As cryptocurrency now holds immense popularity among people, even among the common masses, the investments sector also gains widespread popularity. Investing in companies as a source of income is now seen as a common practice, especially among youth. It is a given knowledge that it is an important necessity to understand and learn about the specific parameters associated with the investment sector.
Theoretical knowledge sometimes faces difficulties when comes to application. Such difficulties are present in Cryptocurrencies too. Its ideal of a decentralized system is a revolutionized thought but comes with many risks too. As the popularity of the bitcoin and cryptocurrency increases, so does the investing frauds. It is important to understand both pros and cons of it before we make a decision. As well as, we should be well-prepared and knowledgeable, to save ourselves from fraudsters. The following article will discuss the pros and cons of investing sector and how to escape from the traps of fraudsters.
Investments and cryptocurrency
Cryptocurrency is a type of digital or virtual currency that is decentralized in nature. Based on blockchain technology, cryptocurrencies are highly secured and encrypted networks. Issued by private organizations or companies, governmental influence and interference are comparatively low here compared to the common currency notes.
The volatile nature of cryptocurrencies makes the investment risk both high and low. This is one thing that prevents many from going on with crypto investments. Irrespective of their popularity, cryptocurrencies lose their interest from investors because of the increasing amount of online hacking and scams. This instability is very much reflected in the crypto investment sector. Even though it is highly encrypted, the storing of cryptocurrencies is highly challenging because of the increasing attacks.
Risks in crypto investments
- The risk undertaken by the users: Unlike, ordinary currency transactions we do through banks, where there are cancelling options, no such options are available for cryptocurrencies. Because of the high encryption, users secure their crypto accounts using passwords. The studies show that a large number of cryptocurrencies are labelled as inaccessible due to forgotten passwords. Also make note that, once a transaction is done, there is no way to undo it, unlike common banking.
- Risks in regulation: The governments are still unclear about their stand in giving out status to cryptocurrencies. With this comes regulatory risks, where governments try to regulate the crypto as securities, and currencies. This in turn makes the crypto transactions riskier.
- 3. Correspondent risk: It is a common practice among investors to assign a third party to store their cryptocurrencies. Exchanges or custodians form this third party. When they decide to robe you out with all your digital assets, there is nothing that can be done to retain them. So thievery makes it difficult. There are many cases where these third-party custodians accidentally lost digital currencies, which results in the loss of one’s entire assets.
- Risks in management: The absence of methodical regulations results in high management risks. The absence of well-organized laws results in management fraud. So management risks always make crypto investments trickier.
- Risks in programming: The investment or lending platforms use automated smart contracts to trace and control the movement of the users and their deposits. But the risk is that a single bug in the Program could result in the loss of entire investments. So programming risk is also a factor we must take into serious consideration.
- Market exploitation: Manipulation of prices and trading against customers done by the exchanges remains one of the important risks in crypto investments. There are many cases where exchanges manipulated the prices to take advantage of their customers. So market manipulation is one of the high risks in cryptocurrency investments.
Cryptocurrencies are indeed the greatest invention that revolutionized the entire economical and financial system. Irrespective of the above risks, we can find any added advantages of cryptocurrencies.
The decentralized working of the cryptocurrency didn’t need the workings of the intermediary parties. It is easier to transfer funds between two parties without the involvement of third parties like banks or other financial institutions or credit card companies. Even though volatility is attributed to them, the popularity of cryptocurrencies never fails and their value rises vehemently over the years.