Besides, the amazing features of cryptocurrency, there are several risks associated with it. Cryptocurrencies are basically a decentralized currency that is totally uncontrollable by the government and lawmakers. Therefore, investors may face several risks while making any transactions through the cryptocurrency.
13 December, 2019 | AtoZ Markets – If you want to invest in cryptocurrency, any mistake will eat all of your entire life’s saving on the technology. Cryptocurrencies are very volatile; they’re new and still not adapted by today’s market. Therefore, it may take a few years or decades to get established, but it is still too early to judge on this matter. Investing all of your savings can slaughter you and gradually reduce your investments. Moreover, you can lose all of your money if you do not research properly and do not know the whole process clearly.
Moreover, it took investors many years to gain from their crypto investment as it is not a “get rich quick scheme”.
7 Risks of Using Cryptocurrency
Cryptocurrency is a very risky and sensitive instrument that requires a lot of attention and study. Any careless decision may lose all of your investment in a second. In this article, you will see the top 7 cryptocurrency risks that most of the investor should know before making any investment in the crypto market.
#1 Volatility of the Price
Using cryptocurrency to purchase goods or services carries with it a certain amount of risk due to the volatility. Therefore, it is hard to believe the cryptocurrency as a trustable payment option.
If you’re using the cryptocurrency to purchase something expensive, what if the price drops before your purchase takes place? You may have to fork more cryptocurrencies than your expectations. On the other hand, if values rally and rise until the deal closes, the buyer will lose a huge amount of money within the time.
Let’s have a look at Bitcoin’s price movement for the last 3 years
Bitcoin’s price had gone from zero to nearly $20,000 in December 2017. Moreover, the price fell down below $4000 at the beginning of 2019.
Within a year, the Bitcoins price lost more than $14000!!!
Therefore, the volatility in price is one of the major cryptocurrency risks. Moreover, this volatility happens with other major cryptocurrencies as well, including the Ethereum, Litecoin & Ripple.
Imagine that you have a bitcoin in your pocket that has a value of $7000. Then after waking up the next day, you saw your Bitcoins value of $7000 had become $6500. Therefore, you have lost $500 while you sleep. That is pretty strange things that don’t happen with traditional fiat currencies.
#2 Lack of Acceptance
The lack of acceptance is another cryptocurrency risks you face while using it. There are several reasons behind this.
Some businesses fear cryptocurrency as its value changes dramatically. This makes them unwilling to accept it as a payment option. If you try to take payment for your business with cryptocurrency, you could end up out of luck with the values.
Additionally, cryptocurrency is not legalized in most of the countries in the world. The major impact on this is that people fear it, mistrust it, and not do accept it.
However, in some countries, the Government is neutral about cryptocurrencies, but in some countries, it is strictly prohibited to use. Therefore, people think of using the cryptocurrency is like doing a crime.
The biggest reason behind the decision is that it is directly related to the economy. The foreign currency reserve is an asset for the central bank for most of the countries. If people use cryptocurrency, the government will lose control over the foreign currency. Therefore, any misuse of money will not be controllable.
#3 Cryptocurrencies are Uncontrollable
The uncontrollable nature of cryptocurrencies is another cryptocurrency risk.
The intangible and unseen nature of cryptocurrencies is one of the biggest issues plaguing the market in terms of care, custody, and control. The traditional currencies are controlled by the several standards that keep it stable. Therefore, during the financial crisis or war, investors get the highest level of protection against their investment.
However, cryptocurrencies are also secure in any uncertain situation. Many wealthiest crypto investors are using cold storage devices in physical vaults of bunkers to protect their valuable assets. As it is costly to process, all investors are not able to get this type of security.
#4 Human Error
It’s unfortunate that, as humans, we make many mistakes. We miscalculate numbers, record them wrong, or make other errors that are sometimes caught – and sometimes not.
Like, you have transferred the wrong amount of money or to the wrong person while transferring from your bank account to another. In that case, there is an option to contact the person to insist on him to repay the amount. If you sent the money to a gentleman, you would receive it back.
On cryptocurrency, what if you have sent your cryptocurrency to a wrong wallet address? You could lose thousands of dollars within a second, as the process is not reversible. Moreover, losing the private key has no option to recover. Therefore, the money is lost with the loss of the private keys. So, protecting your cryptocurrency is very important.
#5 Risk of Theft
Even with encryption to secure cryptocurrency transactions, there have been several hacks resulting in substantial losses. This is another cryptocurrency risk.
Hackers can hack Passwords to take your valuable money. Additionally, hardware can be taken or corrupted. Therefore, this could result in losses to your cryptocurrency during any transaction.
Moreover, there are a number of ways thieves can access your digital currency wallets. As a result, they may steal your cryptocurrency even if you are using high security.
Clearly, as the cryptocurrency is still new, it has many kinks to work through. However, it is possible to minimize the risks of using cryptocurrency with proper precautions.
#6 Cryptocurrency is not a Safe Haven Asset
As we know, Bitcoin is the first and most trustable cryptocurrency. There are many people who believe that Bitcoin is a digital form of Gold. People can use digital gold as a safe haven asset.
But is it true?
Cryptocurrencies have a lot of lacking in terms of clarity of regulation as well as financial, tax and legal treatment. This is unfortunate that cryptocurrencies are slow-moving and lagging for regulatory catch-up. Most regulating bodies in the world did not show any valuable form of opinion about cryptocurrencies yet.
In the global financial system, coordination and coherence on a particular financial instrument need a long time to improve the overall market stability.
#7 Technological Risks
There are many reports of the complexity and energy consumption of bitcoin mining. This complexity may impose potential risks to the asset class that complex systems always fail in complicated ways. It is true that the decentralized feature of blockchain technology gives an inherent disaster. Therefore, it is not enjoyed by the centralized databases. Yet not all cryptocurrencies or tokens are getting established. So, investors should beware of the cryptocurrency risks and false promises of decentralization.
So, to keep yourself safe, there are several ways to secure your information about cryptocurrencies.
- Do not invest a sufficient amount of money without understanding the whole concept.
- Always choose the wallets that suit you most.
- If your country is very strict about the cryptocurrency, think twice before making any investment.
- Keep your information safe from hackers.
- However, there are some uncertainties in every investment. Therefore, you should agree on the risks behind it.
Financial institutions are beginning to evolve private ways to ensure the protection of cryptocurrencies. Moreover, cash in transit providers is building their experience in cash management to provide a secure way to store and transport cryptocurrencies.
Cryptocurrency is still in the Wild West phase. It is growing rapidly, and a financial system is developing systems to make it a reasonable option against fiat currencies.
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