Should I Invest in Bitcoin?

7 Mar

Bitcoin had a hard time in February 2014, is it a viable investment for a cautious digital immigrant?


What Is Bitcoin and How Does It Work?

One of the current challenges with the system is that as a currency, there are not a huge number of places you can spend your coins.  The practicalities are well documented in a number of places, Kashmir Hill is one of a number of people that have documented living on Bitcoin for a week…

Things I Learned About Bitcoin From Living On It For A Week

Admittedly it is in it infancy, and so will take time for a critical mass of outlets for the currency to build up.
In the meantime, for me as a potential investor it leaves me with the judgement of will the value of the investment increase?  Early signs in this have been good with rapid increase in late 2013, but with a recent fall (see charts)

However what does an investment really mean.   It is essentially a bet that at some point in the future someone will exchange my coins for something of value – and that value will hopefully exceed the cost of the coins in the first place.   Not too dissimilar to investing in fine wine, rare metals, postage stamps or art – you hope someone will value it more than you paid at some point in the future.

The risk decision involves a judgement of what is likely to cause the value of the investment to fall:  wine could deteriorate in the bottle, a nation state could flood the market with gold reserves, or art be declared a fake.

What could cause the Bitcoin value to fall?

I tweeted a link to the above story, and got the reply:

While Alaric is factually correct, it’s an implementation flaw, not a protocol flaw. I argue it matters not: it could enable fraud to occur, that devalue my potential investment.   There is a really important point here though – just because the mathematics of the cryptography is thought to be flawless, is does not mean the system is flawless, it can be easily let down by untrustworthy software, poor deployment or bad operational processes.

(Danny Bradbury explains the ‘bug’ in more detail in this article.)

Malware targeting Bitcoin

The same week, we also saw Malware targeting Bitcoin…

So the criminal community is targeting it – not surprising – you rob banks because that is where the money is.

And finally a denial of service attack…

Denial of service is an interesting one.   By mounting a denial of service, presumably you could manipulate the bitcoin exchange rates, leading to financial gain.

So it may be because I am a digital immigrant and not a digital native and I just don’t get it and am far too cautious.   The above seems to suggest to me the investment is high risk, and one to avoid.  The point is illustrated in this article from Reuters in which Micky Malka, a venture capitalist who is on the board of Bitcoin’s trade group, the Bitcoin Foundation is quoted as saying “No one should be investing an amount they cannot afford to lose.”

Case closed, I’ll not be investing.

Should I be?

Article originally posted Storify

=== STOP PRESS ===

=== STOP PRESS 2 ===

One Response to “Should I Invest in Bitcoin?”

Please join the discussion, we welcome your views...

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: