- Using and keeping Crypto assets can be tricky and risky for beginners.
- Crypto assets are quite complicated for business which may cause risky investments.
Why is cryptocurrency called risky investments?
Cryptocurrencies are known for being risky investments because many people have lost money from frauds, hacking, software problems, and with price changes.
Even though there are dangers involved, the price of cryptocurrencies has gone up a lot, and the total value of all cryptocurrencies combined is around $1.2 trillion, but cryptocurrencies are not still the same or constant every time.
What is cryptocurrency?
Cryptocurrencies are like digital money that people use to invest in and buy things online. Instead of using physical money like dollars, you trade your real money for “coins” or “tokens” for your cryptocurrency.
Cryptocurrency is traded directly between people online, without needing an intermediary like a bank or government to handle the transactions.
Bitcoin is the most famous cryptocurrency but there are many others too, like Litecoin, Polkadot, Chainlink, and even quirky ones like Mooncoin. In fact, there are around 10,000 distinct types of these uniquely named coins.
How can anyone earn cryptocurrency?
When an individual starts earning cryptocurrency, it involves a process called mining, where people use their computers to solve tough maths problems. This helps verify new cryptocurrency transactions and adds them to the blockchain, which is like a digital receipt, and these miners get paid in cryptocurrency.
Risks of Crypto investments!
If we talk about cryptocurrencies, then these are known for their unstable nature as investments often leading to high losses due to frauds, hacks, and market fluctuations. Although the technology behind them is secure, using and safeguarding crypto assets can be complicated specially for unpracticed users.
Let’s take a review of some risks of Crypto investment –
- User risks: A cryptocurrency transaction is sent, it can’t be reversed, unlike traditional finance. Many Bitcoins are now accessible due to a lot of passwords or sending mistakes.
- Management risk: Due to the lack of regulations, there is less protection against unethical management practices. Investors have lost money due to unfulfilled promises.
- Market manipulation: Cryptocurrency markets still have substantial problems, which lead to the manipulation by influential individual’s organizations or exchanges.
- Regulatory risk: The legal status of some cryptocurrencies is uncertain. Governments may regulate them as securities or currencies potentially affecting their value.
- Counterparty risk: There are many investors that often rely on exchanges to store their cryptocurrency. Loss by these third parties can result in complete investment loss.
Pros and cons:
Pros-
- Moving money between parties globally becomes quicker and simpler.
- Transactions occur directly between users reducing the need of intermediaries like banks.
- Sending money across borders becomes smoother and less costly.
- Cryptocurrencies offer investment opportunities for potential profits.
Cons-
- Security risks exist off the main blockchain, where transactions may occur.
- Transactions are not fully and anonymous , potentially raising privacy concerns.
- The privacy features can attract illegal activities, like money laundering.
- Some cryptocurrencies have become centralized, which contradicts the first decentralization concept.
- Joining the network and earning rewards might be expensive due to equipment and energy cost.
