The inherent cryptocurrency risks encountered by many digital currency users or traders are from the business aspect as well as from the currency itself which could be inevitable but greatly managed.
So, as a potential trader, you must understand the risks associated with the digital currencies you hope to get involved with.
However, cryptocurrency has a major uniqueness which is, its issuance is not dependent on any central authority and this renders it abstractly resistant to government manipulation.
In this process of understanding cryptocurrency risks, you must get familiar with the features of Blockchain because cryptocurrency is solely based on technology.
In simple words, Blockchain is a decentralized, public, digitized ledger where all cryptocurrency transactions are recorded.
Since it is constantly growing as completed blocks, all recent transactions are created and added to the block in chronological order.
This allows the users to keep track or have access to all history of cryptocurrency transactions without having any primary documentation.
Major Features of the Blockchain Technology
- Strong and reliable Security
- Transaction speed
- No third party involvement
- Irreversible Transactions
- Easy and direct accessibility
Inherent Cryptocurrency risks
In centralized systems, the warranty validity of a transaction is accompanied by the ability to reverse a financial transaction in an ordered process.
However, in the crypto world, there is no possibility of such ability of financial reversals.
The lack of pervasiveness is described as these coin accounts like Bitcoin are cryptographically secured.
Also, the access to funds contained in an account almost cannot be reversed if the private key to the account is missing or stolen, or maybe deleted from the owner.
Market risks are usually inevitable as digital currencies trade only on demand.
Since there are a large number of digital currencies which means that it can ache from asset concerns and also restricted ownership may give room for market manipulation.
Furthermore, its limited acceptance as well as its lack of alternatives the currency can emerge more unstable than fiat currencies,
This is enabled by uncertain demands and it is intensified by hoarding.
The market risk can be categorized into two;
This simply involves compliance with Anti-money laundering and privacy laws, crypto-based businesses or users would have to comply on an individual and business level as well as a universal level, which involves a legion of balances and checks.
However, businesses could be taken to task by multiple jurisdictional law enforcement agencies not forgetting that they have different agenda,
Meanwhile, failing to comply with the multiple local and state laws could result in terrible endings.
This risk is great since businesses will need to expand their network, in aspects like including an essential revision to all past due to systems, infrastructure, and also payment transmissions.
Moreover, these enhancements would also require to be continuously updated and ensure it is compatible with the delivery system of the business as well as its third-party providers.
Cryptocurrency is essentially used for trading and this has attracted a large number from the criminal community.
These criminals can hack into crypto-based exchanges, empty crypto wallets, and enter individual computers using software like malware or spoofing/phishing that enables them to steal cryptocurrency.
As transactions are carried out virtually, these hackers target people or the service handlers as well as the storage.
Investors must depend on the strength of their exchange security systems because most securities are provided by third parties to secure purchased cryptocurrencies from theft and fraudsters.
Moreso, cryptocurrency is highly dependent on uncontrolled companies, inclusive of those that lack adequate internal controls as well as those that may be more prone to theft and fraud, unlike regulated financial institutions.
In addition, the software needs to be updated regularly, and also sourcing the blockchain technology to traders may result in substantial third-party risk exposure.
There are other cryptocurrency risks that traders can be aware of, however the aforementioned above appears more likely to come with the greatest risks.
Don’t miss important articles during the week. Subscribe to blockbuild weekly digest for updates.