When the central bank in Cyprus froze bank accounts and limited the amount of cash that could be withdrawn from bank accounts it created a huge uproar that was felt around the world. If consumers did not have access to money how could they buy and sell the things needed to carry on in our modern world? The reality is they cannot so consumers around the world started to look for safer alternatives to fiat currency. Fiat currency is currency that has no tangible value aside from what the government assigns to it.
Consumers are looking for a way to store their buying power to protect themselves from having bank accounts frozen for indefinite periods of time. Many people started trading in Bitcoins. This is a crypto-currency which means it cannot be easily counterfeited but before anyone starts buying into this new currency it would be prudent to understand the risks.
Bitcoins are not issued by any central bank or government so there is no accountability whatsoever. If you are dealing with Dollars,Euros or Pounds you have the assurance that the government behind it will honor the debt while Bitcoins do not provide any guarantees at all. The fact that no one truly knows who made this currency so there is no way of knowing whether it could be stolen right from under our eyes.
These Bitcoins are stored inside a digital wallet that can be encrypted on your computer. While this should provide a sense of security if your computer is lost your Bitcoins are gone as well. It is not like a credit card where you can get a replacement and carry on like nothing has happened.
While the security of this currency is a concern by far the biggest worry is the value of it. The perceived value of a Bitcoin can change in a moment and
Automated arbitrage trading unlike fiat currencies that are backed by hard assets owned by a country if a Bitcoin value drops you have nothing of value at all.
There are a few exchanges around the world that sell and buy Bitcoins, but you should not buy them thinking they are going to rise in value. They are a digital commodity which some would classify as a "fad". Tomorrow it could lose all its real value and never recover.
So to recap the risks, you do not have any real security with Bitcoins since they are not provided by a government. The value if highly volatile and could be reduced to zero in a heart beat and the simple fact that the currency has only been around for a few years shows it is not proven to be reliable.
If you are looking for a way to preserve value then precious metals like gold,silver and platinum may be more beneficial since they have been used for centuries as a medium of exchange.
When it comes to investing you should never make rash decisions but weigh the risks and potential payoff and remember that there is no sure things when it comes to digital currencies like Bitcoins so approach at your own risk.
