The Bitcoin bungler - a salutary tale

 
Bitcoin app

Here's a cautionary tale for anyone thinking of climbing aboard the Bitcoin bandwagon. You could lose your entire investment in a moment of carelessness. Then again, you would have to be as daft and forgetful as me.

Here's how it happened. Back in the spring I acquired some Bitcoins - well about half a Bitcoin - to carry out an experiment on behalf of Radio 4's PM programme. I wanted to see how easy it was to use the virtual currency to buy something real - in this case a pizza.

My mission succeeded, although I found it quite a tricky and cumbersome process. I first needed to set up a Bitcoin wallet on a mobile phone, then acquire some currency, paying for it on an exchange using a mobile money app. But having succeeded in getting my lunch delivered, I decided to top up my Bitcoin balance again, so that I still had 0.5 Btc in my mobile wallet.

A few months later I went to a conference about the currency, where I tried out the world's first Bitcoin ATM, putting in £10 and topping up my account to 0.7Btc. So now I had about £43 at that day's exchange rate. At the conference I winced sympathetically when an early adopter explained how he'd lost 7,000 Bitcoins (then $200,000) because he hadn't backed up his private key to his computer.

For months, I thought little about the small investment sitting in an app on my phone. Then I looked at the Bitcoin exchange rate - now pushing towards $900 in the latest extraordinary bubble - and realised it had turned into a rather big investment.

But then I remembered what I'd done with the phone containing the currency. Wanting to make sure it was somewhere I could get easier access, I'd transferred almost my entire Bitcoin holding to a new wallet on another phone that I was testing back in the summer.

Then, a few weeks ago, I offered this phone - supplied by the manufacturer - as a prize in a charity fundraising effort. And before handing it over to the winner I had of course restored it to factory settings, wiping all of my personal data and apps, including my Bitcoin Wallet.

So my Bitcoin holding - now worth upwards of £400 - had vanished into thin air. The record of the transaction sending 0.7 Btc to the wiped phone was still on the original handset, and when I tapped on the app up came a message: "If you lose your device you lose your Bitcoins. This means you need to back up your private keys!"

Of course, I had not done that. so my money had disappeared into the void - and as Bitcoin is by its nature an unregulated currency with no central bank or ombudsmen, there was nobody to whom I could appeal for advice or recompense.

A salutary tale then - but for me a worthwhile lesson in understanding the mechanics of a virtual currency. And I've two sources of comfort - first of all, the man at that conference who lost 7,000 Bitcoins is now down about $6m (£3.7m) by today's exchange rate. And secondly, there is every possibility that we will see that exchange rate plunge again in the coming weeks - so our respective Bitcoin bungles may not matter so much in the long run.

 
Rory Cellan-Jones, Technology correspondent Article written by Rory Cellan-Jones Rory Cellan-Jones Technology correspondent

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  • rate this
    +1

    Comment number 140.

    @ Andrew Swansea

    Thanks for taking the time to continue posting on this issue. I was very resistant concerning Bitcoin, but now realise that a good investment is simply one where the value is likely to be more at the point of withdrawal than the point of entry; the ‘value’ or ‘longevity’ is irrelevant… I need to give this further thought, but you have helped!
    :-)

  • rate this
    +1

    Comment number 139.

    Max Keiser has on so many occasions made the BBC financial experts look totally incompetent when discussing the current fiscal problems we are suffering. And as far as Bitcoin goes simply forget what the beeb has to say on the subject - refund my licence fee!!!

  • Comment number 138.

    This comment has been referred for further consideration. Explain.

  • rate this
    0

    Comment number 137.

    Not only have the world's richest been the biggest beneficiaries of monetary and fiscal policies since 2009, with the current global billionaires representing a 60% increase since 2009 according to UBS, but their consolidated worth has more than doubled from $3 trillion in 2009 to $6.5 trillion now. At same time, net worth of the "bottom 90%" of the world's not so lucky population, has declined.

  • rate this
    +1

    Comment number 136.

    @134

    You keep your tin of beans in your cupboard. Stock up when Lidl have an offer on.

    All the best!

  • rate this
    0

    Comment number 135.

    Claret&M

    #83 I believe it could be v good store of value due to the technology. Right now its value is unstable, but historical falls have been a LOT less significant than its gains. Could fail, but more likely it will succeed. I've cashed out most of my risk, leaving what I can afford to lose.

    #86 Not if it has real value and more people recognise it.

    #90 fees. You are just wrong on this.

  • rate this
    -1

    Comment number 134.

