Massive Theft Underscores Why Bitcoin is Not the New GoldKevin Douglas
The cryptocurrency bitcoin has been increasing in popularity the last few years. Many people are heralding it as the future of currency: more stable than the dollar, and able to be used internationally—once it catches on with more businesses, that is. Some have even gone so far as to call it “digital gold.” But whatever its future is, it will never be as strong or as reliable as physical gold. Let’s take a look at a few reasons why.
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Bitcoin in Troubled Economic Times
As various currencies are weakening all over the world, including the pound and the euro, many people believe that bitcoin, which is valued differently, will remain stable and insulate them from the problems that others are having. It’s easy to see why, too. The virtual currency has been on a generally upward trend lately, having more than tripled in value over the last year and reaching a record high in June.
However, this spike in value can’t last forever. Initial excitement can lead a new and innovative investment opportunity to balloon in value, but as interest wanes, and inherent issues become clear, prices can drop drastically. Now many experts believe the bubble on bitcoin may be about to burst. In fact, from its peak in June to now, bitcoin has dropped in value by 24%. It will likely go down further over the coming months. So clearly, despite the initial excitement, the novel exchange medium is not a stable investment that can be relied on to keep you safe in troubled economic times.
Another Devastating Bitcoin Hack
Even if bitcoin weren’t on the road to ruin on its own, circumstances have arisen to send it that way, shaking the very foundation the neo-currency is built on. In early August, Bitfinex, the self-proclaimed most secure bitcoin exchange in the world, was hacked. The thieves got away with the equivalent of around $70 million. The exchange is, of course, working to recover and restore the stolen money. But until then, Bitfinex’s plan is to spread the loss evenly among all of its customers—even those whose funds weren’t stolen.
This isn’t the first time something like this has happened, and it likely won’t be the last. In 2014, another exchange, Mt. Gox, lost $480 million in bitcoin and ended up filing for bankruptcy. In the ensuing asset division, its customers were supposed to be able to recover at least a small portion of the bitcoins they lost, but as of this writing they have yet to see a bit-dime.
This is the other reason bitcoin will never be a stable long term investment opportunity, the way gold is. Even if the bubble wasn’t going to burst on its own, bitcoin is an entirely digital currency. This means it’s subject to hacking and cyber-attack. If the money you have in the bank is stolen, it’s insured by the federal government up to $250,000. But nobody insures bitcoin. So when it’s stolen, it’s simply gone.
Gold, on the other hand, cannot be hacked. It’s a physical commodity with intrinsic value. As such, the bubble can never burst on gold. In the ultimate told-you-so, it turns out physical locks are more secure than cyber infrastructure, making it easier to safeguard gold against theft. And in our current times of impending economic crisis, gold has been steadily rising, while bitcoin fluctuates wildly. In the end, if you’re looking for a stable investment to help you secure your financial future, gold and silver are two proven options.
Best case, you let someone younger test out all the potential pitfalls of financing a real life, including real downturns, with virtual currency. Worst case, your bitcoin savings let you down just when you need them most.