Developed in 2009 by an unknown individual or group under the pseudonym Satoshi Nakamoto, Bitcoin was the first ever crypto-currency to be used in the world. Bitcoin is a decentralised digital currency, which means it can be transferred instantly to anyone in the world without having to rely on a central authority such as a government or a bank.
Instead, it uses cryptography and block chain technology to control the creation and transfer of money therefore giving it an advantage over other traditional currencies that we use. Other benefits of using Bitcoin include being free from government interference and manipulation (e.g. inflation), reduced transaction costs, faster transactions and inability to commit credit card fraud.
Consequently, there has been a rise in many online services and retailers in different industries that now use and accept Bitcoin. A few examples include Amazon, Paypal, Bloomberg and Microsoft. It’s also worth mentioning the rise of Bitcoin usage within the Darkweb. Did you know that the selling of illegal drugs on the Internet make up a large proportion of transactions made using Bitcoins today? Due to its powerful encryption protections, it’s no wonder that other illegal activities such as selling of arms, weaponry and illegal services or tax evasion take advantage of this impressive technology.
It’s true that when scaled to a global and mass level of consumption, major issues such as criminality, security and price volatility concerns need to be addressed, and like any new financial technology, the use of a decentralised online currency introduces many uncertainties and risks that we haven’t had to face before.
However, our society is slowly transitioning towards a digital age and this provides us with more opportunities to liberate ourselves from old traditional concepts such as bank-controlled currencies. It may take several decades or even a lifetime before we see the Bitcoin become a global currency but as the world is evolving towards new technologies, we should make an effort to embrace Bitcoin with open arms. I imagine it won’t be long before we see a digitally rich economy that includes Bitcoin, other crypto-currencies and a working coalition between central banks and digital currencies.
So when it comes to using Bitcoins, here are a few ways you can keep safe and prevent these risks when making transactions online.
Make sure to secure your wallet:
Unfortunately once Bitcoin is stolen it is almost impossible to recover. There is no refund or guarantee against fraudulent charges so we cannot emphasise how important it is to make sure to secure your Bitcoin wallet. There are several security features and good practises that you can read up on to prevent theft (see link below). A few examples include enabling two-factor authentication, phone number verifications and multi-signatures.
Read up on scams:
Online scams and fraud are on the rise and scammers are becoming increasingly sophisticated, especially when it comes to new technology. The best way to stay safe and avoid them is to know what to look for. This can be done by spending time learning about some common scam traps to prevent you from falling into them. A few can be found on these websites:
The price of a Bitcoin can be volatile and in the past, has shown to unpredictably increase or decrease quite rapidly. An important risk factor for the future of Bitcoin is whether it can achieve a stable value. Stable prices are an important quality of a successful currency but due to Bitcoin’s young economy and novel nature, it’s important to be wary of the risks when storing money with Bitcoin.
Protect your privacy:
Although a Bitcoin transaction is often perceived as an anonymous payment, in reality, all transactions are public, traceable and permanently stored in the Bitcoin network. A Bitcoin address holds all the information about where Bitcoins are sent and once an address is used, it becomes tainted by the history of all transactions used with it. The address history, along with the revealing of user identity during a purchase, shows that trading Bitcoins is not at all anonymous. It’s therefore vital to only use a Bitcoin address once, and users must be careful not to disclose their addresses.
Bitcoin is new:
Bitcoin is still a relatively new technology and there are a lot of potential risks associated with investing in it. There is still a lot of room for development and ‘unknown unknowns’ and with each improvement there is a liability of revealing new challenges and issues. Make sure to be prepared for problems and if they arise, consult a technical expert before making any major investments.
For more information on how to stay safe please visit https://bitcoin.org/en/you-need-to-know
Written by Melissa Liow; MSc in Physics, interested in outer space, artificial intelligence and Elon Musk!