5 Underlying Risks of Virtual Currencies
Introduction
It is essential for an investor or a trader to get a knowhow and understanding of the underlying risk of crypto. This understanding, however, should be both – from a currency as well as a business perspective.
One of the key features of digital currencies is that they are decentralized, which means that they can’t be interfered with by the government or any other regulatory authority. However, we believe that for having a clear understanding of the risks associated with virtual currencies, it is essential to understand its system, i.e., how it works and operates. Crypto such as bitcoin, which is also the leading virtual currency, in terms of price and market cap, is based on the platform of blockchain, which is a digital ledger that stores all the transactions being conducted on the BTC network.
Here is list of the underlying inherent risks associated with the virtual currencies and their investment:
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Commercial risk
This type of risk is associated with the loss of reliance and confidence in crypto. One should know that the high rates of return and increase in crypto prices over the time are also coupled with equally higher levels of uncertainty. The trading activity has been greatly increased by the emergence of several different trading platforms online, which have enabled traders to gain profits by both, short term as well as long term trading. eKrona Cryptocurrencyis one of the best automated trading platforms for trading your bitcoin online via an automated bot, which is based on advanced Artificial Intelligence to generate huge profits for you. It should be known that due to their decentralized nature, crypto is not backed by regulatory or governmental authorities, and that the value of the crypto and its price fluctuations are purely determined by the variation in its values placed by the market participants in their crypto transactions. Therefore, a sudden price fall or collapse of the crypto may occur if there is a greater degree of loss in market confidence.
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Risk of Frauds and Scams
Due to the digitalized nature and monetary value of crypto, a wide class of criminal community has been attracted towards the crypto market. What these criminals do is that they hack the exchanges and steal the crypto of the users of the exchange by penetrating into their digital wallets or computer systems via malware. Given these transactions are digital, the hackers attempt to hack and steal crypto by using hacking tools such as phishing viruses or software. Once these accounts are exposed, and the crypto is stolen, it should be noted that the chances of regaining access to your crypto are very slim.
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Functioning risk
Unlike a normal fiat currency, which is centralized, there is a chance of reversing a transaction if there is an issue with it. However, this is not the case with crypto, where the absence of a central authority causes the transactions to become irreversible. This lack of reversibility can also be observed from the bitcoin network, where you cannot even regain access to an account where you have kept your BTCs, if you have misplaced or lost your private key of the account. This causes you to permanently lose your digital currency, as is the case with a lot of people who have lost their crypto this way and their crypto stays unowned in the network.
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The Compliance or Regulatory risk
Crypto might be banned or not supported in some countries as they could claim that their system goes against the laws of countering issues such as money laundering etc. As there are a lot of participants involved in a BTC transaction, such as the sender, receiver, miners (also known as processors), cryptocurrency exchanges and because of the decentralized nature and complicated nature of BTC, only one or two Anti Money Laundering efforts and methods do not exist.
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The Risks associated with the crypto Market
It should be known that because virtual currencies trade purely on demand, the concept of market risk in crypto is particular. Characteristics such as a limited amount of ownership and a limited quantity of the currency which also implies concerns regarding liquidity, might make the virtual currencies exposed to market manipulation. Also, virtual currencies can prove to be more volatile than the fiat currencies because of the fact that their current global acceptance is limited and that the true and well-performing alternatives to a given crypto are not quite a few. Hypothetical demand as well as aggravated hoarding may also trigger this.
A Final Word
It is quite clear that the virtual currencies will stay in the world and progress with the passage of time, however, the greater degree of confidence and public acceptability and holding on to a much wider degree might require even more time. However, so will the underlying risks, which may surge to in terms of both, the magnitude and variation for the virtual currencies as well as the business dependent upon them.