Is It too Late To Hop On The Bitcoin Bandwagon?

Last week saw the launch of Coinye (previously known as Coinye West), a new cryptocurrency inspired by the hip hop mogul of *ahem* a similar name. Launching two weeks earlier than planned, the rushed release came as a result of a cease and desist from the lawyers of its namesake, despite the creators having previously offered Kanye 100,000 Coinye if he got in touch with them. It seems that he won’t be taking them up on their offer.

With somewhere in the region of fifty cryptocurrencies (including Sexcoin and the meme-inspired Dogecoin) making the rounds, Coinye isn’t exactly unique. It has, however, captured the biggest share of mainstream media attention since bitcoin in the developing interest in cryptocurrencies.

It’s also worth pointing out that, as a direct result of Coinye’s early release, Kanye’s lawsuit is all but moot – because the currency can now be mined and traded, Yeezy’s legal team would have to chase thousands of miners as well as the founders of Coinye. Given that a substantial number of virtual currency miners and traders are very keen on anonymity, that course of action represents a huge task in itself.

The issue of whether or not it’s ‘too late’ to get involved with cryptocurrencies like bitcoin is a bit like debating whether or not it’s too late to get involved with gold. Certainly, it’s unlikely that the value of bitcoin will ever rise as quickly as it did in 2012. However, when looking at the potential reward of investing in something like, it’s also worth looking at the risk.

Of course, there’s always a risk of a butterfly effect when it comes to financial markets, and experienced its own late in 2013.  When China’s largest bitcoin exchange announced that it would no longer accept new Yuan deposits, the result was a loss of around 50% of bitcoin’s value. However, it’s one point of view that ‘traditional’ occurrences like these don’t pose the biggest threat to cryptocurrencies. Instead, it's one of virtual currency’s’ advantages that also represents a very real threat. Namely, its egalitarian nature.

With a bit of technical knowledge and the appropriate hardware, just like anyone can buy gold (not that too many people actually do), anyone can mine bitcoins. So many people have done just that, and consequently forgotten about it, that there are a number of stories about people who have misplaced their investments in bitcoin, with hundreds of thousands, sometimes even millions, of dollars worth of virtual currency being lost.

There's a stark contrast between this kind of behaviour and, for example, people who buy gold or land - the latter is likely to be a studied investment, often as an exercise in wealth management. Many of those who mine or purchase cryptocurrencies, on the other hand, are doing it for very different reasons. These range from curiosity to demonstrating their technical prowess to their friends.

The fact that the currency is virtual also results in a slightly different feeling to investments in gold or similar. The reality of virtual wealth being intangible, and therefore easily misplaced (it’s a little more difficult to imagine someone misplacing a briefcase full of gold) demonstrates the extent to which some people still don't take it seriously – sometimes including those involved in its trade. This wouldn’t be as big of a problem if it wasn’t for the fact the actual value of bitcoin and other cryptocurrencies is so closely tied to its perception by the masses.

Therein, for many, lies the problem in jumping on the cryptocurrency bandwagon. When things like the closure of Silk Road –an event many saw as indicative of bitcoin's own future – panic the general public, it often results in huge numbers of bitcoin traders abandoning ship. While many gold traders have the acumen, not to mention the capital, to weather the storm, that’s not necessarily true of those who are looking to make a quick buck out of bitcoin. In fact, they’re very likely to be the same people as those ship jumpers mentioned above.

Is it too late to get involved with cryptocurrencies? No. While the high growth potential of virtual currencies has certainly calmed down, there continues to be an air of dissatisfaction surrounding financial institutions like banks, especially in regard to their ability to keep up with technological innovation, that makes virtual currencies appealing.

However, the deregulated nature of cryptocurrencies begs another question - is the instability associated with trading virtual currencies dangerous enough to put off prospective investors? For many, the answer to that question is still a yes.

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