Bad things happen to BitCoins
What could possibly go wrong?
The good news is that the government is not involved, the bad news is that the government is also not involved. No overarching regulatory body oversees your carefully nurtured cache of BitCoins. Whether you 'earned' them through:
- old-fashioned manual labor, or
- exchange of property,
your fortune is soley your responsibility. In theory, and currently in practice, the entire history of every BotCoin transaction is stored in the current block chain. This massive so-called database is freely available. There are millions of copies stored on the computers of BitCoin aficionados around the world. Perhaps a copy is cached in outer space as well. If your transaction doesn't make it into the chain, you're toast and your dreams of early retirement may also be looking a little crunchy.
Your exchange of choice may shut down
A P2P (Peer to Peer) network is nifty in that no single point of control exists, but eventually you'll need the services of a central server if you want to participate in the market in any meaningful way. A server does nothing if not bring buyers and sellers together.
Indeed, you could sell shares of P&G stock to other individuals by contacting them directly online and exchanging paper certificates through the mail. All you need to do it walk to the mailbox and drop in a properly addressed, insured, and certified package. Your obstacles to eternal riches quickly become insurmountable: these transactions are inherently risky, slow, and inconsistent.
So, investors quickly realize that a centralized hive-mind is necessary. We all need the services of a broker. Stock brokers pepper the digital landscape and most of them are regulated by federal agencies to the point of defining what color ties must be worn in the office on odd-numbered Fridays. Transaction redundancy and security are minutely defined by pages of inscrutable laws, bylaws, rules, codifications, and gentle suggestions.
Bad things happen to BitCoins
Did you know that a bank may not remain closed for three days in a row? It's flat-out illegal. Such thoughtful rules do not yet apply to BitCoin brokerage and exchange houses. Your server of choice may be online today and gone tomorrow. For example, venerable BitFloor shut down in early 2013. It's gone. Poof. Who knew where is was in the first place? Doubtful, it is, that government regulations stipulated strict monitoring and management guidelines to ensure that all 'investors' recouped their virtual money. The site, what's left of it, is unclear on that issue.
According to a blog on a different site, BitFloor servers were hacked. BitCoin wallets were stolen. Accounts were drained. If the FBI is hot on the case, we don't know. That 'money' is virtually gone and it was never literally anywhere in the first place.
A job at iHop looks really good right about now. Until patrons begin leaving BitCoin tips, at least you'll end your shift with a sense of satisfaction and a pocket of clinking money redeemable for goods and services around the world.
Yes, everything in life is risky
Stuff your savings in a mattress and the the bedbugs will probably eat it. There's no absolutely safe place for investments. Keep a digital eye on your BitCoins. Learn everything you possibly can about the mathematics, the security, and the exchange strategies. If you don't understand it, walk away from it. Mortgage bonds are a cautionary tale, if nothing else.
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