. While your IP address is not listed on the blockchain, it can be broadcast to the network when making a bitcoin transaction since XTB traffic is not generally encrypted. You can prevent IP traceability by connecting to the bitcoin network through a client like Tor that hides your IP address.
Bitcoin is no different than any other investment when it comes to the risks involved. Bitcoin is still relatively new to the market which is why experts are still working to assess its economic value. In many instances, bitcoin is similar to more traditional assets such as gold. Both share similar characteristics of transferability, divisibility, and are in limited circulation. Gold has historically been the go-to safe-haven asset, though some are now seeing bitcoin as potential rival due to its outperformance of gold and major fiat currencies. While the volatility of bitcoin is one of the chief reasons why it is not yet widely viewed as a safe haven, it certainly has the potential. Bitcoin is by no means the best investment for those looking for consistent price increases in a predetermined amount of time. It is, however, an excellent option for those that can afford to take the high risks and potentially double their investment.
Bitcoin has several distinguishing characteristics that make it a good option for investors looking to diversify their portfolios. For one, bitcoin is not linked to any specific national currency which makes it an ideal non-correlated asset. Non-correlated assets are valuable when it comes to mitigating downside risk because if you take a loss with one asset, the other contents in your portfolio should still be able to stand on their own with minimal losses. The price volatility has started to slowly but surely stabilize with more banks, credit card issues, and other global conglomerates accepting bitcoin. This reduction of volatility levels in conjunction with minimal correlation to other assets means that an investment in bitcoin could lead to substantially increasing gains while only adding marginal risk to your portfolio. Allocating a percentage of your assets to bitcoin is an excellent portfolio diversifier that could also be quite profitable.