The dangers of Bitcoin

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By Zeyad Shariff, staff writer

For the past few months, the word ‘bitcoin’ has been on everyone’s lips. Stories of people tripling their money by investing in the cryptocurrency have caused a great deal of excitement, leading Bitcoin to increase its value to above $17,000 at the current moment. Hedge funds and Townsend Harris High School students alike, are all talking about Bitcoin being the next big thing. A few skeptics, myself included, have reason to believe that Bitcoin is nothing more than a ‘bubble’, that will end in tears.

Before investing in bitcoin, one must first understand what it is. Bitcoin is a cryptocurrency, a form of payment just like the US Dollar. However, the difference between Bitcoin and most other currencies is that it is entirely online. This concept brings to mind a few obvious issues. Because the currency is entirely automated, rather than made up of paper, technical difficulties could pose a severe threat to it. Additionally, Bitcoin is not printed by a specific country, the way the US Dollar is printed by the US government. This means that there is no single government that is able to regulate it. Such liberty could lead to bitcoin being used in illegal transactions, such as drug trafficking and money laundering.  

Most important, however, is the fact that bitcoin is most likely a bubble, meaning that its value (how many US dollars equate to one  Bitcoin) is higher than it should be. So, if the bubble ‘bursts,’ the value of bitcoin could crash, taking people’s life savings with it. Among the people who take issue with Bitcoin is Jamie Dimon, the Chairman and Chief Executive Officer of JP Morgan Chase, one of the largest investment banks in the world. According to him, Bitcoin is nothing more than a “fraud” which “won’t end well.” To add on, Dimon said that he would fire any employee of his who attempted to buy Bitcoins.

Finally, Bitcoin is most dangerous because of its recent success. In the past year, Bitcoin has increased in value by more than $10,000, bringing with it the appeal of quick riches. All over the internet, advertisements promising millions of dollars of riches to those who invest in Bitcoin and other cryptocurrencies are rampant, drawing in thousands of new investors a day. Each one of these new buyers drives up the value of Bitcoin little by little, until it peaks. And after that, it crashes, because of its inherent flaws. With it, it takes billions of dollars in retirement and college savings, pension funds for first responders, and the life savings of ordinary Americans.

Unfortunately, the United States and the world have seen this movie too many times before. In 2007, a major financial crisis caused the value of people’s homes to drop drastically. Many people were out of jobs, and could not pay their mortgages. They were foreclosed upon, losing their homes. That crisis became known as the worst since the Great Depression. Many worry that we have lost sight of the destruction caused by that crisis, and that we are now on a similarly dark path with Bitcoin.