Ever thought about investing in cryptocurrency after listening to news like “Bitcoin is the future”, “Cryptocurrency is the next big thing!”? I’d ask you all to go through this article before trying your hands out in crypto. Y’all might want to know all the risks associated before giving it a thought to invest. So, let’s get started!
What is Cryptocurrency?
Cryptocurrency in simple words is digital cash. It’s a virtual currency which is secured by cryptography. This makes it nearly impossible to counterfeit or double-spend. It lets you buy goods and services, or trade for profit over virtual computer networks. It uses Blockchain technology which is decentralized in nature; hence it’s not governed by any central authority and enjoys the benefits of zero interference. The first cryptocurrency, Bitcoin was launched in 2009 and since then around thousands of currencies are trading on these platforms. Seeing the price hike in Bitcoin and other currencies like Ethereum, people are now getting attracted towards this digital and speculative market. But before diving into crypto, one should know the risks associated with it, so let’s begin!
RISKS OF CRYPTOCURRENCY:
- Decentralized: Neither government nor any authority regulates the cryptocurrency. It is an unregulated market. This makes it vulnerable for the people’s interest. Other investment options like Financial Markets are comparatively safe as these are regulated markets which are controlled and regulated by authorities which safeguards public interest. Decentralization can lead to frauds and can be an invitation to threats. Hence, decentralization becomes a major risk in crypto.
- Anonymous Identities: The transaction and accounts are anonymous and not connected to real world identities. We do not know who we are dealing with while performing trades, which leaves us with a tremendous exposure to the risk of credibility of the person. In case the person is fraud there is no way to track him/her down as there is absolute privacy and no regulation.
- Irreversible Transactions: The transactions are irreversible in nature. It takes only a couple of minutes to complete a transaction, quite instant. Once the transaction is performed it cannot be reversed unless the second party is willing to. The identities are anonymous and hence the irreversibility risk increases further.
- Peer-to-peer: Users can control their own digital wallet versus using a bank, which is a good advantage. However, in case of losing access to the wallet like forgetting passwords or lost of device can lead to major issues and challenges.
- Acceptance: Theoretically speaking, the most popular cryptocurrency – Bitcoin has a worldwide acceptance. But reality is different, many countries, companies and exchanges doubt the credibility of it and hence it’s not accepted globally yet.
- Uncertainty: Crypto market is one of the most volatile markets in the world. The price fluctuations are quite high. The swings are in 000’s of dollars sometimes. Moreover, there can’t be an accurate reasoning or speculation behind the fluctuations or volatility. Due to the unstable characteristic of crypto, its reliability is questioned which makes it unacceptable globally.
- Cyber Frauds: The secrecy and popularity aspects of crypto are drawing attention all over the world. This increasing popularity in an unregulated market is also inviting many cyber crimes and hackers. Though the cryptography is strongly encrypted, it’s still vulnerable against the hackers who are searching opportunities to fraud and scam.
Is Bitcoin really the future? Well… who knows? May be, may be not. Every coin has two sides and so does cryptocurrency. With its highly private computer network and other numerous benefits, it has its own risks. One should not follow the crowd blindly, instead do his/her own research and then decide what’s best suited for them. While many countries have banned cryptocurrency already, there is USA, who’s trying to regulate it. Personally, I feel that at this stage its highly unreliable and volatile which can make you filthy rich or a popper. If the currency becomes regulated and stable it may be accepted globally, but until then let’s be aware about the threats and decide wisely.
Thank you for reading!
I’m a Third Year BFM Student with interest in Financial Markets and Marketing. I occasionally like writing blogs on Financial Topics that interest me. I’m also very passionate about Cinema and love to watch movies with an analytical perspective.