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Thoughts on the Plummeting Bitcoin Exchange Rate

August 6, 2011 Leave a comment

The bitcoin exchange rate has been plummeting recently from an all-time high of $35 to just under $8 today. Even as I write this, the price of bitcoin is spiraling downwards.

What is the cause of this depressing trend?

Lots and lots of bad news in a very short period of time has led investors to lose confidence — plain and simple. No one wants to hold onto an asset that hackers are able to steal out from under you at a whim. What people need to understand is that bitcoin is not the problem — people are the problem.

Bank hacks were common in the ’80s and early ’90s, and hackers are finding ways to undermine the bitcoin banks of today. People are stealing millions of dollars worth of assets from these bitcoin banks. Banks and exchanges such as Mt. Gox, Bitomat, and most recently MyBitcoin have faced the same problems that banks and exchanges have always faced. Security should be the tantamount concern of any banker, and of anyone looking to put their money into a bank.

If you see that a bank is put together with shoestrings and duct-tape, would you trust it with your money? Of course not! But for some reason, people continue to flock to the zero-fee bitcoin banks that provide no contact info, no support mechanism, and no accountability insurance. Why are people trusting their bitcoins — their money — to people who are running shoestring and duct-tape operations?

Thieves will always try to find new ways to steal your money. Shoestring entrepreneurs will always try to entice you to trust them with your money by offering “zero-fees” and other incentives. And you — yes, YOU — are usually stupid enough to trust them. And for the record, I’m one of you too.

The upside of all of this bad news is that new exchanges and banks that are audited by trusted third parties are beginning to spring up. These exchanges and banks are NOT run on shoestrings, but you’ll pay a premium to use their services. Just like it should be. Quality products offered in a free market should cost more than shoddy knock-offs and prototypes. If you aren’t willing to pay for quality, fine. That’s your choice. But don’t blame bitcoin, God, the government, or anyone but yourself (and maybe the thieves) when your money gets stolen.

I’m switching to CampBX, a bitcoin exchange audited by McAfee (an online security leader). I suggest you do the same. And if you don’t take my advice, then I hope you’ll sell your bitcoins and run. I’ll be glad to buy them off of you while the exchange rates are low, because the price will only go up as shoestring banking goes the way of the Dodo.

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