It has probably not escaped your attention that the cryptocurrency market has experienced unprecedented growth in recent months. Many investors are interested in coins and want to benefit from this growth. Therefore, investing in cryptocurrencies is associated with a lot of risks.
Is It Safe To Invest In Cryptocurrencies?
Despite the fact that there are many risks associated with cryptocurrencies, it is still possible to invest in coins safely. When you want to invest in ETH or other cryptocurrencies, you definitely require in-depth analytics from the team’s specialists. Gainy app analyzes the cryptocurrency market and provides you with valuable information on possible risks and how to avoid them, so you will be able to make the right investment decision.
The Main Cryptocurrency Investment Risks
Okay, so there are a number of different risks associated with cryptocurrencies. You might be wondering, what risks? We’ll make things a little easier by listing the most common risks associated with cryptocurrency investing. These risks are not listed in order of importance. However, don’t let them stop you from investing in cryptocurrencies, as all types of investments carry risks:
Bitcoin And Cryptocurrencies Are Not Regulated
The main risk of investing in cryptocurrencies is that they are not regulated assets, and in most countries, Bitcoin investments and cryptocurrencies are unregulated investment types. Therefore, there is a risk that investing in Bitcoin will become a criminalized activity if a country decides it is illegal.
Although the risk of this is small, some countries are trying to make investing in cryptocurrencies illegal. For example, China has long banned cryptocurrency investment. One way to stay informed is to be aware of a country’s regulatory developments. We encourage you to read up on these issues and stay alert. You can read financial magazines or join forums aimed at crypto investors in your country. This way you can be sure you won’t miss the latest developments.
Cryptocurrency Risk
Problems with cryptocurrency wallets
- Another risk associated with cryptocurrency is that you may encounter problems with the wallet you use to store your coins. If you enter the wrong account number at a regular bank, the bank’s server will detect the error and the transaction will not be completed. Similarly, if the number you enter is incorrect, the bank will display the name of the account holder before you can proceed. This way, you can be sure that the money always goes to the right person.
- Unfortunately, this does not apply to blockchain. The wallet or purse can only tell you whether the wallet address is part of the network and whether it is valid. It does not tell you who the wallet belongs to or what exactly it contains.
- In this case, you will lose your money because the transactions cannot be reversed. In fact, this is how cryptocurrency is often lost. Some projects even use this method to bind coins. If a developer wants to deduct a share of a cryptocurrency, he sends it to a wallet that has no owner. This, and the fact that transactions cannot be reversed, is a major drawback when investing in cryptocurrencies.
Cryptocurrencies are not cheap to pay
- Another risk is that cryptocurrencies are not used as a real payment method. This is mainly because cryptocurrencies frequently charge high costs for processing transactions over the network. Of course, credit card providers and banks also charge fees, but in the case of cryptocurrencies, these are not known in advance. There are, of course, traditional costs, such as the service costs charged by exchanges. But because blockchains operate through a network of many participants (also called peer groups), there are also costs associated with using the network.
- In a Bitcoin blockchain network, a fee must be paid for each transaction sent. This encourages the miner to accept the transaction and add it to the next block. During periods of intensive use, these transaction costs can become expensive and reduce profitability.
- Of course, this is not convenient if you want to use cryptocurrencies as digital currency. Of course, you don’t want to queue for hours until it’s finally your turn to have your transactions processed. While some cryptocurrencies have managed to overcome the problems of Bitcoin, the costs associated with their use are not known in advance. This is a big risk for investors speculating on the future of a project.
Bitcoin may have hidden blocks
The problem is that the miners who control the pool can hide from others when mining blocks. In this way, the reward for mining is only given to those who know about it, and the rest use their computing power in vain. This is a risk that is reduced because there are now different cryptocurrencies that make it impossible to hide blocks. However, this risk exists in Bitcoin itself.
Cryptocurrencies are vulnerable to manipulation
The next risk is that digital currencies may be vulnerable to manipulation.
- Many investors bought Bitcoin when it was only worth a few cents or dollars. They bought thousands of BTC back then, and now they have enormous power over the rest of the supply. They can influence the price of BTC by selling just a few coins and then buying more when the price has fallen to a lower level.
- There is a lot of market manipulation involved in Bitcoin investing. If these big investors are constantly driving prices down, you could lose a lot of money as a fledgling investor. Unfortunately, there is little you can do about this because these people simply have too many coins compared to others.
Cryptocurrencies can meet the fork
Another risk is that certain types of cryptocurrencies could suffer a fork. A fork is a network change that actually creates a new project of sorts. After a fork, the network splits in two and its computing power is permanently shared between miners who take over one of the splits.
- As a result of the split, blockchains are highly vulnerable. This is also the moment when attackers try to steal money from a network that has become less secure. We also call this the 51% attack. The miners control more than half of the network and use this power to double coins and steal money. Although this does not happen very often, blockchain-based cryptocurrencies are vulnerable to it.