WARNING: Do not invest more in Bitcoin than you can afford to lose.
Summary: Buying and storing some bitcoin is a sensible bet on the possibility that the Bitcoin ecosystem continues to function successfully.
Note: If Bitcoin breaks, a successor will emerge. Knowledge of how to store bitcoin will be transferable to this new currency.
- It is divisible, fungible, portable, and scarce.
- It is durable, as long as the mining network continues to function in some form and with some regularity.
- It does not take up much space (private keys can be written in a notebook).
- It can be transferred to anywhere in the world in an hour.
- It does not permit chargebacks.
- Its scarcity makes it an attractive investment, compared to all other extant currencies.
The no-chargebacks property makes it a very useful currency for selling anything (e.g. subscription services) via the Internet. Please note that this means that buyers have no recourse in the event of fraud. Instead, buyers must now very carefully evaluate sellers' reputations. In response, sellers must very carefully build and protect cryptographically-secured reputations.
If Bitcoin breaks catastrophically, it will be worth nothing.
Examples of catastrophic damage:
- A major flaw is discovered in the ECDSA cryptosystem, permitting all Bitcoin addresses to be easily attacked.
Bitcoin may also suffer minor damage and yet continue to function well enough that it retains some utility and value.
Examples of minor damage:
- The blockchain database becomes so large that data lookups slow down substantially. Blocks are mined faster than they can be validated. Possible outcome: A fork emerges in which the blockchain is preserved but the block mining time is increased.
- A minor flaw is discovered in the ECDSA cryptosystem, permitting some classes of addresses to be attacked. The bitcoin in these addresses is less secure.
- A hash collision occurs, breaking the current indexing systems used for storing the blockchain. Examples: A new transaction has the same txid as a previous transaction, a block has the same block hash as a previous block. Possible outcome: The Bitcoin system stops working for 6 months while businesses fix their systems.
If it does not break catastrophically, and the ecosystem around it continues to grow, Bitcoin is likely to be extremely valuable in the future. Historically, human societies have tended to structure themselves around the hardest currency available, and Bitcoin is an extraordinarily hard currency.
Reasons why Bitcoin is a hard currency:
- There is a hard limit on the number of possible bitcoin. This hard limit means that bitcoin retains value very well over time.
- All the large players in the ecosystem are incentivised to protect and expand the ecosystem in order to safeguard their holdings within it.
-- For example, any attempt by a mining business to remove the hard limit will be ignored by the others. This miner will thus create a new forked chain, which on the open market will over time have a lower value-per-coin, as it is a weaker currency. Generally, mining centralises around the chain with the harder limit, as this chain provides the highest financial reward for mining activity. Note: Mining equipment counts as holdings within the Bitcoin ecosystem.
Please note that if you store your bitcoin with other people, you now hold human promises instead of mathematical / game-theoretic promises. There are some situations in which this is reasonable. The following page examines this issue in more detail:
hyperlink/pages/storing_bitcoin_with_other_peopleStoring bitcoin with other people
You can also store bitcoin yourself. Please see the following page for more information:
hyperlink/pages/how_to_store_bitcoinHow to store bitcoin