    131. Andrew Swansea

    Something else I forgot to mention. In a world with a serious shortage of food (hope that never happens), a real tin of baked beans is worth a damn sight more than 100 virtual tins. That's why something you can touch is better.

  • rate this
    0

    Comment number 133.

    131. Andrew Swansea
    '...Why are people obsessed with things they can touch?! You cant touch email or computer files yet you use every day for email/spreadsheets etc. Mp3 same. ebooks same. Photos same..'

    True, but if my e-mails and computer files disappeared, it may cause me some inconvenience, but would have little or no effect on my wealth.

  • rate this
    +2

    Comment number 132.

    @112 : "If it's not in your personal posession - you don't own it."

    This applies far more to standard currency than it does to Bitcoin.. banks control the movement of your balance. Only the holder of the private key (ie - you) can control the movement of your Bitcoins, as Rory discovered - if you lose your keys, no-one can give you those coins back, they are lost from circulation.

  • rate this
    +1

    Comment number 131.

    @Andrew. 126.
    "Personally, I wouldn't touch bit coin with a barge pole. Rather stick to things that are solid and you can touch"

    Why are people obsessed with things they can touch?! You cant touch email or computer files yet you use every day for email/spreadsheets etc. Mp3 same. ebooks same. Photos same.

    Money? Oh no I like to touch those notes!

  • rate this
    0

    Comment number 130.

    After boning up on the protocol, I realised that the artificially imposed limit on the rate at which new bitcoins are created is in fact a limit on the rate at which transactions, anywhere in the world, may be made. ("Mining" is misleading, it's really just a commission paid to clearing entities.)

    Even more than the future limit on total bitcoins created, this prevents its widespread adoption.

  • rate this
    -2

    Comment number 129.

    Cashed in all but 5 of my Bitcoins, acquired with pennies in 2010. So I can only tell you what I can see with my own vantage point
    This is a ponzi scheme pure and simple. It depends on the gullible panic buying high to finance the gains at the top (BTW thanks very much for that).
    Bought equivalent in Silver instead .........boom

  • rate this
    +1

    Comment number 128.

    @125 Billybase
    (PS I have cashed in my BTC,bought with pennies)

    Respect to you for being an early adopter. However it's a shame you lost the faith and cashed out totally. Would have been very wise to keep some profit in there.

    Who knows your foresight may have been correct. However internet is full of stories about people regretting selling/losing passwords....watch this space.

  • rate this
    +2

    Comment number 127.

    Here we go with the BBC warning everyone about how dangerous bitcoin is.

    When a website gets hacked, BBC presents it as a flaw in the protocol.

    When incompetitent people lose their wallet, it's a flaw in bitcoin.

    When bitcoin rises 10000% in value then drops 5% it's a catestrophic crash and is unstable.

    When less than 0.5% of BTC is used to buy drugs, it's a criminal currency.

    What next?

  • rate this
    -2

    Comment number 126.

    Personally, I wouldn't touch bit coin with a barge pole. Rather stick to things that are solid and you can touch: Shares are a share in business; Physical Gold and Silver are tangible goods that have been used as a store of value for thousands of years. Silver is the best, as it has far more industrial uses than gold; Bonds pay a decent rate of interest. These are the ones I'll stick to.

  • rate this
    0

    Comment number 125.

    Bitcoin has morphed into a ponzi scheme (with some useful features) Rule of thumb, if it's in the media it is too late to join.
    If Max Keiser is involved, it is a pump and dump.
    Watch the latest Peter Schiff/Stefan molyneaux debate on youtube (bitcoin vs gold 25/11/13)
    Schiff injects some sound realism into the hysterical Bitcoin fanboy brouhaha
    (PS I have cashed in my BTC,bought with pennies)

  • rate this
    0

    Comment number 124.

    @martoon196 yet you could go to the bank and prove your ID and still get to your funds. Loosing / forgetting your BitCoin credentials is more akin to burning cash you can never get it back.

  • rate this
    +1

    Comment number 123.

    Just keep cynical folks, you convince yourselves about scam, ponzi etc instead of just putting even a tiny amount in to try and at least understand it.

    Just because 98% in the UK have no clue doesn't mean millions in China and the US are just as cynical.

    @irate. I'm well aware of Zerohedge. Ironically he actually holds some and if you look through his articles you'll see explanation re China.

  • rate this
    +2

    Comment number 122.

    @121. Harry Hindsight
    A. sounds like the national lottery
    B. sounds like the stock market
    C. sounds like the housing market
    D. all of the above

    :) answers on a postcard addressed to BBC London something or other street + a postcode (lottery)

  • rate this
    -3

    Comment number 121.

    Sounds like a lottery that punishes stupidity.

 

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