A cryptocurrency is a modern version of a digital asset-based network that is distributed across a large number of computers. It is a decentralized structure that allows them to exist outside the radar of governments and prevailing central authorization systems.
The term “cryptocurrency” stands for the encryption techniques that are being used to secure the network. Cryptocurrencies are promising as they are capable of making fund transfers much more straightforward. Instead of involving any third parties in the transaction process, like a bank or a credit card company, it directly includes the two parties concerned.
Cryptocurrency, lets you hold the two keys: one private and public, that together makes up the cryptocurrency address. The best part is these keys cannot be taken away from you until and unless you do it by your choice.
However, despite all its advantages, we point out five things to be aware of while dealing with Cryptocurrency.
Semi-anonymous nature of Cryptocurrency
This may lead to:
- tax evasions by people who have shady dealings and questionable sources of income.
- Money laundering by people or organizations.
- Difficulty in tracing these cryptocurrencies, in case of illegal dealings.
Fluctuating Exchange Rate
- The market price is based on supply and demand.
- This directly affects the rate at which it is exchanged with another currency.
- Scarcity is a part of the whole cryptocurrency structure.
Associated Hacking Threats
- Despite being secured by blockchains, there is still a real threat of hacking.
- In the past decade, there have been cases whereby Bitcoin worth in millions of dollars have been reported stolen after accounts were hacked.
- In December 2017, Bitcoin value recorded a whopping 19,000$/bitcoin before slumping down to 7000$/bitcoin, within a few months.
- Economists view this volatility as dangerous.
Risks Involved with It
- There is a possibility given its volatile market values that it can suddenly disappear from the face of the earth as suddenly as it appeared, taking away all the amount that has been put into it, creating a substantial financial blackhole with widespread ramifications.
- The volatility of cryptocurrencies, together with marginal trading, could evoke significant losses.
Cryptocurrencies have the potential to bring damage to national security and central financial systems. Moreover, it could also be used to fund terrorism and terrorists. The fact that it is not within the radar of any government based surveillance, tax evasion, and cybercrime opportunities are rife when it comes to cryptocurrencies.
Many cryptocurrencies are scams or Ponzi schemes. Moreover, even with the ones that are not scams, the volatility involved is enormous as people determine what coins are real and what aren’t. Precisely speaking, these cryptocurrencies are high-risk speculative products.
The unregulated nature of cryptocurrencies also means that citizens investing in cryptocurrencies do so at their own risk. There is no available legal recourse to them in the event of a loss. Thus, although deemed as the future of money, we should exercise more caution while investing in Cryptocurrency.