Why Saving Your Bitcoin is Not a Good Idea

UPDATE: Added a quote from the Bitcoin.org FAQ section for clarification.

Bitcoin has been a controversial topic ever since it first rose to prominence about five years ago. Created by an unknown entity referred to as “Satoshi Nakamoto,” nobody knows for certain how or why the cryptocurrency came to be – it’s also very misunderstood.

The concept of anonymity is what first attracted people from all over the world to adopt Bitcoin as a form of payment. Many users believed their transactions couldn’t be traced and resulted in Bitcoin becoming the go-to payment method for tech-savvy criminals.

Black markets, money laundering, Ponzi schemes, and other illegal activities have all been linked to Bitcoin. And criminal activity involving Bitcoin is not going away anytime soon.

Notable People Accused of Using Bitcoin to Commit Crime:

If Bitcoin is Used for Evil, Why is It Still Good?

Cyber-criminals love using Bitcoin because of its anonymity. But in reality, Bitcoin is the most transparent payment network ever created. All Bitcoin transactions are stored publicly and permanently on the network and anyone can see the balance and transactions of any Bitcoin address. But because the only information that can be identified are Bitcoin addresses and not names, all a criminal has to do is get a new address for every crime they commit. It’s also very easy to mask a computer’s IP address, thus making it nearly impossible to be traced.

But even though Bitcoin has facilitated cyber-crime to a certain extent, many well-established merchants (including Newegg and Newegg Canada) have embraced it for one simple reason: Customers demand it.

Reasons Customers Enjoy Using Bitcoin:

  • Mobile Payments are Easy

Bitcoin on mobiles allows you to pay with a simple two step scan-and-pay. No need to sign up, swipe your card, type a PIN, or sign anything. All you need to receive Bitcoin payments is to display the QR code in your Bitcoin wallet app and let your friend scan your mobile, or touch the two phones together (using NFC radio technology).

  • Security and Control Over Money

Bitcoin transactions are secured by military grade cryptography. Nobody can charge you money or make a payment on your behalf. So long as you take the required steps to protect your wallet, Bitcoin can give you control over your money and a strong level of protection against many types of fraud.

  • Works Everywhere, Anytime

Just like with email, you don’t need to ask your family to use the same software or the same service providers. Just let them stick to their own favorites. No problem there; they are all compatible as they use the same open technology. The Bitcoin network never sleeps, even on holidays.

  • Fast International Payments

Bitcoin can be transferred from Africa to Canada in 10 minutes. There is no bank to slow down the process, level fees, or freeze the transfer. You can pay your neighbors the same way as you can pay a member of your family in another country.

  • Zero or Low Fees

 Bitcoin allows you to send and receive payments at very low cost. Except for special cases like very small payments, there is no enforced fee. It is however recommended to pay a higher voluntary fee for faster confirmation of your transaction and to remunerate the people who operate the Bitcoin network.

  • Protects Your Identity

 With Bitcoin, there is no credit card number that some malicious actor can collect in order to impersonate you. In fact, it is even possible to send a payment without revealing your identity, almost just like with physical money. You should however take note that some effort can be required to protect your privacy.

With so many great reasons to use Bitcoin instead of cash or credit cards, merchants strongly believe that the good far outweighs the evil. Unfortunately, many people that own Bitcoin aren’t using it to complete transactions, but are instead hoarding the cryptocurrency as an investment.

This is a bad idea.

The Rise and Fall of Bitcoin: Spend it; Don’t Save it

bitcoin-value-september-4-2014

It’s no secret that the value of Bitcoin is extremely volatile and unpredictable. Similar to the stock market, Bitcoin prices can increase or decrease over a short period of time. Because of its young economy, novel nature, and liquid markets; saving your Bitcoin is not recommended.

According to Bitcoin.org’s FAQ:

…keeping your savings with Bitcoin is not recommended at this point. Bitcoin should be seen like a high risk asset, and you should never store money that you cannot afford to lose with Bitcoin. If you receive payments with Bitcoin, many service providers can convert them to your local currency.

Currently, one Bitcoin is the equivalent of $486.99. This may seem like a lot of money but one year ago Bitcoin was priced at an all-time high and worth nearly $1000. One year before that, the price of Bitcoin was hovering around $10. These drastic increases and decreases in value prove that Bitcoin should be seen as a high-risk asset and never as an investment.

If you own Bitcoin, it’s much better to spend it than to save it for two reasons:

  1. It could become worthless overnight.
  1. Its future depends on it.

According to a recent article by USA TODAY, “Bitcoin’s future depends on public acceptance.” The article further states that because Bitcoin owners are mostly techies, it needs to become widely accepted by the masses in order for it to survive. And the only way to do that is by spending it any chance you get.

