Bitcoin: Opportunities and potential risks

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(VOVWORLD) - Bitcoin fever has shown no sign of decreasing, with total capitalization reaching a record high of 300 billion USD on Monday. 8 years after its debut, Bitcoin faces opportunities and risks. 

Bitcoin is a digital currency invented in 2009. The cryptocurrency can be used for transactions via devices connected to the internet without the mediation of any financial organization. The value of Bitcoin depends on the trust of the people who use it as a payment method. The more people who use bitcoin, the more the cryptocurrency is worth. Because it allows transactions in anonymity and without fees, Bitcoin is accepted by more and more people as a payment method.

Fed Governor Jerome Powell recently raised a caution about central banks issuing digital currencies as they are vulnerable to cyber attacks and criminal activities in addition to privacy issues that still need to be addressed.

According to Vice President of the European Central Bank (ECB) Vitor Constancio, Bitcoin is not a currency but merely an instrument of speculation. He compared the digital currency to tulip bulbs during the 17th century trading bubble in the Netherlands. Another ECB official, Benoit Coerure, said the rapid fluctuations in Bitcoin values and its relation to tax evasion and other crimes are huge risks.

French regulators have also warned about the risks associated with Bitcoin and other virtual currencies. They say Bitcoin, and all other virtual currencies, do not provide any protection for investors, adding that Bitcoin also poses the risk of hacking attacks.

China recently banned so-called “initial coin offerings,” the practice of creating and selling digital currencies or tokens to investors in order to finance start-up projects. Although they have not officially acknowledged Bitcoin, Chinese authorities say transactions with Bitcoin improve payment efficiency and are easier to manage than other currencies.

The Reserve Bank of India is uncomfortable with "non-fiat" cryptocurrencies like Bitcoin, said its executive director Sudarshan Sen. The “fiat” cryptocurrency is a digital currency which will be issued by the Reserve Bank of India (RBI) in place of physical currency, he said, adding that the central bank is now studying this idea. The RBI has repeatedly cautioned against using cryptocurrencies, calling it a channel for money laundering and financial support for terrorism.

Bitcoin and other virtual currencies are shocking the world this year with profit margins surpassing all kinds of stocks, bonds, and foreign currencies. Though offering tempting profits, this virtual currency also poses risks and many countries still haven’t officially acknowledged it.