If you’ve never heard of any other coin, then you’ve heard of Bitcoin and that is because it is the first cryptocurrency and the most popular based on market capitalization. In comparison to 2,171 cryptocurrencies today, it has faced the most sentiment. There are also certain risks associated with Bitcoin and that is why you should be armed with the right information before investing.
Some of these risks include:
1. Young Technology:
Bitcoin was created in 2009 and it has been 10 years already since its launch. It may be a decade old, but the blockchain which it is based is still a young technology in comparison with the internet, computer, etc. That being the case, there is still a level of uncertainty if it’ll be here tomorrow or it’s the greatest thing since sliced bread.
2. Price Volatility:
Most people have come to love Bitcoin and cryptocurrency as a whole for its price volatility. It means you can have $5000 today and wake up with $7,000 tomorrow. It could also mean you’ll be a thousand dollar short the next day if not more.
Bitcoin, for instance, was trading around $4,100 on April 2 and it spiked to $5,000 on the same day. It also traded at $5,400 on April 10 and declined to around $5,100 in less than 24 hours. While that may not be much, if you’ve amassed the virtual asset in hundreds of thousands of dollars, then you’ll most likely break a sweat.
The latter can be attributed to its unstable price which has brought about the launch of stablecoins whose price fluctuate less. A number of companies have also attributed their unwillingness to accept the asset for payments because of its volatility.
3. Irreversible Transactions:
This can never be overemphasized: Bitcoin payments are irreversible especially if they have been confirmed. While that may be a good thing to prevent chargebacks, there’s really nothing anyone can do if you’ve made a payment to a wrong address. But hey, even a Bitcoin wallet recognizes a wrongly typed address, but cybercriminals have found a way to append the recipient’s Bitcoin address to theirs.
The decentralized nature of Bitcoin without a central control means there’s noone to bail you out at this juncture. Hacked wallet, stolen funds, name it, are lost entirely unless the recipient happens to refund it out of the goodness of their heart. Given that they’d stolen it in the first place, that’s out of the question.
4. Regulatory concerns:
Regulation by governments and agencies such as the U.S. Securities and Exchange Commission has given companies in the industry a tough time. Most of them are cryptocurrency exchanges where Bitcoin is sold. A number of companies have also had to pack up or relocate due to their inability to meet the rules of certain jurisdictions.
Of late, a number, countries like Pakistan, Chile, Denmark, and Isreal are either looking to or have levied a tax on cryptocurrency transactions. There’s also KYC and AML procedures to consider, which takes away the anonymous nature of Bitcoin transactions. While this and many more are geared towards protecting investors, it just leaves a bitter taste in people’s mouth. Bitcoin may be decentralized, but someone somewhere still determines how the industry operates.
5. Hack Attacks:
MT Gox is not the last cryptocurrency exchange that was hacked, a number of these platforms have also faced an attack. In MT Gox’s case, its hack in 2011 was enough to send Bitcoin’s price flying all the way from $17.50 to $0.01 within a matter of minutes. Today, if an exchange like DigiFinex, one of the most popular cryptocurrency exchanges is hacked, and all the Bitcoins are stolen, then it could deal a drastic blow on the industry.
6. Investor Sentiment:
News about cryptocurrencies, events in certain countries, predictions by cryptocurrency analysts, and opinion of reputable members of the economy are enough to send Bitcoin’s price upwards or downwards. This can be attributed to investors’ sentiment and their buy or sell largely controlled by their emotion. That is to say, a massive sell order can be triggered by a negative rumor being about the asset.