When it comes to money, safety is paramount. Before getting into bitcoin, it's best to understand how it works, how it's secured, and potential risks that you could face.

Bitcoin is a peer-to-peer electronic cash system, enabling people to store value and make transactions, without relying on a central authority. Both technically and operationally, the Bitcoin network has been shown to be measurably robust against attacks and failures, and it currently secures a vast amount of value for people worldwide. It’s open-source and verifiably secure, relying on multiple key factors to safeguard value and ensure reliable operations:

1. Global decentralization: Bitcoin operates on a decentralized network of nodes scattered across the globe. Anyone can run a node. This means no single entity can control, stop, corrupt, or change Bitcoin's operations or functionality unilaterally.
2. Resources and energy: Mining is the process through which bitcoin transactions are confirmed and secured on its blockchain. Mining requires significant computational resources and energy, making it verifiably expensive to attempt to undo, block, or manipulate transactions. This high-cost acts as a deterrent to manipulation meaning that once a transaction is recorded on the bitcoin blockchain, users can have high confidence that no-one can subsequently change it.
3. Incentives: Both miners and node-operators are financially incentivized to uphold and defend Bitcoin and its established ruleset. Miners earn rewards for confirming transactions and adding them to the blockchain, while nodes verify transactions that follow the rules that they want implemented. All participants are incentivized and equipped to easily detect and reject any transaction that violates Bitcoin’s established rules.
4. Cryptography: Bitcoin uses industry-standard cryptography to secure transactions and limit the creation of new bitcoin. The algorithms employed in Bitcoin are well-tested and have no known vulnerabilities, making it all but impossible to make false transactions.

The combination of these factors results in a global system that is measurably secure against failures and attacks. However, as with all financial assets, the manner in which you trade, hold, and use bitcoin can present certain associated risks, and its price can fluctuate and be volatile.

Risks associated with Bitcoin

While the Bitcoin network is measurably robust for holding and transacting value, there are risks that should be considered. These risks can vary depending on your country or how you use bitcoin, and can affect your ability to trade and transact. Below are some of the risks associated with Bitcoin.

Platform risks

People use Bitcoin platforms, such as Strike, to buy, sell, and transact. When using a platform to buy and hold bitcoin, the platform acts as a custodial service provider, holding the bitcoin on your behalf. Just like using any custodial service provider, this requires a certain degree of trust. Platforms vary widely in terms of operations, safety practices, and applicable regulations, which means they can come with different associated risks.

• Operational issues: Platforms might face operational problems, such as outages or system failures, that can affect your ability to access your funds.
• Crypto scams: Not all crypto assets are the same, with many being insecure, unregulated securities, or outright scams. Crypto assets differ from traditional assets, in terms of how they operate, their risk profiles, and how they’re regulated. Platforms offering such crypto assets could face legal or operational troubles.
• Illiquidity: Platforms could experience times when they can’t fulfill transaction requests promptly or at the current market price due to lack of available assets to trade.
• Cyber attacks: Platforms can be targets for hackers, and successful attacks can lead to the loss of funds.
• Business insolvency: If a platform goes bankrupt, its customers would be subject to the bankruptcy or insolvency laws applicable to the platform, and its customers’ bitcoin and/or fiat money (dollars, euros, pounds, etc…) might be at risk of loss or delayed retrieval.

Ways to mitigate: Choose well-trusted, Bitcoin-only platforms with top-tier security practices. Ensure you understand the platform’s business model and asset handling practices, considering its operational history, licenses, and other regulatory registrations. Withdraw your bitcoin to your own custody when you’re ready, including using hardware wallets or other secure methods as a way to mitigate custodial risks.

Government risks

Government authorities can impose or change regulations relating to bitcoin, which can create risks involving your ability to trade and transact.

• Shutdowns: Governments could require platforms operating within their jurisdiction to shut down their operations.
• Bans: Countries that don’t support financial freedom might ban bitcoin trading or transactions altogether.
• Asset freezing or forfeiture: Authorities could require that financial institutions, including banks and bitcoin platforms, freeze or forfeit user funds.
• Taxes and fees: Governments could impose added taxes or fees on bitcoin transactions, rendering certain transactions uneconomical.

Ways to mitigate: Stay informed about local regulations. Vote for politicians and policies that promote financial freedom. Withdraw your bitcoin to your own custody when you’re ready.

Hacker and scammer risks

Risks from hackers and scammers are everywhere. The fact that bitcoin transactions are irreversible adds an extra dimension of needed caution.

• Phishing scams: Scammers could use fake websites or emails to steal your account details and gain access to your accounts to steal your bitcoin.
• Social Engineering: Bad actors could manipulate you into revealing sensitive information, such as your private keys or passwords.
• Crypto scams: Scammers could promise high returns or other benefits in exchange for you sending them bitcoin, which they have no intention of delivering.
• Impersonation or romance scams: Scammers could pretend to be trusted individuals or romantic interests to get you to send them money, after which they disappear.

Ways to mitigate: Be aware of common scams and how to protect against them. Use strong, unique passwords and enable extra account protections on your devices. Be suspicious of unsolicited emails and links to websites. Don’t buy crypto assets that you don’t fully understand or that aren’t provably decentralized and secure. Never send bitcoin (or any financial asset) unless you know the recipient. Remember: if you feel pressured, see an offer that seems too good to be true, or notice something odd, take the time to check.

Human-error risks

Human mistakes can lead to losses when dealing with bitcoin, as bitcoin transactions are irreversible.

• Wrong address: Accidentally sending bitcoin to the wrong address can lead to loss.
• Lost private keys: If you withdraw bitcoin off the platform to your own custody, losing your private keys means losing access to your bitcoin permanently.
• Carelessness: Being careless with passwords or private keys can lead to security breaches and stolen funds.

Ways to mitigate: Double-check addresses before sending bitcoin. When self-custodying bitcoin, store your private keys securely, preferably using metal backups, and never upload, email, or photograph your private keys or seed phrases. Never share your username, password, or other access credentials to any platform, and never let someone else access your accounts.

Market risks

Bitcoin’s price can be volatile. This volatility can be particularly problematic if you need to sell bitcoin at a specific time to cover immediate expenses when the price is down.

• Volatility: It’s impossible to predict when or how much bitcoin’s price will go up or down.
• Forced Selling: Personal circumstances could change, requiring you to cash-out to cover expenses at a time when the market might not be favorable.
• Fee markets: Transaction fees on the Bitcoin blockchain can vary based on network demand. If fees rise, it might become uneconomical to make small on-chain bitcoin transactions.

Ways to mitigate: Only buy what you can afford to lose and consider diversifying your portfolio to avoid forced-selling during bad market conditions. Use Bitcoin-only platforms that provide Lightning transactions, on-chain fee customization, or free on-chain withdrawals, such as Strike. Understand the Bitcoin halving cycle and its effects on bitcoin supply, demand, and price dynamics.