Fresh from attending a recent Bitcoin conference, Laura Baverman of USA TODAY made the following observations:

  • The technology that powers Bitcoin paved the way for dozens of new digital currencies to be created around the world. In fact, a man named Christopher Franko in the small town of Washington, N.C., created the Frankocoin. Bitcoin levels the playing field.
  • What it really means to be deregulated is that cryptocurrency businesses are unincorporated and often called “projects”. In some cases, they don’t pay taxes. Employees are paid in Bitcoin and pay capital gains taxes when they cash out.
  • There is a thing called Bitcoin 2.0, and it actually makes sense. The technology that allows Bitcoin to be securely encrypted, tracked (in a universal public ledger) and transferred between people can also be used for the transfer of other documents. Think real estate documents, business contracts, even passport or citizenship documents if the government gets involved.
  • Some high-profile people are excited about Bitcoin. Venture capitalist Tim Draper made headlines in July for buying at auction Bitcoin seized in the Silk Road shutdown. He’ll make the coins available to people in developing nations with volatile currencies.
  • It’s important to know that Bitcoin’s value is too volatile to be worth much today. That’s why most retailers who accept it as payment immediately sell. This point is from Duke University finance professor Campbell Harvey, who hopes to offer a course in cryptofinance in 2015.

These observations demonstrate that there is indeed a future for Bitcoin, but we have a lot of work to do before it goes mainstream. Bitcoin (along with all cryptocurrency) is currently deregulated, risky and unpredictable. If owners choose to save it instead of spending it, the Bitcoin community is at risk of losing everything.

Newegg shoppers are among the first wave of Bitcoin users and we’re thrilled to accept the cryptocurrency as a form of payment. Just like you, we also believe Bitcoin can be the future of digital currency. But if you’ve been saving it and hoping it will make you rich one day, you’re better off spending it if you want it to succeed.

bitcoin-accepted

19 Responses to Why Saving Your Bitcoin is Not a Good Idea

  1. I B September 6, 2014 at 7:45 am #

    “Notable Criminals That Used Bitcoin to Commit Their Crimes:

    Ross William Ulbricht AKA “Dead Pirate Roberts””

    Problem: Here in the USA you are innocent until PROVEN guilty. Please correct this sloppy mistake.

    • Ivan B. September 6, 2014 at 11:02 am #

      Thanks for catching that mistake. *fixed

      • Aaron September 6, 2014 at 12:08 pm #

        It’s also “Dread Pirate Roberts” not Dead…

    • Barnabé Hafner September 7, 2014 at 6:30 am #

      I don’t think so : Oussama Ben Laden is considered guilty of the 9/11 events in the US while never having been proven so. They even killed him for that…

  2. Bitcoin Error Log (@Bitcoin_Assets) September 6, 2014 at 8:50 am #

    Absolutely rock solid article. Sell! Sell! Sell!

  3. Romney Styles September 6, 2014 at 9:16 am #

    Ignore the above, HODL

  4. Paul Pegg September 6, 2014 at 10:09 am #

    Actually if people weren’t saving bitcoins, they wouldn’t pay with Bitcoin and Neweggs wouldn’t accept them. Saving and spending are both essential, but it is true that people shouldn’t put all their money into Bitcoin.

  5. James Hess September 6, 2014 at 10:18 am #

    The proposition that saving some bitcoins is a bad idea is a controversial proposition.
    Anyone saving some coins should certainly understand and contemplate the volatility and the risks before doing so and continuing to do so, and for most investors: it would not be suitable to save more than a minimal amount in Bitcoin, less than 1% of their holdings.

    Many assets are similarly volatile, and the diversity of investments to choose from is important; savings should be held as a combination of assets, including stocks, commodities, and real-estate. Risk is most effectively mitigated through good diversification, even when some of the investments are volatile, and a key is to find a healthy mixture of savings vehicles that are uncorrelated.

    For those saving dollars or other fiat currency, we KNOW, that value is expected to be lost over time, due to devaluation of the currency resulting from inflation —- which is understood to be significantly understated by the official CPI numbers and is trending upwards.

    Also… Bitcoin MAY lose some or much of their value in a short period of time, but may also gain much value in a short period of time. The volatility is not that high compared to some other investments — there is some risk, but overestimating risk and underestimating expected value would be detrimental to objectively considering the on average expected return on certain investment choices.

