Thinking of investing in cryptocurrency? Well, you might have to think again. With a lot of advantages, there are certain limitations too, which makes you think twice before investing in it.
Before discussing its disadvantages let’s recap what cryptocurrency is. A bitcoin is a virtual digital currency designed in 2009 to act as a medium of exchange. It is a true 100% virtual currency. Bitcoin and Ethereum are well-known cryptocurrencies.
Cryptocurrency works like PayPal or credit cards only difference is this has to be exchanged with a peer holding a digital wallet. There is zero physical money exchange in this.
We have prepared a list of the risks associated with cryptocurrencies that will help you make the decision.
No physical Form
Crypto is the only virtual digital currency which means you cannot hold it for real or buy or sell items with it in the actual world.
For exchanging crypto, you have to deal in the cryptocurrency market, which means one has to find merchants who accept cryptocurrency or find peers to exchange with them.
The limitation is that the number of merchants who allow cryptocurrency for the exchange of real goods and services is quite limited.
Cyber security issues
As a digital currency, cryptocurrencies are highly subjected to frauds and hacks. If you lose your digital wallet or your system is hacked, there is no way of recovering the lost amount.
This issue will make us think twice about whether we want to convert our real money into crypto coins or not. Also, we cannot trust each and every website to hold our digital wallet information. Some of the websites have been seen involved in theft activities.
No guaranteed value
The cryptocurrency prices such as bitcoins fluctuate significantly. The cryptocurrency prices can drop easily if people shift from one cryptocurrency to another. The value of these coins is mainly based on price and demand shifts. When the demand increases, the price also increases and vice versa.
If you are thinking of investing in crypto, be ready for the losses with the gains.
Tax
In the USA, cryptocurrency is seen as property, not as a currency. Therefore, the personnel owning crypto over there has to pay tax on the profit gains.
Regulatory body
There is no centralized authority for monitoring cryptocurrency. The governments, financial institutions, and regulatory authorities are still trying to understand the nature and meaning of digital currency.
No regulatory body means nobody controls it, and nobody is supervising means absolutely no rules to protect your business.
The Takeaway
With a lot of people getting involved in this mass adoption, it is wise to look at all the opportunities and drawbacks it can bring to you. Cryptocurrency is a risky investment. Therefore, you should only consider investing in it only if you are financially equipped.
With lots of gains, understand the potential for large losses as well. The cryptocurrency future is yet to be decided.