As cryptocurrencies are taking over the world, more people are looking into the world of crypto for high gains. Governments worldwide are struggling to introduce consistent regulations and keep trading within legal boundaries. No matter how popular currencies such as Ethereum or Bitcoin are, one question remains: Is investing in cryptocurrencies safe? The answer is so complex that even researchers believe it’ll take years before it can be known for certain.
Before leaping, you should know a few crucial things. The price of cryptocurrencies fluctuates constantly, and their volatility prevents most investors from making a business move. Also, the financial ecosystem is every scammer’s favorite place. On the other hand, a few security advantages could outweigh the disadvantages. Here is a list of risks you should be aware of before investing in cryptocurrencies.
What Are the Risks Involved?
Although most investments involve some risk, digital currencies such as these come with unique and unexpected risks.
Ever since they emerged, cryptocurrencies have earned a reputation as volatile investments. Many factors have contributed to this, but mostly new and inexperienced users. Their lack of knowledge on using, selling and storing these assets has made them easy prey for cyber-attacks, scams, and phishing. However, some trading systems, such as Bitcode Method, are particularly designed to assist new and experienced users with their investments in the cryptocurrency market.
Lack of regulation
The greatest disadvantage of these and other digital assets is that they aren’t recognized as financial products worldwide. Governments are actively trying to resolve their status, but they can’t seem to agree on their proper regulation. That’s why their regulatory status remains vague in most countries. For example, buying, storing, selling, and transferring virtual currencies in the US are legal and regulated, whereas they’re fully banned in China. Investors should always familiarize themselves with the laws regarding this type of trade because they would face serious consequences in case of restraints. For example, the prices could drop significantly and they would lose money.
Traders are protected in countries with straightforward regulations. Meanwhile, with vague and inconsistent regulations, the law protects them to a certain extent. As a result, they often fall victim to unethical or unscrupulous practices. That is, hired management teams don’t deliver the product, use incorrect sending addresses or lose keys or passwords causing investors to lose substantial amounts of money.
Investors are interested in a quick return on investment (ROI) which is generally the reason why they make crucial mistakes. Firstly, they forget the market is easily subjected to manipulation. Market prices largely depend on popular opinion or media hype. That’s why they increase and suddenly crash. Unfortunately, investors can’t even use information from the past as a reference because cryptocurrency is still considered a fairly new concept. Therefore, there’s no way of knowing how market crashes or other unfavorable circumstances affect a certain cryptocurrency. Investors can mitigate this risk by investing in well-known coins such as Bitcoin or Ethereum.
Traders also trust investment platforms to move their deposits around safely, or custodians store the cryptocurrencies. However, the platforms can experience malfunctions, bugs, and cyber-attacks. Hackers can hack into digital wallets and steal their contents. The same can happen while custodians keep the assets stored for others. Either way, investors can kiss their investment goodbye. For additional protection, they can choose offline hardware wallets.
Most cryptocurrencies rely on blockchain technologies to provide a secure transaction flow. However, by securing the transactions, these technologies are also making them irreversible. Once the investment or payment is made, there’s no way to get a refund, even if the investor has been phished into a fake investment opportunity. To avoid losing money, investors should be aware of scammers on social media and dating apps and in emails, calls, and texts.
Easy money is what generally attracts people to invest in cryptocurrencies. However, most of them are concerned about the safety of cryptocurrencies. Although every investment involves some risk, there are some safety practices you can follow. They might help mitigate the risks and ensure safe investments.
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