Even the largest and most distributed cryptocurrencies -- like Bitcoin, (BTC +1.94%) worth almost $1.8 trillion -- are never risk-free. Still, it's usually easier to convince yourself not to buy something than it is to actually buy it. That means it's important to understand which risks loom larger, which aren't worth sweating about most of the time, and which aren't of material importance.
There's one risk that's proposed as being a major threat to Bitcoin that is almost certainly highly overblown. Let's analyze it to appreciate why it shouldn't persuade you to sell your coins or dissuade you from making an investment.
CRYPTO: BTC
Key Data Points
Too many things would need to go wrong for this to matter
Quantum computing is starting to be viewed as a major threat vector for Bitcoin in the near future. The argument goes: If it were possible to have quantum computing hardware that does not presently exist today, it might be possible to use it to effectively hack the Bitcoin network by breaking its cryptography, allowing transactions to be redirected at will or funds to be otherwise seized inappropriately.
If such an event were to happen at a small scale, it'd likely terrify at least some investors into selling their coins to park their capital in safer pastures. But if the breach were highly scalable or automated, perhaps with the help of artificial intelligence, the consequences could send the coin's value careening toward zero quite promptly.
That's a terrifying prospect, but as an investor, you probably shouldn't worry about it happening. There are several reasons for this.
One reason is that the threat is already known to the Bitcoin developer community. Upgrades to the chain, which would significantly mitigate the risk, are already under consideration. Quantum-safe cryptography has been a proven commercial technology since last summer, and several companies are ready to roll out data security tools with algorithms that are intentionally hard to crack with a quantum computer.
The closer the quantum-hack risk appears to become realized, the faster developers will pick up the pace of that process and form a consensus among the chain's many distributed validators. All have a massive financial incentive to make sure that things remain fully secure. Plus, Bitcoin won't be the only cryptocurrency exposed to the risk of quantum computing breaking its security, so there may be parallel efforts led by other chains, which could be used as model solutions to learn from.
Another reason is that the quantum computing hardware that in theory would be required for such a hack to work does not exist yet, and probably will not exist within the next five years. Some estimates suggest it might not even be available within the next 20 years. Given that such technology is known to have significant implications for cryptographic security around the world, it is also highly likely that it would be controlled or traceable in some way, which reduces the odds that bad actors would be able to use it and get away with committing crime.
A third reason is that if the network were only partially breached, which is far more likely than a total breach, the validators could opt to revert transactions associated with theft, or perform a hard fork of the chain to implement emergency measures. The larger the problem in terms of value stolen, the more likely that would be, as everyone's incentive is to make sure that investors believe that the chain is secure.
So don't dump your Bitcoin out of fear that your funds are going to be lifted by a hacker with a quantum computer. It's not a real threat in the foreseeable future, and Bitcoin should be hardened long before it's necessary.
There are many reasons that an investment can lose value
It's important to note that Bitcoin isn't a perfectly safe investment, regardless of its hardiness against future threats.
While it's an asset that most investors should probably own at least a little bit of, it does tend to be quite volatile relative to a traditional investment such as stocks. And while it has some properties of a safe haven investment, it's still very much exposed to macroeconomic, social, political, and other risks. There's no free money to find here, just an appealing asset where the balance of risk and reward tends to be fairly favorable, especially if you're patient.
Furthermore, the term that is the most beneficial to hold Bitcoin for -- the long term -- is the period in which novel threats like quantum computing are the most likely to emerge from a merely theoretical status. Therefore, it makes sense for investors to stay abreast of what's going on with its security over the years, just to be certain that upcoming risks are indeed being mitigated before they could cause severe financial damage.
Take care: There will likely be at least a little volatility with Bitcoin in the future as quantum computers become more advanced and perceptions about the risks stemming from them start to take a more defined shape. If the situation changes, be ready to reevaluate how comfortable you are with holding it. For now, it's worth buying and holding forever. The potential for uncertainty in the future isn't worth worrying about until there's something a lot more concrete than what there is now regarding the effect of quantum computing.