    So Bitcoin might seem like a poor value store based on analysis of its price chart, but that’s mostly due to market uncertainy about its future. Dollars are DEFINITELY a poor store of value, however.

  6. Tom Mornini (@tmornini) September 6, 2014 at 10:39 am #

    Calling Ross William and, I believe (though I’m less sure of), Trenton Shavers notable criminals is a horrible thing to do.

    People become criminals when they’re convicted, not when they are accused of a crime! Innocent until proven guilty is a fundamental tenant of our legal system!

    You owe them an apology in my opinion. Until I see one, I will not spend my Bitcoin or any other currency at NewEgg.

    • Ivan B. September 6, 2014 at 11:06 am #

      That was a huge mistake on my part, Tom. Thanks for pointing it out. *fixed

  7. Steve September 6, 2014 at 10:42 am #

    Hi Ivan,

    You really should be a LOT more careful about who you refer to as a criminal. Ross Ulbricht is still an ALLEGED criminal. He hasn’t been convicted of anything, and AFAIK has a clean criminal record. Calling him a criminal at this point could make you guilty of libel.

    Also, if you want to promote bitcoin it’s best not to start off with listing the criminals and alleged criminals that have used it. Bitcoin is a tool. Everyone uses tools. Example: List of criminals who’ve used cars to commit crimes: (too many to list).

    Obviously you’re on the pro-bitcoin side, but I think you need to learn a little about the right way to promote something. Starting out in a defensive posture is almost never a good idea.

    • Ivan B. September 6, 2014 at 11:07 am #

      Thanks for the suggestions, Steve. The mistake has been corrected.

  8. Daniel Krawisz (@DanielKrawisz) September 6, 2014 at 2:00 pm #

    If people didn’t save bitcoins, then they would be useless and it would be impossible to make payments with them. It is only the fact that people save them that they have a price and a large market cap, and without that they would not be liquid enough to be used in trade. If everyone spent and no one bought, they would be worthless. If you want to promote bitcoins, you should hoard them and avoid spending.
    http://nakamotoinstitute.org/mempool/how-we-know-bitcoin-is-not-a-bubble/
    http://nakamotoinstitute.org/mempool/im-hoarding-bitcoins-and-no-you-cant-have-any/

  9. Mike Rotman (@mikerotman) September 6, 2014 at 3:42 pm #

    Great article. We do a Bitcoin game show each week (Take My Bitcoins) and give away 3 to 4 bitcoins per week to 20 or so contestants. Our entire crew is paid in Bitcoins. We tell all the winners to spend- to buy at places like NewEgg for example. Our crew- they seem to keep about 10% in bitcoin and the rest they cash out into their bank accounts for dollars.

    As a company I have been paying out everyone in Bitcoin including venders like web design companies.

    It’s interesting for sure- and a little nerve wracking when sponsors pay me at $505 a coin and by the time I pay my crew it’s $480 a coin

  10. Zach September 6, 2014 at 8:53 pm #

    Ivan- It is the Horder who is the true hero

    http://nakamotoinstitute.org/mempool/im-hoarding-bitcoins-and-no-you-cant-have-any/

  11. Dan September 6, 2014 at 9:19 pm #

    This post was disappointing. It’s both economically rational AND beneficial to bitcoin for people to hold it. In order for bitcoin to be able to handle substantial transaction volume at all, the sum of all of it needs to have significant purchasing power. That happens faster if people hold some of it. This creates a feedback loop; higher-market cap, more purchasing power, means more companies can accept it due to the liquidity, etc, etc.

    For example, I personally started emailing Newegg 3 years ago asking you to accept it. But you only recently started, likely because the markets are more developed and liquid, etc… Well, that’s in large part due to the market-cap in the billions. If it was still a $40M toy, you still wouldn’t be accepting it, despite the fact that the technology works identically in either case.

    By saying not to hold it, you’re essentially giving investment advice, which seems inappropriate for a retailer’s blog. Nevermind the fact that the advice is inconsistent with your correct stance that bitcoin has numerous transactional benefits… This is for the simple reason that if bitcoin gains transactional market-share, which it should given the superior tech that you note, then its market-cap *must* rise in order to be able to meet the increasing amount of economic activity taking place through it.

    I believe a combination of holding AND spending is optimal. Personally, I hold some, and I also use it as frequently as I can, typically re-buying whatever I use in a given month.

  12. foxxpup September 6, 2014 at 9:24 pm #

    Most used currency for arranged murders, drug deals, and prostitution: USD
    Perhaps we should ban the dollar since so many bad things are done with it.

What do you think?