Is bitcoin secure?
The basic idea of cryptocurrency and bitcoin is that it’s supposed to be a more secure currency than traditional money. That being said, bitcoin is still a ‘young’ currency, and many countries still don’t allow the use of bitcoin as a payment method yet. Besides that, bitcoin can also be used as an investment where it’s connected to risks and uncertainty.
So to answer the question: “Is bitcoin secure?”, we first have to look at these 3 topics separately:
- What does it mean that bitcoin as a technological invention is a more secure currency than traditional money?
- Which countries allow the use of bitcoin, and which countries don’t?
- Why is bitcoin as an investment connected to risks and uncertainty?
What makes bitcoin a secure currency?
If you hear anyone say: “Bitcoin is the most secure currency in the world”, they’re probably referring to the technology behind - blockchain. If you don’t already know about blockchain, you can read more about the technology here .
There are 3 central elements of blockchain technology, which in theory should make bitcoin a more secure currency: Encryption, immutability, and consensus.
Further down in this blogpost, we’ll explain why bitcoin is also an uncertain currency.
Central for blockchain is that they store transaction information in large blocks of data. So, to exemplify, if you were to purchase a liter of milk from Anna with bitcoin, it would appear in the data blocks in the bitcoin-blockchain.The information stored in a blockchain is also protected against hacker attacks and similar attempts to infiltrate the system.
Any transaction on the blockchain is encrypted, so when you purchased milk from Anna, it was registered on the blockchain with an encrypted code.
For example: “You” + “Anna”
This means that no one can see what’s actually behind the encryption. On the other hand, everyone can ascertain that a transaction has happened between “You” and “Anna”. In reality, the names are also anonymous.
The technology also prevents changes in information added to the blockchain. This means that cyber criminals for example can’t go into the system and change or manipulate information. This means that the blockchain is ‘immutable’.
In theory, this should make sure that no one can ever say that your purchase of 1 liter of milk from Anna never happened. This could be relevant in the event of Anna alleging that she hasn’t received payment from you yet, and she would therefore want the amount transferred again.
Here, it’s clearly visible on the blockchain that the transaction actually took place.
A last characteristic for blockchains, which attributes to their security, is the way new data blocks are being validated.
Because what if the hacker Hans got access to the blockchain and simply added a transaction, where Hans should receive 10 bitcoins from Anna?
If Hans were able to do that, it would look like Anna had to transfer 10 bitcoins to Hans. And when Anna gets the bill, she may not even think about it if she were a milk wholesaler for example.
In reality, it’s a very hard thing for Hans to succeed with. Because before a new transaction can be added to a blockchain, it would need consensus between all participants in the blockchain network. This also goes under the name consensus mechanism. In other words, Hans would need to control 51% or more of the blockchain network to be able to impose a false transaction. That way, there would technically be ‘consensus’, since Hans controls 51% of the transactions - and thus Hans’ transaction overview must be more true compared to the other 49% of the network, which are saying something else.
In reality, it’s very hard to gain control over 51% or more of a blockchain, but theoretically, it’s a possibility. For example it did happen to the cryptocurrency, ethereum, in 2019, where the blockchain was under a so-called “51%-attack ”.
Which countries allow bitcoin as a payment method?
Bitcoin can be an uncertain currency to carry, if you plan to use it as a payment method . Not all countries accept bitcoin and cryptocurrencies as a legal payment method.
On the map from Statista you can see which countries who:
- regulates crypto (blue)
- implicitly bans crypto (yellow)
- absolutely bans crypto (red)
What makes bitcoin an uncertain investment?
When you trade bitcoin there’s a risk that you could lose some or the entirety of your holding. Bitcoin and cryptocurrencies in general are unregulated which means that there are no central authorities to protect consumers.
If you have money in a bank, and the bank goes bankrupt, your money is protected by a central authority: In Denmark, that authority is Garantiformuen. Garantiformuen covers deposits on amounts corresponding to 100,000 EUR per depositor and securities on up to 20,000 EUR per investor.
But if you lose your bitcoins following a cryptoplatform going bankrupt, you’re not protected by any authorities.
That is one of the reasons why bitcoin is an uncertain investment.
Besides that, bitcoin is a very volatile asset. This means that prices can rise and fall very quickly. The more volatile an investment is, the more uncertain it is. The same goes for all types of assets. For example, if you were considering buying a house, you would be more careful with your purchase if you knew that the price of the house potentially could lose up to 100% of its value from one day to the next. At the same time, there’s also a risk that the house could be worth 10 times the price the next day.
That’s kind of how bitcoins work. You should consider whether bitcoin fits your readiness to take risks.
Cryptocurrencies can rise and fall
When you trade cryptocurrencies, you need to be aware that it carries a large risk. The value of your cryptocurrency can both rise and fall, and you can risk losing the entire amount you’ve invested in cryptocurrencies.
Cryptocurrency trading is done through Lunar Block. Lunar Block is not regulated by the Danish Financial Supervisory Authority (Finanstilsynet). That means you won’t have the same protection as when trading e.g. stocks or other regulated assets.
We do not counsel
We do not advise on currencies and do not make recommendations for either buying or selling. We can provide factual information about the different currencies, but past price developments are not an indication of future developments.
No information from Lunar Block should therefore be considered as recommendations and all decisions are up to you alone.
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