With the recent upheaval in the price of Bitcoin and the subsequent scramble for position in what many believe is an emerging market for cryptocurrency as an investment rather than a medium of exchange, it was probably inevitable that things wouldn’t work out exactly the way everyone expected.
Exchanges are being attacked, digital currency balances are being lost and stolen, and people who were formerly quite excited about the prospects of a new market taking off are now understandably hesitant to participate in what they believe could be a security risk dressed up as the next big IPO.
The truth is, investments are only as safe as their owners. If assets are going to be protected, it is up to the account owner to make certain they aren’t leaving themselves vulnerable.
Bitcoin and other cryptocurrencies are no safer or riskier than any other small cap equity issue. While their value is entirely dependent on what the market will bear, the nature of the technology behind cryptocurrency precludes any tampering with the asset itself. Cryptocurrencies will have an intrinsic value as long as at least one of two conditions persist. One, they must be useful as a currency and two, they must remain attractive to speculators. Over time, it is inevitable that the former will overshadow the latter. In the meantime, the other issue is technological.
The biggest problem that has faced the digital currency market over the last 12-24 months has been the integrity and safety of online exchanges. Since they have been traditionally presented as a place to store digital money, it should have come as no surprise to anyone they would become targets for hackers and thieves. The problem with this situation is the bad press surrounding the exchanges has become associated with cryptocurrencies themselves. Many people cannot discern between the exchange and the technology, which means far too many may have already concluded cryptocurrencies are unsafe, and plan to avoid them altogether.
Whether or not digital currencies are inherently unsafe misses the point. The technology behind cryptocurrency is where the true value lies. Bitcoin, for example, is simply a demonstration of blockchain technology. It may ultimately succeed and become a new kind of money, but what is built upon its foundation will very likely be at least as valuable if not more.