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Do you know what Bitcoin is yet?

Bitcoin is a type of online digital currency (or cryptocurrency) based on the creation and transfer of an open source protocol that is independent of central banks or any other type of governance. Bitcoin's website describes it as "open source P2P digital currency." Put simply, it's an independent digital currency, catching popularity because it's the first of its kind; and conversely carrying what this author believes to be insane risk for the very same reasons.

Since I last wrote about Bitcoin, it's been accepted at more and more retailers and major companies like Overstock (NASDAQ:OSTK), Zynga (NASDAQ:ZNGA), PayPal (NASDAQ:EBAY), and Tesla (NASDAQ:TSLA) - garnering lots of good press along the way and shooting the currency's value against the dollar through the roof.

In October 2013 I penned the article "Bitcoin Remains Not Viable and Borderline Illegal". In this article, I named security as one of the biggest issues surrounding the currency. Without the backing of any central government and being digitally based makes the currency extremely open to attack/modification.

If someone can program it to bring it to existence, someone can likely reverse engineer it - that's just probability.

Well, this week we're starting to see just exactly how vulnerable the currency is - it's being hit with denial of service attacks - the weapon of choice from most rogue hacking groups. CNBC reported:

Bitcoin is being hit by attacks from unknown computer hackers who are sending "mutated" lines of code into the program that runs the virtual currency, a spokeswoman from its main trade organization said in a statement on Tuesday.

The attacks are responsible for problems experienced by two bitcoin exchanges that caused them to temporarily halt withdrawals by customers who stored bitcoins in digital wallets provided by the exchanges, the Bitcoin Foundation said in a statement.

"This is a denial-of-service attack," said the spokeswoman, Jinyoung Lee Englund. "Whoever is doing this is not stealing coins, but is succeeding in preventing some transactions from confirming. It's important to note that DoS attacks do not affect people's bitcoin wallets or funds."

You also have to continue to note that the currency remains the preferred method of payment for a lot of criminals online. With anonymity and aversion from the laws that govern the world's currencies, Bitcoin has become a commonly used currency for criminals online. We have seen some recent news with regards to this, as well:

U.S. government agents have arrested Charlie Shrem, the CEO of Bitcoin exchange BitInstant, charging him with laundering money for customers of online drug bazaar Silk Road.

The U.S. attorney in the Southern District of New York said Shrem helped someone he hadn't met in person, Robert Faiella, sell more than $1 million worth of bitcoins to Silk Road customers. Faiella, a 52-year-old Florida man, allegedly ran an underground Bitcoin exchange using the alias BTCKing.

If this continues, it becomes very easy for the government to step in, label Bitcoin itself a Ponzi scheme or money laundering operation, and shut it down. Russia has already done so.

If you start to do some current research on Bitcoin, the headlines do anything but instill confidence in someone that could potentially be a buyer:

(click to enlarge)

In the midst of these headlines, the currency is taking a major hit.

(click to enlarge - source ariva.de)

There is no doubt in my mind that Bitcoin has essentially just foreshadowed its own death. There is absolutely no way I would risk investing any money or resources into this "currency" - traders and speculators who do are likely to be looking at a total loss when the government steps in. I believe they won't try to regulate Bitcoin, they will shut it down. Traders of the coin have already taken a 40%+ haircut simply on the headlines - there's not going to be a lot more time to get out at these prices.

If you're looking to reallocate funds that you have moved from Bitcoin, why not put them in the original currency - gold (NYSEARCA:GLD)? Or, if you're looking for something with a little more exposure, silver (NYSEARCA:SLV). The metals are both experiencing insane returns over the last 20-year period and are both arguably in the middle of a tremendous long-term bull run. There are tons of arguments out there against gold and silver, as you may have noticed over the past couple of years, but in the long term, as long as we are not heading back to the gold standard, both metals will rise in value correlating with inflation. And risk? The central banks hold it in reserve, so the risk is virtually zero.

The shadow cast on the currency with the latest headlines pushes it past a point of no return - Bitcoin has just signed its own death certificate.

Source: Bitcoin Just Died