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Cryptocurrencies: Bitcoin or Bitcon?

Bitcoins are the new rage in the electronic cryptocurrency markets as a substitute for legal tender. They are a digital cryptocurrency and have been around since 2009. Since then, they have also spawned some competitors grouped into a segment called Altcoins. Altcoins include: Dogecoin, Ethereum Feathercoin, Litecoin, Novacoin, Peercoin, and Zetacoin. Some of these cryptocurrencies are considered improvements on the original Bitcoin concept and algorithm structure, and they are gaining traction.

For now, Bitcoin seems to be the segment leader. Recently, it has skyrocketed in value to over $17,000 apiece. The question is, what type of bubble are they currently in? And, of course, when will it burst?

Are all these “Altcoins” a better solution for traditional financial transactions or do they bring in new financial and security problems to deal with and solve? You better understand the whole concept of cryptocurrencies and the idea of replacing third-party (entrusted transactions) before you jump into them.

Three major benefits are touted on one Cryptocurrency website as: Protection of Privacy, Reduction of the cost for Transfer, and Reduction of the cost of Participation.

Some central banks are questioning the legitimacy of the Bitcoin craze. The reason? They could have a lot to lose being edged out of the middleman position. Some speculators are looking to see what the Chicago Mercantile Exchange (CME) comes out with as a platform for Bitcoins (or the other Altcoins).

Many speculators are looking at the Bitcoin craze as a fast way to make money. Reality is, it’s more likely you probably missed the window for a “big killing,” but are just in time to get wiped out with your last-minute investment to join up.

When we look at cryptocurrencies, what are some of the issues with Bitcoin and the other Altcoins?

It cannot be overseen or regulated by any one administrator, like a government or bank. Currently, there is no government regulation which also means there is no government safeguards over them. Regular central banks are watching it and deciding whether or not to make them illegal (criminalize them) and therefore make them worthless.

Although many are looking at Bitcoin as an investment, it would be wise to proceed with caution. It is overbought and is close to a bubble. You may think you are getting into it on the big surge up, but it could make a huge correction just after you buy.

Most people do not know what ICOs (Initial Coin Offerings) are nor how to utilize them. Where is the “Stamp of Approval” or “Stamp of Legitimacy” on some of these Bitcoin websites (how do you know you are not dealing with a scammer?)

Can Bitcoin be hacked?

Of course Bitcoin can be hacked through its supporting infrastructure. There has already been a report of a $70,000,000 rip-off of Bitcoins at the NiceHash digital wallet. As I’ve stated previously: “While hacks draw attention to vulnerabilities within the cryptocurrency ecosystem, they are yet to have a serious, long-term impact on the price for digital currencies. This is primarily because hackers have mostly targeted online wallets and cryptocurrency exchanges instead of a cryptocurrency’s blockchain. As such, the hacks are not indicative of lapses or weakened security, which is a key selling proposition for cryptocurrencies. That said, the role of exchanges and wallets will become more important as bitcoins (and other cryptocurrencies) gain mainstream acceptance.”

Sometimes, cyberattacks on ANY target have taken months to be detected. How can we defend against cyberattacks when they are focused on digital wallets holding Bitcoin, if we cannot detect some intrusions for months?

There is also some lost Bitcoins (7,500) in a Wales garbage dump from a couple of years ago that are now worth well over $100,000,000. Is it worth exploring the garbage dump they are supposedly in? I think many would scour that garbage dump for that lost hard-drive.

Framework for due diligence on Bitcoin

How do you analyze Bitcoin or any of the Altcoins for your investment portfolio? A different type of due diligence framework is needed to evaluate the whole transaction process.

Some financial experts and analysts, including Warren Buffett and Ben Stein, are leery of the overall cryptocurrency market. Is it because it doesn’t fit into their traditional due diligence framework when reviewing investments? Or, is it something that they realize needs a whole new set of analytic tools that are currently not available to them (or to anyone else for that matter)?

“Stay away from it. It’s a mirage basically,” Buffett said on CNBC in 2014.

Ben Stein in a recent interview on FOX Business was also less than enthusiastic on Bitcoin as well, “If you don’t know what something is, I would be very, very cautious putting my money into it…I think it is the bubble of bubbles.” The interview can be seen here.

Stay tuned as we look more into cryptocurrencies and their ability to be a catalyst for Nanocrimes. Is Bitcoin for real or is it an elaborate Bitcon? Time will tell.