4 Dangers of Crypto You Need to Be Aware of
Cryptocurrency is decentralized digital money that’s based on blockchain technology. With the rising popularity, you must be familiar with the most popular versions by now, Bitcoin and Ethereum, but there are quite more than 9,000 different cryptocurrencies in circulation.
Cryptocurrencies have exploded in popularity over the last decade, and almost everyone is talking about or planning to invest inthem. However, cryptocurrency investments are unlike any other in the financial system. They defy conventional and old investment trends and are prone to ludicrous swings and frequent ups and downs.
In this article, we will review the most important risks that new and experienced investors should be aware of in this market.
1. Volatility
The risks of trading cryptocurrencies are mainly related to their volatility. Unexpected and sudden changes in market sentiment can lead to sharp and sudden moves in prices. It is not uncommon for the value of cryptocurrencies to quickly drop by hundreds if not thousands of dollars in just a matter of days.
Bitcoin has experienced rapid surges and crashes in its value, climbing to nearly $65,000 in November 2021 before dropping to just over $20,000 a year and a half later. As a result of this, many people consider cryptocurrencies to be a short-lived fad and easy to go money investment.
2. Unregulated Trading Platforms
The lack of regulatory supervision has cultivated the growth of scam exchanges and market manipulation in crypto trading. Some trading exchanges have exorbitant trading fees and have no fixed policies to prevent manipulative or suspicious trading, while completely unregulated exchanges may employ predatory practices.
Moreover, exchanges often charge exorbitant commissions which also makes withdrawals nearly impossible for people with low investment funds. Others may have weak security, making it simple for scammers to steal your money. The naive and elderly can become easy prey to cyber extortion, market manipulation, fraud, and other investor risks.
3. Cybertheft and Hacking
Cryptocurrencies are kept in digital wallets and traded through digital currency exchanges. Cryptocurrencies are specifically appealing to cybercriminals because of their online dependence and anonymity to the authorities. To gain access to cryptocurrency wallets and trading platforms, criminals use a variety of phishing attacks lureing naive customers in.
Off-chain crypto-related key storage repositories, such as exchanges and wallets, can be hacked. Many cryptocurrency exchanges and wallets have been hacked over the years, sometimes resulting in millions of dollars worth of coins stolen.
4. Loss of Keys
Crypto can be stored privately in a non-custodial wallet on a personal device, like an app on your phone or laptop, or using a third-party custodian, like Fidelity Digital Assets. When storing in a private wallet, if you lose your private key, your hard drive crashes, or a virus corrupts your wallet, you may lose your all funds and have no access to them later whatsoever.
The loss of a private wallet key means losing control or access to any cryptocurrencies in that wallet. In fact, approximately 20% of all Bitcoin lost is due to the loss or destruction of private keys. Therefore, it is crucial that you regularly back up your private keys, preferably on a secure and isolated computer. Also, never store your private key online, especially if it is not in an encrypted format.
The Bottom Line
To sum it all up investing in cryptocurrency is extremely risky, and you must be prepared for any eventuality. It’s the Wild West, and because of its decentralized and unregulated nature, it’s rife with con artists and crooks. Therefore, inexperienced investors should invest only what they can afford to lose without suffering serious consequences.
