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5 risks you should know when investing in cryptocurrency

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  • 5 min read

The concept of currency to exist digitally was a worrisome matter from the beginning. The primary concern over having digital currency around was maintaining its unique print.

The dawn of cryptocurrencies like Bitcoin ensured the currency cannot be copied and maintained its integrity throughout the transaction process. But with cryptocurrencies becoming a hit, there are some other risks that also emerged. Let’s take look at the most prominent risks associated with investing in cryptocurrency.

Market manipulation

Nobody could possibly comprehend back in 2010 that the Bitcoin would hit the $19,000 (INR 14,00,000) mark and anticipate when this would happen. The people, who bought it for around Re. 1 ($0.008) at that time, reaped significant profits off the success of the Bitcoin.

When other people saw this, they invested huge amounts in the Bitcoin too and after December 2017, ended up suffering great losses as the value of one of the major cryptocurrencies — Bitcoin — continues to fall.  Some are optimistic that the cryptocurrency will pick up the pace again and its value will be ‘mooning’ very soon.

Also read: 15 important cryptocurrency terms that you should know

Volatile market

5 risks you should know when you invest in cryptocurrency

The value of a cryptocurrency depends on how popular it is among its consumers and investors. That means every little news or rumour generated can cause people to not invest in a particular cryptocurrency and flock over to another.

As observed before, it is extremely hard to predict when the value of a cryptocurrency will sky-rocket or hit rock-bottom. The market is extremely volatile and one should not fall prey to baseless rumours. It is extremely important to make a proper judgement after exuberant research.

Check out this article that explains how the value of bitcoins can be forecasted by use of deep learning algorithms.

Also read: Cryptocurrency: Difference between a Hard fork and Soft fork

Not as secure as you thought it would be

5 risks you should know when you invest in cryptocurrency

As is said in the hacking world, ‘Security is a Myth’. Satoshi’s plan of bringing in a digital currency that would be secure due to its inability of replication was forged when hackers were able to duplicate it by carrying out the ‘51% attack’.

The cryptocurrency service providers then came up with a counter-act to give out ‘permissioned ledgers’, allowing only specific people to validate the transactions.

Besides that, hackers were also able to rob out crypto-banks, which resulted in huge losses. While some banks paid back the losses to their customers, others simply vanished into thin air.

Consumer protection

It is believed by a lot of cryptocurrency enthusiasts that the only way to sustain digital currency is to regulate it while maintaining its ease of use. Once hackers were able to decode the cryptocurrency implementation and steal bitcoins with ease, many consumers became hesitant to invest in digital currency again.

When the Bitcoin was at an all-time high, it was parallelly witnessed that customer complaints had also escalated quite a lot. Some of these complaints included:

  • Money not paid back on time
  • Fuzzy wallet management
  • Service-related issues
  • Fraudulent transactions

Some crypto-exchanges then came up with required regulations that would better cater to the customer’s concerns and in-turn increase profits. They have been effective, yes, but you never know it can all go downhill, considering how volatile the market is and owners decide to pack shop.

Also read: What is cryptojacking? How to detect and prevent it

Crypto Scams

Millennials, Gen Z most likely to lose money to tech support scams: Survey

Hackers have been able to trick people into buying fake bitcoins. Some sites have also been able to fend off a malware called ‘Cryptocurrency Clipboard Hijackers’ that transfers the bitcoin to a wallet that belongs to the hacker every time the person tries to send it to somebody else.

Other scams include ICOs (Initial Coin Offerings) that works on the principle of getting investors to invest in their coins for exchange for some other prominent cryptocurrency. They then give them back each some returns in order to gain their trust and ask them to continue investing in their currency.

After they have received quite a lot of profit, they shut down their operation and don’t deliver on their commitments, leaving people tricked and suffering great losses. This doesn’t mean that all ICOs are bad but they’re being known to be a way of scamming people.

The cryptocurrency business is an extremely risky one to invest in, but if you have to make it big here, you must invest smartly. Do not fall prey to the scams and baseless rumours and check their validity for yourself and also be sure to invest with trusted crypto-exchanges.

Also read: Where to buy Bitcoin? 3 ways to buy Bitcoin

Parinita Haldar

Parinita Haldar