Is Bitcoin for You?

Given the many ways in which different groups of people use Bitcoin, we now come to the central question: Should you be using Bitcoin? And, if so, how and why?

Let’s take a look at how you personally think about a few different things and use your answers to determine your suitability to the world of Bitcoin.

Do You Engage in Criminal Activities?

Let’s start with the easy one. If you’re part of the criminal underground and need to launder a little dirty money, buy some illegal narcotics, or otherwise engage in questionable financial transactions, Bitcoin should definitely be your currency of choice. It’s virtually untraceable, which makes it almost as good as carrying around large bundles of cash. Have at it, gang.

Are You Concerned About Your Privacy?

We’re all concerned about our privacy but to differing degrees. The more privacy-focused you are, the more Bitcoin makes sense for your personal transactions.

If you’re the kind of person who has no trouble signing off on all those privacy policies pushed on you online, if you leave your Facebook privacy settings at their default values, and if you don’t mind providing your personal financial history to everyone who asks, then don’t bother with Bitcoin. You’re obviously not all that concerned about privacy and how it affects your personal information.

On the other hand, if you refuse to sign those privacy policies on principle, if you spend hours fine-tuning your Facebook privacy settings (if you use Facebook at all, that is), or if you refuse to use credit cards or even retailer loyalty programs because you don’t want your purchases tracked, then Bitcoin should have some appeal. It’s particularly appealing if you’re conducting any type of financial transaction that you don’t want to be recorded.

To privacy advocates, Bitcoin represents a near-perfect way to conduct various financial transactions without any personal information being tracked or stored.

Are You a Libertarian?

Do you have libertarian leanings? Do you think the government needs to be as hands-off as possible, particularly in economic matters? Are you concerned about the Fed flooding the market with inflation-inducing phony-baloney money? Do you think we need to return to the gold standard? Do you think that the entire notion of legal tender is unconstitutional?

If you answered yes to any of these questions, you should at least be a Bitcoin supporter, if not an active user. Bitcoin has enormous support in the libertarian world, and you don’t want to miss out on the fun.

Do You Play the Stock Market?

I’m not talking small-time investments here. You know if you’re a major player, getting in on IPOs and analyzing company financials and doing the whole futures and shorts-derivatives thing.

So, are you a big-league investor? Would you even classify yourself as a speculator? Are you looking for the biggest return on your investment?

If you play the stock market in this fashion, you might want to start playing with Bitcoin too. Bitcoin has become a legitimate investment instrument, capable of delivering hefty gains over a relatively short period. Of course, it can also register impressive losses, which leads us to the next question…

How Comfortable Are You with Risk?

Look up the word “volatility” in the dictionary and the definition says, “See Bitcoin.” The Bitcoin price chart looks like a ragged mountain range, with rapid gains followed by stomach-churning losses. There’s no guarantee of which way the Bitcoin market will go; it’s just as likely to gain 10% one day as it is to lose 20% the next.

If you can stomach this type of volatility, if you’re comfortable with assuming a relatively high level of risk, then investing in Bitcoin might be the right thing for you. If you’re a bit more risk-averse, don’t let yourself be seduced by the shiny promises of Bitcoin true believers; investing in Bitcoin is definitely not for the meek.

Oh, and while we’re talking about risk, remember that Bitcoin and Bitcoin exchanges are not insured or backed by any country or major financial situation. That means if your friendly neighborhood Bitcoin exchange gets hacked, is raided by the Feds, or otherwise goes out of business, you’re hosed.

Just holding Bitcoin can be (and has been) somewhat risky. Again, if you’re okay with that risk, fine. If, however, you like your investments to be more on the safe side, Bitcoin is not for you.

Do You Buy Things Online?

Some would say that Bitcoin is the ideal currency for online transactions. Maybe it will be someday. But right now I can’t advise casual consumers to use Bitcoin for their online purchases, despite a lot of good news in this regard.

There are two reasons for my recommendation not to use Bitcoin for consumer purchases:

First, there simply aren’t enough merchants today who accept payment in Bitcoin. Yes, there are 30,000-plus retailers and organizations that are Bitcoin-friendly, but I’m betting you haven’t heard of 99% of them.  You don’t find Amazon.com or Best Buy or Macy’s or Walmart or Target or any other merchant of similar size jumping on the Bitcoin bandwagon, at least not yet.

My point is that it’s more of a hassle today to use Bitcoin than it is to pay in dollars via your credit card, and given the small number of merchants who deal in Bitcoin, it’s simply not worth the hassle.

Second, Bitcoin pricing is too variable to make it a viable payment method, at least at this point. When you go to buy something at your local big-box retailer and you’re spending dollars, you know that that new flat-screen TV is going to cost you $300, whether you buy it today or tomorrow or next week.

If you’re paying in Bitcoin, however, that same TV might cost you .5 BTC today, .75 Bitcoin tomorrow, or .3 Bitcoin next week. Because the exchange rate keeps jumping around like a squirrel on amphetamines, you don’t know the real spending power of your Bitcoin from day to day. As a consumer, that makes paying with Bitcoin impractical.

So until Bitcoin pricing settles down (and settles down a lot), I can’t recommend using Bitcoin for its intended purpose as an online currency. If you want to buy stuff online, use dollars (or euros or yuan or whatever) instead.

Bottom Line: Here’s Why You Should (or Shouldn’t) Deal in Bitcoin

Here’s what it boils down to. Right now, Bitcoin is still in its infancy. Its real value has not been established, which makes it a hotbed of financial speculation. Bitcoin is not stable, it’s not entirely safe, and it’s certainly not easy to use.

Anyone dealing in Bitcoin today, for whatever reason, needs to be comfortable assuming a rather high degree of risk. There’s the risk that the price will drop, turning your investment into a loss.

There’s the risk that your Bitcoin exchange or wallet will get hacked, wiping out your entire holding. There’s the risk that your favorite retailers won’t take your Bitcoin in payment, or that you won’t be able to find buyers when you want to sell, leaving you holding a bunch of worthless digital currency.

The upside is that your Bitcoin might increase in value, perhaps substantially, providing a solid gain on your investment. It’s also possible that more and more retailers will start accepting Bitcoin for payment, making it legitimately useful as a currency.

But today no one can promise you these things. At this moment in time, Bitcoin is a risky proposition. That makes using Bitcoin a thing for speculators rather than ordinary citizens. If you can stomach the risk and want to bet on the value increasing, then, by all means, have a go. If, on the other hand, a risk is a four-letter word to you, stay on the sidelines. It’s as simple as that.

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