As an investor, you’ve probably heard the biggest hype in terms of making money for the past year, which is cryptocurrencies. Some of the biggest cryptocurrencies like Bitcoin or Etereum went up more than 300% in a course of a year, and we had other smaller coins like DogeCoin that made many millionaires.
On top of that, we have crypto “experts” that constantly tell us that this is the future of financing and that the value will continue to go up.
If you want to start investing in crypto, the best place to start is to research this topic. Learning the basics about digital currencies will help you understand the concept and make better decisions.
Apart from the many benefits that come from this digital form of assets, such as:
- High potential returns
- More diversification
- Limited supply
- Smart contracts
- Protection against inflation
- Growth of the acceptance and usage
There are a few negative sides of crypto that every crypto-investor should be aware of.
Negative Sides of Crypto: Disadvatages You Should Consider
The biggest threat to crypto is country regulations. Even though the whole idea of cryptocurrencies is to create a decentralized (not controlled by country or organization) currency, it will be hard for every government to adopt this technology equally.
It is impossible to ban cryptocurrencies like Bitcoin since it is a decentralized network that isn’t controlled by an organization. However, governments can restrict its usage by making it illegal to own or exchange.
This will potentially impact the crypto market and its value, and it is a risk to consider, especially if some of the biggest countries in the world decide to participate in such action.
Problem of Scalability
We all talk about cryptocurrencies being the future of finance, but the truth is, we are far from that point right now. If we want to use cryptocurrencies for everyday purchases, we have to upgrade this technology in order to process more transactions.
Just as a comparison:
Visa currently handles more than 1,700 transactions per second, and they claim they can go up to an incredible 24,000 transactions per second.
On the other hand, we have,
Bitcoin with only 7 transactions per second and Etereum with 30 transactions per second.
They obviously have some differences, but we are far from using crypto for everyday transactions.
That’s why many cryptocurrencies are trying to update their technology from proof-of-work (PoW) to proof-of-stake (PoS), but we are still far from using it in real life.
Being a crypto investor is like going on a roller coaster ride. One day you are up 15% and the next day you might get a drop reaching a new all-time low.
The value of cryptocurrencies relies on many factors, such as:
- Supply and Demand
- Cost of production
Since the price of cryptocurrencies is volatile, they cannot be used as everyday currency. You wouldn’t want to buy a new car with Bitcoin just because in a month, you might be able to buy two cars with the same amount.
Since we are talking about a digital asset, cybersecurity problems are expected. Even though most crypto-networks are secured and unreachable from a hacker’s point of view, we still have the problem of breaches in individual wallets.
There are plenty of stories where hackers successfully emptied crypto-wallets running away with millions in crypto coins.
In the future, we must see more enhanced cybersecurity measures that will protect our assets. Being a technology that operates on a digital network, we might need improved security measures that go beyond those used in the traditional banking system.
Many companies are already working on a biometric process that will secure our crypto-assets, requiring a face ID or fingerprint scan. But, it is still in the development phase.
Data Loss Equals a Financial Loss
Since some of the biggest cryptocurrencies operate on a decentralized network, you cannot reach customer support if you lose your login data.
The traditional banking system allows you to have an account that is directly linked with your government documents and you can withdraw money even if you lose your credit card.
With cryptocurrencies, if you lose your login information it is very hard to restore your assets.
Cryptocurrencies, just like any other investment opportunities come with advantages and disadvantages. It is your job to calculate the risk you are willing to take.
Now that we covered the negative sides of crypto, it is time to find out whether or not you should invest in such assets.
The future of cryptocurrencies is still uncertain and nobody can predict the outcome. With that said, cryptocurrencies provide great benefits that will take the financial sector to the next level.
It is best to diversify your investment portfolio and start with a dollar-cost-average strategy where you’ll invest a small portion of your budget once a week. That way, you’ll reduce the risk of losing a lot of money if things go south,