First off I'd just like to say that I love everything about Bitcoin, from what little technical aspects I understand to the outright challenge to traditional currency. However, the ease at which some people invest in bitcoins is a little disturbing. The reason I’m posted this is because I know a couple people who actually bought thousands of dollars worth of hardware just to mine bitcoins. Neither has a lot of money and both are investing a significant portion of their savings. If bitcoins were to tank, they’d be in some trouble.

Now I understand why people are doing this. It’s the same reason they’re investing in gold. With all this media coverage on inflation, people are scared they’ll lose even more of their money. But we should think about what exactly we’re investing in. While gold has been valued highly for thousands of years, Bitcoin is only two years old and has only been valuable for a few months. I’m not suggesting that gold is the ultimate currency, as some do (in fact I believe it is in a bubble), but if gold and Bitcoin were to crash, the gold investors would lose much less than the Bitcoin investors.

Because Bitcoin is so new, it’s hard to say if it will be successful, but there are a few obvious barriers. First, it cannot be compromised. If there is a way to counterfeit bitcoins, they would be worthless. I understand that the countermeasures are very good, but we’ll find out if Bitcoin is truly uncrackable. Second, enough people must accept bitcoins as they would dollars. They must be able to use bitcoins comfortably for the exchange of goods and services. Bitcoin can’t simply be an investment vehicle because then it would only be an intermediary to the dollar, and that would defeat its purpose to be free of government intervention. Finally, if Bitcoin actually does become a popular currency, major players in finance and government may try to kill it. Again, we’ll see if Bitcoin can survive. While I hope that Bitcoin is successful, be careful when you invest. At this point it’s highly speculative.

TL;DR: Don’t invest in Bitcoin unless the loss of your investment would not significantly change your quality of life.