3 Reasons to Buy Into Bitcoin (and 3 Reasons Not To)

The Bitcoin market experienced another extreme drop at the end of March as the IRS decided to regulate Bitcoins as property instead of currency. The market crash also coincided with a rumor that the People’s Bank of China may also block trading Bitcoin.

The reactions from both China and the United States are both signals that each government sees the continued popularity of Bitcoin as a threat. While the new tax regulations have no actual effect on how Bitcoins are used or produced, classifying Bitcoins as property actually lends more legitimacy the digital currency.

68% think virtual currencies are too risky/67% think high-frequency trading is bad for the stock market

As Bitcoin goes through its newest set of growing pains, is now the time to buy? Before you get your (digital) mining gear set up, take a look at these three pros and cons to filling up your electronic wallet.

Pros:

Huge Rewards

Bitcoin may be volatile, but even after losing 30 percent of its value, a single Bitcoin is still valued around $450 dollars. If you’re looking to buy your way into the digital currency scene, now may be the best time to do it. And if Bitcoin hits it big on Wall Street, you’ll wish you got in on the game when you had the chance. Imagine what Bitcoin would look like with High Frequency Trading firms involved.

Secure Transactions

Bitcoin transactions are much more secure than a standard credit card transaction or wire transfer. Instead of using the same number to facilitate transfers between accounts, every Bitcoin transaction contains its own unique address, only known between the two parties. Depending on how secure you want your transaction to be, you can also require multiple confirmations before the transfer goes through.

Eliminate the Middleman

Because Bitcoin transactions are peer-to-peer, business owners don’t have to pay the same fees as credit card purchases. Consumers also benefit from Bitcoin’s design and security, and personal information is not transferred through transactions in the same fashion as a credit card.

Cons:

Volatility

While several people have made it big with Bitcoin, not everyone will be as lucky as the Winklevoss brothers. The massive fluctuations of the market are intimidating enough to keep two thirds away from using digital currencies . 1World Contributor, Garrett Miller concisely addresses concerns about digital currencies:

“Essentially, you are dealing with money, which is already volatile in terms of its fluctuating value, and making that aspect even more intangible. Because so few businesses deal in virtual currency, the actual value of the currency is very difficult to pin down, and can fluctuate wildly.”

Of course, if jumping straight into Bitcoin seems scary, you can also check out some of the lower priced virtual currencies, like Litecoin, Namecoin, or Dogecoin.

Hackers

Bitcoin’s digital existence is both a strength and a weakness, and your digital wallet is only as secure as the code protecting it. The high value of the currency makes Bitcoin an especially appealing target, and even supposedly secure Bitcoin currency exchanges have suffered a fair share of security breaches. However, since the IRS now classifies Bitcoin as property, there may be an official way to address digital losses in the near future.

Venture Capitalists

While venture capitalists are one of the main market segments experimenting with digital currencies, playing the Bitcoin market like the stock market ultimately destabilizes Bitcoin as a currency. If entrepreneurs keep hoarding huge amounts of Bitcoins, there could actually be a scarcity since only 21 million Bitcoins will ever exist (by design). In fact, I believe the main reason the IRS classifies Bitcoin as property is to close any tax loopholes the VCs intended to exploit.

Do digital currencies have a viable future or is it just a passing fad? Voice your opinion below.

 

About the Author

Chris Wawra is currently living in Los Angeles, CA. He graduated from UC Santa Cruz in 2011 with a degree in Anthropology and is currently working as Content Manager for 1WorldOnline. Chris also enjoys mountain biking, dance, and other fitness activities.

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