If you’re at all familiar with the concept of bitcoins, you’re probably also intrigued by the many possibilities they present. Unfortunately, this new type of currency also comes with its share of issues and problems. There are several bitcoin difficulties that need to be ironed out before this currency style can truly go mainstream.
What Are Bitcoins?
Bitcoin was developed as a peer-to-peer payment system that takes place virtually over a network. It doesn’t follow accepted currency guidelines, and is often referred to as virtual money or electronic money.
Bitcoins can be purchased or given in exchange for currency. They can also be used to pay for things such as products or services.
Most often, though, bitcoins are produced in a process known as mining. Mining is a system where users who offer computing power record payments in a public ledger. The bitcoin is generated as a reward for the process.
Many people are beginning to accept bitcoins as a form of currency, because the processing rate is much lower than other currencies, which means that retailers keep more of the money, rather than paying it out as they would for a credit card transaction. With the fast growing pace of the industry, you may want to consider taking a bitcoin course to learn more.
Typical Bitcoin Difficulties
Bitcoins are still relatively new, which means that there are still some kinks in the system that needs to be ironed out as they become a more acceptable form of currency. There have been several bitcoin difficulties that have cropped up as the system grows in popularity.
Lack of Consumer Protection
Some people feel that the biggest bitcoin difficulty is the lack of consumer protection. When a credit card is stolen, a bank can put a stop to the line of credit to ensure that you don’t have to pay for false charges. Likewise, if you pay with a credit card, but want to return an item or an item was purchased in error, a chargeback can be done that will refund the credit to the card.
When a bitcoin is stolen, however, there is no way of recovering it. Because bitcoins are not overseen by a central bank, there is no method of stopping one or reissuing it if it is misplaced. Likewise, a chargeback cannot happen; refunds must take the form of cash or check, rather than a new bitcoin.
Some sites that trade in bitcoins are especially vulnerable to hackers, because the currency is completely virtual. In February of 2014, more than 700,000 bitcoins were stolen from a bitcoin exchange which later declared bankruptcy. Once stolen there is no way of getting the currency back, so any investor or traders on the site were left with no recourse once the company filed for bankruptcy protection.
This obviously leaves people who deal in bitcoins more vulnerable than those that use other forms of currency. Lack of consumer protection is the number one reason that many countries do not allow the use or trading of bitcoins.
Bitcoins are used primarily by speculators, and not as much by consumers. This means that the price of a bitcoin cannot be fixed; it can go up and down like a stock, so it can be risky to put your money into them, or to accept them as a payment for goods. Some people feel that this volatility is a good thing; if the value increases, it will pay off in the long run. Unfortunately, it can just as easily lose value, making it a gamble each time it is used. Learn more about trading in general to help understand the way the market for bitcoins works.
Black Markets and Illegal Activities
Bitcoins are not regulated in any way, which makes them ideal for black market trading and other illegal activities. Any trading in bitcoins that you do runs the risk of being on an unregulated market that could pose as front for illegal or black market trading. Already, the FBI has seized more than $28 million dollars in bitcoins when they shut down the illegal online trading site Silk Road.
Not Universally Friendly
The United States is trying to figure out how bitcoins fit in with accepted currency and trading, but bitcoins have been ruled a valid form of currency. This is not necessarily the case in other countries, however. Some countries have banned the use of bitcoins altogether, while others – like China – limit bitcoin use to an exchange for accepted currency only with no virtual trading or speculation. This is fine for people that intend to use bitcoins solely for consumer transactions in the US, but for those that may want to invest in bitcoins on a larger level, it can be more difficult to get a foothold in the larger, global market.
Unknown Regulations and Fees
When bitcoins were first created there was no regulation or even acceptance by the government that this was a valid form of currency. As the trading and use of bitcoins grows, more difficulties come up as the government looks for ways to begin to regulate and control it. For example, the IRS recently declared that bitcoins could be seen as a form of capital, and therefore they are taxable under US laws. This makes bitcoin trading more difficult as there is no set price for the currency, and you can be taxed at a rate that is more than what it is worth if you paid more for it before the value fluctuated and dropped. This obviously can work the other way as well if the value increases, but due to the volatile nature of the exchange, there is no way to know for sure.
Risky Bitcoin Exchanges
Another bitcoin difficulty is the nature of bitcoin exchanges. Because this system is relatively new, many exchanges pop up and then cease to exist within a fairly short time period. Any exchange becoming defunct runs the risk of losing the investment by traders, particularly as advance notice of an exchange closing is not typically given.
Because bitcoins are virtual and still relatively new, it can be easier for people to engage in activities such as money laundering, filtering money and bitcoins through different exchanges to make them untraceable. This further affects the volatility of the market, particularly when these plots are uncovered, such as the case of Charlie Shrem in January of 2014.
Bitcoins are virtual; they have no value other than what is created for them virtually. This makes them vulnerable to malware, which can be created to attack, steal, or destroy bitcoins from wallets or exchanges. To date there are more than 150 bitcoin malware viruses, most of which are undetectable by standard anti-virus and anti-malware software.
Be an Informed Consumer
While there are several bitcoin difficulties to consider when trading or using bitcoins, this is a fast growing field of currency that many people believe will be the wave of the future. If you’re interested in learning more, you could take a course in creating bitcoins, or take a course in trading stocks to help you understand the basic principles that involved in the trading of bitcoins. No matter if you have experience with virtual trading and currency already; bitcoins are probably here to stay and are more than likely to going to become more accepted over time. Make sure you understand both the pros and the cons of the system so you can make the most informed decisions for your use.