Bitcoin, which was founded in 2009, has seen its ups and lows in the short period it has been in circulation. Its value has risen from mere pennies to a high of at least $1000 in December, before plunging to the present levels of under $500.
“Most investors have seen the charts rising and that has got them interested,” Brett Stapper, co-founder of Falcon Global Capital, a Bitcoin investment fund, told Financial Times. “But if you’re seeking something that gives you a 5,000 per cent return in a single year, you have to accept it comes with some pretty high risks. You can’t compare it to a normal investment. We don’t even know some of the risks yet, because the technology is still evolving.”
Bitcoin investors have to grapple with three main risks: technological failure, theft and regulation. So far, the biggest risk factor is theft, which was highlighted when the world’s largest bitcoin exchange Mt. Gox lost 650,000 bitcoins in a hacking attack.
Bitcoins are digital currencies, developed in such a way that it is impossible to hack them, though some companies that deal with it aren’t secure against such attacks. Bitcoin transactions are published in an online central ledger to prevent crooks from reusing it several times for a payment.
Tom Robinson, a co-founder of London-based bitcoin storage firm Elliptic, said that his company stores clients’ bitcoins in an offline bank vault. However, some quarters question about whether security is guaranteed, say at times when the bitcoins are being transferred between storage areas.
Regulation risk is also another dreaded factor. Recently, China banned transactions using the currency, sending it plummeting to half its value. Some countries such as USA and Germany have already laid down the rules of handling bitcoin, while others are yet to decide. Nonetheless, it appears the Bitcoin juggernaut is unstoppable. To register for a free 2-week subscription to ForexMinute Premium Plan, visit www.forexminute.com/newsletter.
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