On May 7th 2014, SEC, or the U.S. Securities and Exchange Commission, released a warning about the dangers of Bitcoin, such as calling Bitcoin a Ponzi scheme. Now whether or not that is true is up for debate, and I believe many users would voice strongly against that.
That doesn’t mean the SEC was full of gibberish however, such as stating that potential investors must watch out for scams that try to entice with high returns in a new market.
SEC also states that the use of Bitcoin may decrease the chances of you recovering your money lost due to theft due to the unique nature of Bitcoin, such as the ability to use it globally.
Bitcoin, with the option to use mixers to further anonymize transaction, exchanging to different cryptocurrencies, etc. makes Bitcoin transactions difficult for federal authorities to track.
Its decentralized nature, along with its international use, makes it a challenge to pinpoint individual transactions as well. Since there is no central figure, and it can be used globally, governments must work together to track transactions. International laws may conflict each other, for example Bitcoin might be legal in one country vs another, and this will most likely cause more hurdles they must pass through.
The ability to encrypt wallets and the fact that they are held by the user of that wallet makes it tough for the government to seize the Bitcoins, once they have finally found the thief. A thief could just as easily delete the wallet, or transfer the Bitcoins to other addresses and cause the search to start again.
SEC also discourages potential investors from investing in Bitcoin and other virtual currencies for a multitude of reasons, with some listed below.
One reason is that Bitcoin is not insured. Banks are insured by the FDIC and brokerages are insured by the SIPC, Bitcoin unfortunately does not enjoy the same kind of protection.
Bitcoin, with its history of volatility, famously peaking at around $1000, then crashing to the $500 – $600 range soon after that is an excellent example of how varied the exchange rate of Bitcoin can become. This makes Bitcoin not a good option for new investors, and even experienced ones should do extensive market research before making any lasting decisions.
Due to the new nature of Bitcoin, security may not be of that of a bank or other financial institution with decades of experience. This may cause glitches, vulnerabilities, or weaknesses that an intruder can exploit. Most famously the shutdown of Mt. Gox, with thousands of Bitcoins being lost due to what Mt. Gox says as a “transaction malleability error”.
Bitcoin, with its stories of early investors making millions while Bitcoin was just $1, or even less. Now investors have caught whiff of this, they want in. That has also caused the spike of scams and Ponzi schemes as well. Bitcoin can be a rewarding investment, but do your research and take everything with a grain of salt.
Written By: Nigel Dollentas A.K.A. Precrime3