Some People Never Learn
Launched in 2009, Bitcoin was the first cryptocurrency to go mainstream, but many others have come onto the scene. There are now more than 6,000 different types of cryptocurrencies – including variants of Bitcoin – and more are being developed every day.
Using blockchain technology, Bitcoin and other cryptocurrencies were touted for their security using multi-factor authentication and supposedly solved the “double-spending” problem associated with early digital currency systems.
Double-spending is a potential flaw in a digital cash system in which the same digital token can be spent more than once. You can imagine the nefarious possibilities. Johnny buys an Xbox using Bitcoins on Amazon and immediately turns around and buys a Playstation on eBay using the same digital tokens. Blockchain technology was incorporated to prevent this problem.
The cryptocurrency was supposed to be hard to steal and was supposedly unhackable. Hackers like nothing more than a challenge, and it wasn’t long before they figured out how to steal it.
Like stocks, cryptocurrencies are bought and sold on exchanges with owners typically storing their tokens in “digital wallets” with these same exchanges. Just like with a bank where you can’t withdraw cash from your account without a couple of forms of ID, transferring your cryptocurrency within or from the exchange requires at least two factors of authentication.
But two-factor authentication won’t save you if the bank gets robbed. Do you think the robbers are going to provide two forms of ID to take your money?
And that’s where cryptocurrency is vulnerable. Although it’s hard to steal individual tokens, hackers figured it would be much easier to rob the bank – in other words, the exchange – and that’s exactly what they did.
Just since 2017, more than $2 billion has been stolen from crypto exchanges with much more stolen through scams and other schemes.
Here’s a list of the five biggest exchange heists in history. This includes the name of the exchange, when the heist occurred, and how much was stolen:
- Coincheck (Jan 2018) – $532 Million USD
- MT Gox (Feb 2014) – $470 million USD
- BitGrail (Feb 2018) – $170 million USD
- Bitfinex (Aug 2016) – $72 million USD
- NiceHash (Dec 2017) – $64 million USD
An exchange heist is one way you can lose your Bitcoins. Here are some common other common ways:
- Fake Bitcoin Exchanges
- Ponzi Schemes
- Fake Crypto-Currencies
- Old School Phone Scams
Crypto heists and scams highlight the central problems of cryptocurrency – anonymity, no central regulatory body, and no underlying value.
There’s no central regulatory body like the FDIC to guarantee your tokens up to $100,000 if they’re stolen from the exchange. And because anonymity is one of the primary features of cryptocurrency, you’ll never find out who took your tokens. Additionally, if you’re scammed or defrauded out of your money, there’s no customer service number you can call to have your credit card company or bank to reverse the charge. In other words, you can kiss your tokens goodbye.
Despite crypto’s obvious hazards, this hasn’t stopped investors from speculating on existing currencies and pouring money into new currencies launched through ICOs (Initial Coin Offerings) – hoping to cash in on the next big thing.
Everyone’s looking to hit a home run or bank a lottery.
It’s all an exercise in collective madness, and some people will never learn. As an investment, Bitcoin has been known for its extreme volatility – even giving rise to a robust short-sell market.
With no underlying value like the dollar that’s backed by the full faith and credit of the U.S. treasury, Bitcoin price is purely determined by speculation – peaking and dipping with the news cycle. One minute it’s up because some corporate head touted its benefits, the next minute it’s down from another heist.
For no particular reason, Bitcoin frenzy reached fever pitch in November, 2017 when its price nearly topped $20,000 and just as quickly as it shot up, it soon came crashing down to pre-2017 prices. Since then, it’s been a roller coaster, with the price currently hovering around $7,000.
Investors interested in building real wealth don’t speculate.
Instead, they look for three things investments like Bitcoin, and most stocks can’t offer:
- Cash flow
- Long-term appreciation
- An underlying hard asset
Real estate pricing is based on sound principles of supply and demand and not pure speculation. That’s why institutions and the ultra-wealthy love real estate.
Real estate investing also lends itself to investment in a variety of manners – whether directly or indirectly, by relying on the expertise of others. And for those falling in the latter category, partnering with a proven real estate investment company like Humabuilt allows investors who do not have the time, expertise, or experience to do it themselves to reap the benefits of real estate investing without the heartache.
No other asset class can build wealth consistently like real estate by offering unmatched cash flow and appreciation, tax benefits, risk-adjusted returns, leverage, and diversification.
On top of that, hackers will never be able to steal it, and you’ll never have to worry about being scammed out of it.
Michael Foley, president and CEO of Humabilt Capital, oversees the entitlement process, funding, and operations for Humabuilt Capital. Mr. Foley has been a full-time real estate investor since 1995 during which time he has developed hundreds of single-family homes, townhomes, condominiums, and apartments. Mr. Foley started his investment ventures in Long Beach, California, and has expanded to Apex and Durham North Carolina. Mr. Foley is a graduate of the University of California at San Diego.