As cryptocurrency is becoming further integrated into the world of finance and technology, the risks accompanying it are becoming more apparent. The article elaborates on some of these investment risks and how one can avoid them. Below are the 5 cryptocurrency investment risks along with their solution:
The crypto market has been one of the most volatile financial markets to invest in. From the very beginning, a noticeable and unbelievable spike in the prices led many investors and financial analysts to look into this volatile market. While many made millions, some lost large and small investments. Therefore, some critics call crypto a dangerous bubble to invest in. The sudden increase and decrease in the prices make this market quite complex. However, there are some reasons behind this volatile nature. Some of these are:
The digital nature is what makes cryptocurrencies like bitcoins quite volatile. Without any physical presence, these digital currencies are purely digital assets. As a result, the prices are entirely backed by the rules of supply and demand. This makes the prices quite dependent.
The market is solely built on various speculations made by financial analysts and critics. Investors around the world speculate on the rise and fall of the prices and look for the best investment opportunity. This speculative nature also makes them (cryptocurrency) volatile and unpredictable.
With the consistent change in the financial landscape (especially due to the recent pandemic), cryptocurrencies are evolving constantly. This gives rise to many investment opportunities. Therefore, new projects are being introduced every day. Like when the developers from Telegram announced the launch of coin Gram, the media publicized their initiative even when the project was in the beginning phase.
These mentioned factors collectively affect the cryptocurrency making it the most volatile currency. Therefore, the experts advise the investors to be well prepared for the market. Moreover, it is advised to never invest unknowingly. By understanding the math behind it, the investors are advised to trust encrypted algorithms and use them to their advantage.
Many internet users utilize non-secure computer systems to illegally mine cryptocurrency. It’s is quite difficult to know the difference between the original and imposters. Like following a celebrity, you are always unsure whether you are following a genuine person or an imposter. In the case of cryptocurrencies, similar malicious imposters’ bots are present to steal away your coins and cryptocurrency. The best way is to never trust any news whether coming from Twitter or Facebook.
Secondly, the online market is loaded with fake apps that are available both on the Apple store and Google Play. No matter how much effort the officials are putting in to eliminate these platforms of these malicious apps, new and more dangerous applications with updated malware are uploaded by scammers. Thousands of people across the globe fell prey to these fake applications. The best practice is to look for the official apps. Moreover, like these fake apps, the internet is also loaded with fake websites. These websites utilize your browsing history and steal your identity through cookies. Therefore, it is recommended to look for secure connection websites that have an “HTTPS” in the web address.
Due to a digital presence, there are certain cybersecurity risks attached to cryptocurrency. Malicious applications and websites developed by hackers are ready to hack into your crypto wallets. One of the main reasons behind the increasing cyber-attacks is decentralization. Unlike fiat, cryptocurrencies are not backed by any official regulating authorities. Also, the trading cryptocurrency exchanges are not regulated consistently. The lack of government involvement makes the currency quite easier to hack.
According to experts, if you want to minimize the cyber risks, it is essential to use two-factor authentication along with a strong and complex password. As you open a crypto wallet, you are given a unique private key. It is advised that you must never share the key with anyone. Moreover, never accept the cookies. Using a strong and well-encrypted private network also hinders hackers to hack into accounts.
Financial institutions across the world are suppressing all the illegal activities associated with the currencies. Money laundering is one of the biggest challenges that a country has to face while dealing with currency. Like fiat, investors across the world also use crypto as a source to launder money across many countries.
Implementing regulatory controls over cryptocurrency is one of the main challenges that governments across are facing. Those countries that have accepted cryptocurrencies are investing heavily in security systems to monitor any illegal activity associated with cryptocurrencies. Moreover, businesses can also fell prey to certain hacking activates. The financial loss can be in billions. To overcome this loss, businesses are implementing encrypted and secure software to monitor all the online activity to overcome any case of cyber extortion or ransomware.
The most important risk which makes the investors question the legality of cryptocurrency is whether they (investors) can use cryptocurrency as property. Based on such speculations, certain countries including the U.S has defined cryptocurrency as property. Hence, cryptocurrencies can be reported as a property under the capital gains law. And similar to fiat, all the profits and expenses can be reported. But this calls for certain precautions that the investors should follow. As the rules are changing day by day and improvements are being implemented in the crypto sphere, it is recommended to take advice from tax professionals before filing tax returns.
As far as the businesses are concerned, those who are accepting crypto as the official payment must register their legal activities after getting the particular licenses. It is the responsibility of business owners to follow the recommended legal procedures before accepting bitcoins or any other cryptocurrency.
With a persistent change in currency landscapes, users are adapting less risky mediums of exchange while making the most out of financial transactions. The inherent advantages of virtual currencies over paper money are visible. Making use of distinctive characteristics, virtual currency such as bitcoin offers several benefits over other payment methods but some risks must be accessed before.