Is Bitcoin Safe?
Bitcoins are a semi-anonymous, decentralized, unbacked digital currency.
How does Bitcoin compare to the Dollar or Euro?
Bitcoin offers some benefits over government "fiat" monies:
- transactions without fees or taxes
- no central bank causing inflation by creating new units
- fast global transactions
- semi-anonymous transactions
Semi-anonymous?
All Bitcoin transactions are public information. Anyone can know the amount, the time, and the wallet numbers of the two participants. They may not necessarily know who the human owners of the digital wallets are.
Unbacked?
Historically, paper money was backed by precious metals such as silver and gold. In modern times, governments have removed this backing, allowing them to inflate their currencies without acquiring more metals.
Backed currencies tend to be more stable-- less funny business-- however a non-governmental currency backed by precious metals is a threat to government fiat money, and is thus not safe from government violence. See the Liberty Dollar.
Are transactions in bitcoin safe?
Bitcoin transactions happen virtually instantaneously, and the transaction is then verified by the peer-to-peer network of Bitcoin users. The more positive confirmations you receive from the network, the more likely the transaction is valid and final. This can take a few minutes.
Bitcoin transactions cannot be undone, except by a second voluntary transaction of the same amount in the opposite direction. (This is unlike credit cards, where the merchant can lose the received money to a "chargeback" even after they have shipped the product.)
As a buyer using Bitcoin, keep in mind that there is likely nobody to petition for help should a seller not ship you a product (as governments and their courts will likely be quite unfriendly to Bitcoin, see below). For this reason, buyers would be wise to deal only with reputable sellers, or use escrow services.
Will Bitcoins hold their value?
A Bitcoin's value is entirely determined by the market: whatever other people are willing to give you in exchange for it.
The value could go up or down over time. To date, the value has trended up.
Meanwhile, the value of the government currencies that Bitcoin is often compared to have been going down rapidly, thus increasing the perceived value (the "value of Bitcoins in Dollars").
What could cause the Bitcoin market to crash?
A flaw in the Bitcoin technology could be found. The technology behind Bitcoin is not a secret; to the contrary it is widely published information. That Bitcoins currently have value to people represents their vote of confidence in the technology.
Governments could threaten or use violence against users of Bitcoin. Many think that this is likely to happen, because Bitcoin allows people to make transactions while avoiding a government's control and taxation. The threats and/or news of prosecutions may or may not work to stop the flourishing of Bitcoin.
An alternative to Bitcoin could become popular, perhaps using different technology and offering different features.
Can I lose my bitcoins?
Yes. Your bitcoins digital wallet can be lost. Just like with real wallets, if you lose your digital wallet, you lose your money. Like your other digital documents, you can make backups of your digital Bitcoin wallet.
Can someone steal my bitcoins?
Yes. If someone gets a copy of your digital wallet, they can spend your Bitcoins. For this reason, some people encrypt their wallet, thus requiring a password to open it, making it more difficult for the thief.
Are online Bitcoin wallet services safe?
There are services that will keep a Bitcoin wallet on your behalf, and allow you to send and receive Bitcoins from them. These services are not inherently safe, but are perhaps "safe enough" to hold a small amount of Bitcoins on your behalf. Do research before placing your trust.