I recently wrote a story about how the value of Bitcoin (CCC:BTC) will never change, only its price will. Today I want to focus on another misconception about the cryptocurrency, specifically that it is is less safe to have your money in Bitcoin than in a savings account in a major bank.
There is an idea out there that Bitcoin is impervious to hacking and a completely fail-proof store of wealth. It is not. If you want to get rich quick, Bitcoin is as good of a casino as any to YOLO your money. If you want a safe place to put your cash, there is no place safer than an FDIC-insured high-yield savings account.
Stolen And Lost Bitcoin
The Bitcoin blockchain is extremely secure. In other words, every transaction that is conducted is verified and recorded, Bitcoin users can trust that part of the equation.
But Bitcoin must be properly stored in digital wallets. Those digital wallets are definitely not secure. A recent Atlas VPN study found hackers stole about $3.8 billion in cryptocurrency in 2020. Attacks on crypto wallets made up the vast majority of those thefts at $3.03 billion.
Bitcoin bulls are quick to point out that the number of cryptocurrency cyberattacks dropped in 2020 for the first time in five years. However, given the recent price action in Bitcoin and other cryptos, a wave of new non tech-savvy buyers will open the floodgates for a spike in cryptocurrency theft in 2021. Just watch.
In The Words Of George Carlin…
Bitcoin bulls likely roll their eyes at the wallet cyberattacks and all the cryptocurrency scams and thefts out there. Yes, if you know what you’re doing, you can protect yourself. And yes, most of these people that had their Bitcoin hacked or stolen made some mistake with the technology.
But I often think of one of my favorite quotes from comedian George Carlin:
“Think of how stupid the average person is, and realize half of them are stupider than that.”
And you don’t even have to be a dumb person to do dumb things. In one publicized case, a programmer has two password guesses left to get into his cryptocurrency wallet that contains Bitcoin recently valued at $220 million. If he gets those guesses wrong, his wallet encrypts its contents forever. The man forgot his password, and it may be a $220 million mistake.
Another gentleman reportedly has the Bitcoin equivalent of about $240 million stored on a laptop hard drive that is now buried in a massive landfill. These people weren’t even hacked. They just made stupid mistakes, and their Bitcoin fortunes are gone.
Banking Is Easier And Safer Than Bitcoin
Opening and maintaining a bank account, on the other hand, is incredibly easy and safe. You don’t have to know anything about technology to open a savings account. And if you aren’t one of the small percentage of tech-savvy people who fully understand bitcoin, you don’t have to worry that one misstep will cost you your fortune.
If you lose your bank account password, no worries. You can verify your identity and reset it. If your account is hacked and your money is stolen, no worries. You can only be held liable for between $50 and $500 in charges if you notify your bank within 60 days.
If you are defrauded, no worries. Your bank will reimburse your money. If your bank collapses but is FDIC insured, no worries. The government will make sure your money is protected.
Yes, the U.S. dollar held in a savings account is subject to inflationary devaluation. But savings accounts pay interest to help offset the impacts of inflation. For example, Goldman Sachs’ Marcus savings accounts currently pay 0.5% interest. It’s not much, but the Federal Reserve is only forecasting 1.8% inflation in 2021. Sure, inflation rates may rise in the coming years, but interest rates will rise right along with them. You might not be able to completely offset your inflation losses, but you can mitigate them. And remember, you are paying for total peace of mind knowing your money is completely protected and idiot-proofed.
Bottom Line on Bitcoin
If you are extremely tech savvy and never make dumb mistakes, your Bitcoin is likely relatively safe in your digital wallet. That is, assuming your wallet itself has no vulnerabilities. And your savings are completely safe in Bitcoin. Again, that assumes its price doesn’t collapse. Bitcoin regularly gains or loses 10%, 20% or more in a week, so who knows.
Bitcoin is a great many things, but “safe” isn’t one of them. If you enjoy gambling in cryptocurrencies, good luck to you. Lots of people have made a ton of money doing just that. But for people looking for a safe place to store their hard-earned money, Bitcoin is the last place they should turn.
On the date of publication, Wayne Duggan did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Wayne Duggan has been a U.S. News & World Report Investing contributor since 2016 and is a staff writer at Benzinga, where he has written more than 7,000 articles. He is the author of the book “Beating Wall Street With Common Sense,” which focuses on investing psychology and practical strategies to outperform the stock market.