Monday, March 24, 2014

What will kill Bitcoin? Bitcoin Theft? Maybe.

Mount Gox has failed, Vircurex is failing. Bitcoin is distributed, so what's the problem?

I am a firm believer in Bitcoin. I didn't mine the fraction of a Bitcoin that I own, in so much as it's possible to own a number, or cyptographic keys, in this case. I bought it with Australian dollars though Mt Gox. I didn't trust Mt Gox to hold the currency on my behalf, so I transferred it to a Bitcoin wallet as soon as I was able.

I bought the Bitcoin at an interesting time. It had just started to gain some traction with the online tech media. The plan was to sink enough into Mt Gox to buy a single bit coin, just to say I had one. The short story was that in the days it took to transfer the money across, the currency rose in value so that I ended up with 0.39 bitcoins.

Would I do this again? Not sure, and this is where I think the problem is. Buying bitcoin as an investment is now fraught with the additional issue is that there is a lot more stolen bitcoins out there then there used to be, or coin that has been used illegally. Like banknotes with serial numbers, bitcoin transactions can be tracked, and if stolen, traced through their entire life. An added complication is that bitcoins can be combined together as well, so the question of ownership in the case of stolen coins may end up being diluted over time. Who knows how the legal eagles would interpret all of this. On the other side, I doubt whether the law would also be able to offer any protection if my bitcoin were stolen, even if the thief is identified.

So, unless you can guaranty that you've got pristinely mined coin, keeping bitcoin as an investment may be even more of a risk. There may be premium paid for these bitcoin, keeping their value up.
I probably won't buy bitcoin as an investment again.

My prediction - Bitcoins long term value will be in its transactions.