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Bitcoins: What are they? Should I invest?

Kristy Clark, ECU Reporter

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Dutchman Didi Taihuttu recently packed it all in and sold everything he owned for Bitcoins.

Currently waiting on a campsite with his family, he is claiming that he is waiting for the eventual boom in cryptocurrency. He is not the only one sold on their prosperity.

Many (probably not to the extent of Taihuttu) have jumped on the bandwagon.

American rapper Ghostface Killah has created his own cryptocurrency, named CREAM Currency, which is presumably a throwback to the hip hop group Wu-Tang Clan’s hit, Cash Rules Everything Around Me.

Closer to home, in 2013, a Perth hills house was put on sale for $1.4 million, however, the only currency accepted was Bitcoin.

So, what is a Bitcoin?

Bitcoin is a form of cryptocurrency. The need for cryptography rose from the Second World War when communication needed to become protected and private.

Bitcoins and other cryptocurrencies are a form of secure, digital money.

Bitcoin Australia claims that; “Bitcoin is a solution to a 30-year-old problem in the area of fault-tolerance within computer systems called the Byzantine Generals Problem.

“Succinctly, Bitcoin creates a trusted network to share information without the need for a centralized adjudicator (middle man).

“This allows for cheaper and faster transactions directly from one person to another.”

In short, the currencies are decentralised, transactions are from person to person, therefore there are no hidden fees, such as the fees charged by banks and other online services, such as PayPal.

This makes the investment appealing, however, the currencies act like regular currencies and get their relative worth depending on where the market currently stands.

Entrepreneur and digital content creator, Bret Treasure, is a Perth man with interest in the Bitcoin phenomenon.

Treasure is the chairman of the Australian Web Industry Association and a board member of Bitcoin Australia.

He told ECU Daily: “At the moment, Bitcoin is more volatile than an average stock market investment.

“This is partly because it is very new and doesn’t have the stability of being backed by any government.

“On the other hand, its independence, security and autonomy provides underlying value.”

When asked whether this is something that the government should be concerned about, he replied;

“I think governments should be looking at how they can govern in this environment rather than trying to protect the status quo.

“The way we bank, tax and govern is going to change, and there is a concurrent opportunity here to improve efficiency and equity.

“In the blockchain and smart contract space we’re going to see a burst of innovation and that generally frightens the horses.”

Treasure warned that; “With Bitcoin, you are responsible for getting it right. If you make a mistake, the money is gone. There is no middle-man agency to phone up and say, ‘I made an innocent mistake’.

“For example, if you lose your password, you’ve lost access to the money. The security aspect is critical. If you don’t get educated about it, you are asking for trouble.”

Treasure explained that practically all the cryptocurrency transactions were online. Wondering whether this was accessible for an average, everyday person, I asked someone who had done it all themselves before.

Warrun Lewis is a computer and technology enthusiast. He first invested in cryptocurrency in 2013 when the price first hit three figures. He told ECU Daily;

“If blockchain tech is going to be the next dot com boom, many people believe decentralised tokens (cryptocurrencies) have to potential to replace traditional markets and even fiat (legal tender) currency.

“Taking the control of finance away from banks and governments and back into the hands of the individual is an actual goal for many people behind bitcoin and crypto in general.”

When I asked if he thought this was an investment for the everyday person or worth the trouble, he said:

“It’s not straightforward or easy and is fraught with potential problems. Keeping any cryptocurrency within an exchange account poses the risk of all your investment being lost if the exchange gets hacked or steals your money.

“Getting your investment back into fiat currency requires a verified account (which involves scanning in your passport) and usually fees are horrendous.”

And for those thinking of investing, Lewis said:

“Crypto is extremely volatile and many factors such as poor security by leading exchanges and government policy changes can drastically influence market confidence and cause huge price crashes.

“The main advice given to anyone investing in crypto, or gambling money in anything, is to never invest more than you can afford to lose.”

 

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Quality journalism by ECU students
Bitcoins: What are they? Should I invest?