You’ve undoubtedly heard about Bitcoin millionaires. You know, that coder in his mom’s basement who saved some cash and became the world’s first digital billionaire. But what are the risks of virtual money? What makes it so different from regular dollars? The answer is that while all digital currency operates on a decentralized ledger, Bitcoin has been modified to operate without official oversight, and is therefore unregulated. This means that you cannot use Bitcoins to purchase things with the same level of protection you would in an FDIC-insured bank account. To be sure, no government or organization can freeze your account or protect your assets like they would if operating under a centralized system failed to retrieve credit balance uber.
1. You’re not ensured of the safety of your transactions
There is no central authority to scrutinize transactions for authenticity, or to regulate them. Bitcoin transactions are permanently recorded on a public ledger called a blockchain. This means that anyone can see all of the Bitcoins that have ever been exchanged and verify if the transfer is legitimate or not. While consumers may be assured that their Bitcoin transaction was successful, there is no organization that ensures you were paid for goods, nor any recourse if you were not.
2. There is no guarantee of compatibility
Bitcoin isn’t designed to operate like most other currencies today where you can exchange one currency in return for another and know with confidence that you will receive what you paid for. Companies (for better or for worse) are often held accountable when their products do not work as promised. But with Bitcoin, you’re at the mercy of your currency supplier. It’s entirely possible that a company may dramatically alter the specifications of their product, never deliver on time, or simply disappear one day without warning.
3. Your privacy is at risk
It’s no secret that Bitcoin transactions involve a high degree of privacy due to the fact that addresses and your identity are kept secret from everyone but you. This level of privacy is a double-edged sword because it enables criminals to engage in illicit activities without being discovered by law enforcement agencies. In fact, the anti-money laundering intelligence portal of the Bank of England warned in 2013 that Bitcoin users face privacy challenges.
4. Your transactions are not regulated
Bitcoin transactions are recorded on a public ledger called a blockchain. This means that anyone can see all of the Bitcoins that have ever been exchanged and verify if the transfer is legitimate or not. While consumers may be assured that their Bitcoin transaction was successful, there is no organization that ensures you were paid for goods, nor any recourse if you were not.
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5. You’ll never earn interest
Perhaps the biggest drawback to virtual money is the fact that you will never earn interest. When you deposit your money in a bank account, you may be lucky enough to have access to a bank account with debit card rewards. In fact, just last year, more than $400 million was paid out to bank card holders alone. Meanwhile, there are no banks that pay users for Bitcoin transactions or mining and so on. With mining involving such an uncertain future anyway, it is unlikely that any Bitcoins will earn interest in the near future.
6. Your wallet could be stolen
It’s not uncommon for Bitcoin exchanges and wallets to vanish overnight or become victims of hacking activity. The first reputable Bitcoin exchange, Mt. Gox was the victim of a security breach in 2013. Many other exchanges have been hacked over the years and millions of dollars have been stolen from unsuspecting users.
7. It’s not insured by the FDIC
There are no guarantees that your Bitcoin transaction will be completed as you expect. Certain virtual currencies such as Ripple, Peercoin and Litecoin are entirely unsuitable for storing wealth but there is absolutely no accountability or recourse if they do not function at all or are simply taken off the market by their developers. If a ransomware attack occurs, there is no organization that guarantees your funds won’t be stolen by hackers or that they’ll be returned to you in full once payment is made to hackers.
There are a number of risks associated with Bitcoin, but fortunately there are also many potential rewards. While the future of Bitcoin is uncertain, the risks of virtual currency cannot be ignored. If you’re looking for a safe, secure way to store your money and earn interest, there are bank accounts that can offer you these options. To weigh up your options for storing cash online with Fidelity Bank USA in an FDIC-insured account, feel free to take advantage of our handy online banking calculator.