Bitcoin's volatility is its main disadvantage. Since the price
tomorrow may be significantly different from that of today,
bitcoin can hardly be used to measure prices. Instead bitcoin is
often used as as a medium of exchange. Prices are typically
quoted in local currencies, and services like BitPay facilitates
payment instructions and currency conversions. This adds cost
to using bitcoin.
Bitcoin is an extremely risky store of wealth. This attracts the
gambling breed of speculators who bid up the price to bubble
levels, for then to sell out when the price crashes. Volatility
increases because of these gamblers, but as bitcoin matures it is
likely to attract more long-term savers. These will in turn reduce
the volatility. Another solution may come from promising
“Bitcoin 2.0” protocols such as Counterparty. They enable
financial derivatives to be built on top of bitcoin. This should
make it possible to keep your bitcoin holdings steady in terms of
dollars, gold, silver, or whatever you prefer.
Bitcoin is an experimental technology which may fail. The
network itself has survived so far, and for each day that passes
by we can be more and more confident that it will live on.
However, also the individual user risks theft, and the Mt Gox
incident is a proof of how risky it is to own bitcoin. 750,000
coins got lost from the online exchange, and although the
individual user should never have trusted all their coins to some
web page, reality is that most of us are unfamiliar with how to
deal with these totally new kinds of risks.
