The Bitcoin trap

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People are always attracted to, or run after, new investment opportunities. Sometimes they do this without due diligence. They run after every chance there is to make a profit in the simple hope that they will be able to double or triple their investment by making a quick buck in a new or uncharted venture.

This is human nature and that’s what people who offer these investment opportunities hope to play upon. Only educated persons or expert investors who calculate every step and evaluate the risk and study the market before making a new investment are the ones who usually succeed.

However, an inexperienced person, who is blindly running after wealth thinking that his money will double without any risk, will on many occasions part with his money rather than make more. His only calculation being making a profit without understanding the scheme, the market or the risk involved. Many fall into the trap of such questionable investment schemes, and one currently making the rounds is the Bitcoin scheme.

It is said that the simplicity of this new currency system is what makes it a possible currency of the future. People think it is better to invest early in order to make gains before buying Bitcoins becomes harder or more costly.

What is a Bitcoin? It is a cryptocurrency and worldwide payment system. It is the first decentralized digital currency, as the system works without a central bank or single administrator. The website dollarcollapse.com states: “It came in 2008 after a mysterious person or group using the apparent pseudonym Satoshi Nakamoto unveiled it. The Bitcoin system tracks each piece of currency from buyer to seller, eliminating the possibility of one person spending the same piece of currency multiple times before the counterparties catch on. The network is distributed, with no central clearinghouse or bank holding everyone’s money and imposing rules.

“Miners” create more Bitcoins by solving complex algorithms to add more Bitcoins to the system, with the difficulty of the number crunching increasing as the quantity of Bitcoins grows, thus keeping their supply rising at a steady, predetermined rate until it reaches its preordained limit of 21 million a century or so hence.”

I am not an expert in investment or in banking systems, nor am I someone who fully understands potential economic opportunities. But I am a citizen who looks at past experiences and can forecast, as a citizen, the danger on the horizon of a possible bad investment. Despite the awareness efforts of responsible authorities warning people against such bad investments, there are a good number of people who fall victim to them. The Bitcoin scheme could be another one of them.

The Saudi Arabian Monetary Agency (SAMA) recently issued a warning against this digital currency because of its high risks and because it is not being monitored by an authority.

There are international gangs that target people who are searching for quick wealth. They take advantage of people’s lack of awareness of their tricks and of investment in general and the good intentions of the general public to lure people into a trap, stealing their money and leaving them high and dry.

The sad memory of SAWA investment is still fresh in the minds of many people who were promised a huge financial return by investing in SAWA calling cards. Some scammers managed to collect hundreds of millions of riyals while others managed to collect over one billion through this investment scheme. At the end of the day, victims were left with nothing.

The same happened with the stock market when people bought shares without any knowledge or even a clue of how the market operates. The dream of becoming rich fast blinded the eyes and minds of many people, despite their lack of investment knowledge, information and risk assessment. At the end of the day, many people lost everything — savings and land wealth. I personally have met many who went through these investment experiences that left them poorer all because they were driven mainly by ignorance and greed.

More awareness is needed about Bitcoins because we do not know who is behind this scheme. I hope it is not an international gang that is hiding in deep cyberspace hunting for victims. Bitcoins raise more questions than they answer. As they are not monitored, then if an investor lost his Bitcoins, to whom would he complain? The Bitcoin currency bypasses the established banking/regulatory system, making it free of government oversight, as was described by the website.

In addition, the lack of understanding of how the digital currency works may contribute to further complications. People need to understand the method of transfer of the currency and how safe it is. Furthermore, in the process of the erosion of value, are there ways for investors to recoup their earnings as in the stock exchange?

Then there is the fact that being a digital currency, the investor first needs to be tech savvy and must also inquire fully about how foolproof the mining, transactions and the buying and selling of Bitcoins are, because today every technology has to play catch-up with hacking and hackers.

It is in this hazy scenario that I express my doubts about Bitcoins, which need to be analyzed by technology and economic experts who understand the way this scheme works before people venture into the unknown and get their fingers burned.

The writer can be reached at mahmad@saudigazette.com.sa

Twitter: @anajeddawi_eng


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