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Is Bitcoin Safe? What Investors Need To Know

Nov 2, 2022

What is Bitcoin?

Bitcoin is the first cryptocurrency ever and the decentralized financial network of the same name. It was launched in early 2009 by an unidentified developer acting under the pseudonym Satoshi Nakamoto. Some believe it was a group of people.

Bitcoin was Nakamoto’s response to the economic challenges exposed by the financial crisis of 2008. As the government was saving banks and printing money, Nakamoto came up with a new digital asset that is scarcer than gold and has a strictly limited supply of 21 million units. More than that, this asset was entirely independent of any people in power. This asset is Bitcoin (BTC).

The invention has grown far beyond its creator’s community, making its way to the top assets, stocks, and industries by market cap. As of October 2022, the Bitcoin market cap exceeds $350 billion (if we can apply the term “market cap” to Bitcoin).

Bitcoin introduced the very idea of cryptocurrency and blockchain to the world. Technically the Bitcoin network is an immutable distributed ledger containing the info about all the BTC transactions. As transactions occur, the respective data is added to the ledger. The sender and receiver are not known. However, the hashes representing the wallets of the transaction participants are available for everyone to see.

Transactions are validated through a process called mining. It’s needed to protect the network from fake transactions and thieves. Mining consumes much energy, so the violation attempts become too costly to try. Miners are incentivized with the rewards (in Bitcoin) paid per every validated block of transactions.

Mining is associated with the Proof-of-Work consensus mechanism. Bitcoin uses this protocol to keep running safely. As other cryptocurrencies emerged, the developers adopted multiple other consensus mechanisms, notably proof-of-stake. In general, it is safe to say that the Bitcoin invention kickstarted the emergence of a new world of cryptocurrencies, the groundbreaking sphere in the fintech sector.

Bitcoin Safety

The safety of the Bitcoin network is maintained through decentralization. As long as fair nodes involved in mining exceed malicious ones, the network stays safe. In over 10 years of Bitcoin’s existence, its network never fell victim to 51% attacks. Malicious actions on the Bitcoin network require the cooperation of several biggest mining pools. There were successful 51% attacks on other networks, but Bitcoin’s reputation is flawless.

It’s hard to say if breaking the Bitcoin network can pay off the expenses of such an operation. It’s easier for hackers to steal BTC coins from weakly protected wallets or crypto exchanges rather than to try hacking the entire network. The overall Bitcoin network consumes as much energy as countries like Finland. Imagine running an operation that would consume half of this amount. That’s too costly. All in all, as of 2022, the Bitcoin network has proved its consistent security.

Why is Bitcoin a Safe Investment?

Bitcoin has a volatile price and is never a stable coin. It goes up and down. At times it plummets, losing half or even two-thirds of its price just in one year or even faster. Then why is Bitcoin still a safe investment?

The reason why Bitcoin is considered a safe investment is not hard to grasp. If you are ready for the long game holding your BTC for years, you will not likely regret investing in Bitcoin. Assuming that the past patterns of the BTC price will occur in the future, we can say that Bitcoin tends to have long cycles in which the price stays more or less stable for an extended time period, then it grows tremendously once in a couple of years. Then it drops down to a level that is higher than the level at the beginning of the cycle. It means that despite the downfall after the bullish period, the overall trend is ascending. Just look at the graph below. It clearly shows that with the large swells of extremely bullish periods followed by corrections, the general trend is upward.

As you can see, the “hills” of strong multi-month spikes and downfalls are really vast. They can distract public attention from the fact that apart from these periods of instability, when price gains hundreds of percent and then shrinks by 50 or even 66 percent, there is a constant pleasant walk up the hill.

The cycles in the BTC price movement are driven by the block reward halving that takes place once in four years. It means that periodically (roughly every four years), the reward received by miners loses 50% of its size. Satoshi Nakamoto developed the regular shrinking of the block reward to maintain the BTC value and scarcity of new Bitcoins hitting the market. Miners have to continue mining and spend resources for that. Halving decreases their reward, so they have to increase the prices to keep the profitability of mining. Usually, months before the next halving, the BTC price begins to climb up.

Let’s take a look at the figures. After 2012 halving, the price has grown. In the summer of 2013, the BTC price fluctuated around the $100 mark. In the fall, the price skyrocketed, exceeding $1,000 at the peak. In December, the price began to decrease. For several months, the price trajectory was bumpy. Finally, in January 2015, it reached the bottom, and the bottom was $210, twice as much as the average price BTC had in the summer of 2013. Until the fall of 2015, the average BTC price was around $230; then it began to grow. The next halving was about to come.

The price continued to grow in 2016 and 2017. There was a spike associated with the 2016 halving. However, the correction followed. Then, we saw tremendous growth at the end of 2017. At the peak, BTC reached roughly $20k. After the downfall, the BTC price landed at the $3,000 level. Much lower than $20,000 but still higher than the previous stable frame of $230 – $250 (2015). Then, there were two strong spikes in 2021. At the peak, Bitcoin exceeded $67,000 per coin. However, in the post-peak period, it was around $19,000, which is still much higher than $3,000 (the 2018 level).

As you can see, if we put short peak periods aside, the lower border is growing continuously. Most experts believe that this growth will continue in the future. In that sense, Bitcoin is a safe investment.

Protecting Your Coins

Losing Bitcoins due to insecure storage practices is more than possible. Several general recommendations help keep your coins safe.

First off, you shouldn’t keep your coins on exchanges. If you trade on exchanges, it is better to withdraw coins you won’t trade to your personal wallet immediately. Hackers target exchange accounts and exchanges’ wallets so that you can fall victim to such attacks.

The second thing to be aware of is staying away from phishing attacks and avoiding all sorts of social engineering scams. There are people over the web that will try to scam you out of your coins. Don’t share your private keys with anyone, always ensure you are visiting the authentic website or opening an email from the genuine sender, not an imposter. Credentials to exchange and wallet accounts are often collected through fake websites of legit platforms where you may store your coins.

And, finally, don’t lose access to your wallet. There are many sad stories when people fail to save their passwords, pins, or seed phrases and lose their coins inside their wallets forever. Thankfully, there is always a way to restore access to your Freewallet account. However, it’s better to remember your login data anyway.

Conclusion

Now, you can see that although Bitcoin is associated with certain risks, you don’t necessarily enter the wild and dangerous jungle once you purchase some crypto. There are several layers at which your crypto is protected, and several basic easy rules to keep your coins safe. That’s why we conclude that Bitcoin is safe.

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