7 Risks of Investing Into Crypto

Source: forextoolstrader.com

Any person, institution, or a country needs a currency to meet its basic needs and promote mutual transactions to run smoothly. Therefore, each country has its different currency.

But cryptocurrency is a different form of currency that can be used for borderless transactions. It is a digital currency. You can neither see it nor touch it because cryptocurrency is not printed in physical form. Hence it is also called virtual currency. This currency has become quite prevalent in the last few years. You can get to know more about it at advfn.com.

A cryptocurrency is a currency built on a computer algorithm. It is an independent currency that has no owner. This currency is not under the control of anyone’s authority. Like rupee, dollar, euro, or other currencies, this currency is not operated by any state, country, institution, or government. It is a digital currency for which cryptography is used. Usually, it can be used to buy goods or buy a service.

In this cryptography technology is used for security. Due to its safety features, it is difficult to form a fake version of a cryptocurrency and hence unlike the normal currencies, you cannot make duplicates of bitcoins. Any central or government authority does not issue it. Hence, theoretically, it is free from government interference.

In 2009, a group or individual created the first cryptocurrency under the pseudonym, Satoshi Nakamoto, as ‘Bitcoin.’ Initially, it was not so popular, but slowly its rates started skyrocketing, making it successful. If seen, there are about 1000 types of cryptocurrency in the market from 2009 to the present time, which act as a peer to peer electronic system.

What is Fiat and Non-Fiat Cryptocurrency?

Source: MIT Technology Review

From time to time, governments, along with the Reserve Bank of India, continue to issue advisories regarding “non-fiat” cryptocurrency.

A ‘non-fiat’ cryptocurrency such as bitcoin is a private cryptocurrency. Whereas ‘fiat cryptocurrency’ is a digital currency issued by the country’s central bank.

All sorts of apprehensions are being expressed about “non-fiat” cryptocurrency, and this technological upgrade could prove disastrous.

It is worth mentioning that not all crypto-currencies are bitcoins, while all bitcoins are crypto-currency. Bitcoin, Ethereum, and ripple are some of the popular cryptocurrencies.

Cryptocurrencies are the most sought-after methods of investment in today’s world. People prefer it over other investment methods because of the high returns that they guarantee. But everything that gives high returns comes with high risks too. So, does investing in cryptocurrencies. Investing in it is quite risky.

7 Risks Involved In Investing In Cryptocurrency

Source: pexels

1. Unsecured Currency

The most significant disadvantage of cryptocurrency is that it has no physical presence because it cannot be printed, which means that neither the currency notes can be printed nor any bank account or passbook can be issued.

Also, Bitcoins increase or decrease at a moment’s notice. So, many genuine investors defer from investing in it owing to its volatile nature.

As the entire cryptocurrency system is handled via an online platform, its security is weak, and there is a risk of getting hacked. The biggest problem of cryptocurrency is that it is online, so the cryptocurrency is considered an unsecured currency.

2. Deflationary

Nobody governs cryptocurrencies. There is no country, government, or institution to control it, due to which there is a massive jump in its price and sometimes a considerable fall, due to which investing in cryptocurrency is a risky deal.

Also, if a speculator gets his hands into bitcoins, a recession will start in virtual currency. It even operates outside the ‘main financial system’ and the ‘banking system’. This is why serious questions about its source and safety continue to arise. This digital currency has been referred to as fraud, hawala money, and currency to support terrorist activities.

Source: pexels

3. Money laundering

Initially, money launderers and those who dabbled in the black market used bitcoins. It can be easily used for wrongdoings such as arms procurement, drug supply, black marketing, etc. as it is used between two people only. So, it can also be quite dangerous.

4. Hacking

There is a risk of the bitcoin wallet getting hacked. It is worth noting that the blockchain is not as easy to hack as complete security arrangements. Despite this, hacking cannot be ruled out as there is no owner of this currency. Also, if you made a transaction accidentally, you cannot trace it back and retrieve your lost money. This will result in a big loss.

Source: The Economic Times

5. Chances of loss

If the wallet is lost, all the bitcoins in it are lost alongside it. In case a credit card is stolen, the user may contact customer care and block the card. However, if the bitcoin wallet is lost, there is no chance of recovering the lost bitcoins.

A significant problem related to crypto-currency is also its control and management. Many countries like India have not yet approved it as currency, so its management is a big problem. Economic experts also believe that investing in it without knowing its technicalities can have enormous consequences.

6. Environmental concerns

It is worth noting that each bitcoin transaction consumes about 237 kW of electricity, and it emits about 92 kg of carbon per hour. Hence, it is not environment friendly and might not be a convenient form of making transactions in the future.

Source: pexels

7. Illegal in Certain Countries

The question that comes to many people is whether it is legally right to use cryptocurrency or not! This decision depends on which country you are staying in and using it, as cryptocurrency is still not legally recognized in some countries. Not only this, but some countries have also placed it in the ‘gray zone’.

This is to say that there is neither a formal ban nor recognition of its use. Using cryptocurrencies in such countries can surely incur you a great loss. It is quite risky and since their government do not recognize it as a method of making transactions, you might find yourself suffering from a great loss while using it in such countries.

Consider the risks involved in investing in cryptocurrencies and then make an informed choice.