It seems like every man, woman, and child is looking to invest in one of the many cryptocurrencies out there today. Although many believe that these currencies are the future of our economy, they are known to be extremely volatile.
A lot of folks feel that investing in cryptocurrencies is a get rich quick scheme. There are plenty of people who have made a huge sum of money, especially those who got involved in Bitcoin (one of the world’s most famous cryptocurrencies) in the early days. With lots of success stories appearing on social media and on the news, It's no wonder so many want to hop on the bandwagon.
However, just like every other investment, there are lots of risks involved. Understanding the risks involved is key to investing. Before putting your hard earned money into one of these futuristic currencies, know that there are no guarantees when it comes to investing in cryptocurrencies. There are plenty of folks that have lost their entire life savings from purchasing crypto, yet you rarely hear about them in the media.
Firstly, What is Cryptocurrency?
Although cryptocurrency might sound slightly complex, it is pretty straightforward. It is a digital currency that allows you to pay individuals or companies on the web without having to get a third party involved. This means that banks have nothing to do with the transaction. People who use things like credit and debit cards are often given a bank book that shows their ingoings and outgoings, but cryptocurrencies use a public ledger to log all of your transactions. This is known as a blockchain. This blockchain is stored and duplicated on multiple computers around the globe. This method allows cryptocurrencies to be accountable and transparent.
Many assume that the idea behind these digital currencies is new, however, there have been lots of similar currencies in the past. Airlines have been using loyalty programs for a number of years. Instead of giving you cash, they provide you with a digital currency that you are allowed to use within their company. Although this is not exactly how crypto works, there are some similarities. The way banks issue credit card points are also similar.
At the moment, there are over 5,000 cryptocurrencies out there. In order to use these, you have to first purchase ‘’coins’’. There are lots of different methods that allow you to buy these coins, and there are plenty of exchanges that will let you pay for them in cash. When assessing the best crypto exchange to use, it might be a good idea to shop around. With so many exchanges out there, take your time and find one that gives you the best value for your money. You should understand the fees, how secure the exchange is, and how user friendly the service is before buying these currencies from an exchange.
Knowing the Risks
Some people made a serious amount of cash in cryptocurrency, no doubt about it. If you were one of the lucky people who invested in Bitcoin in 2010 for $0.01, you could have sold each one for $20,000 in 2017! People all around the world quit their jobs and headed for early retirement. However, those who thought it was a good idea to wait until 2018 to sell their Bitcoins would have been very disappointed. In August 2018, the currency dropped to $6,000. This shows how volatile the currencies actually are.
One of the world’s most famous investors, Warren Buffet, has explained on numerous occasions why people should avoid these volatile currencies. He worries about their inherent value. People listen carefully to what the CEO of Berkshire Hathaway has to say, but it doesn’t stop lots of folks from investing.
It is Unregulated
Unlike traditional currencies, cryptocurrency is unregulated. Unlike the Euro or the British Pound, these crypto coins are not backed by the government or the central bank. At the present moment, government officials do not oversee the trading of cryptocurrencies. This is one of the reasons cryptocurrencies are not secure nor stable.
If you are searching for a risk free investment, then stay well away from investing in crypto. Some coins out there are pegged with the US Dollar, and there are some that publish transparent reports, but there is no guarantee that they are stable.
Cybercrime is on the Rise
One of the other major risks people who invest in these currencies have to worry about is cybercrime. Cybercrime has been a major issue since the internet became readily available, however, in recent years, especially since the start of the pandemic, cybercrime seems to be everywhere.
When cryptocurrencies were invented, they were designed to be safe. However, fraudsters and cybercriminals have found ways of taking coins from vulnerable people. These hackers have been successful in stealing millions of coins from exchanges and from cryptocurrency owners all around the world. Cybercriminals understand how valuable many of the currencies are, so it is not surprising that many of them target crypto. Finding the culprits can prove extremely difficult. They are often based in countries thousands of miles from where they have committed the crime, which makes it very hard for local authorities to do anything about it. Here are some of the common strategies cybercriminals use:
- Fake hardware and web wallets
- Financial pyramid schemes
- Ponzi schemes
Understanding the dangers involved and knowing how these criminals operate will help you spot red flags.
It is a Gamble
Would you walk into a casino in Las Vegas and risk all your savings on a slot machine? Although some people do, it is probably not the best idea. Most financial experts recommend that if you are going to invest in Cryptocurrency that you only put in an amount of cash that you can afford to lose. If you are planning long term, you might be better off investing in traditional investments instead.
Just like gambling, investing in crypto can be very exciting. If you are willing to invest a small amount of your savings in crypto, you are in for a fun ride, but if you find yourself going over the top, you might end up in serious financial difficulty. Before investing, it is worth your while doing as much research into the coin as possible, before splashing the cash.
Conclusion
If all you are hearing is positive stories about crypto, it might be a good idea to look into some of the horror stories first. Yes, there are plenty of folks who have made more money than they ever dreamed of making by investing their savings in crypto, but there are lots of people who have lost everything too. Knowing when to buy, and when to sell is not easy either, so before you start it might be worth setting targets for yourself. Planning is vital because this way you will know when to start, and when to stop. Don’t assume that the exchanges are controlling these cryptocurrencies either. They are only a transfer agent, so they have nothing to do with setting the price of each coin. If you don’t like taking big risks, perhaps investing in bonds or traditional stocks might be right up your alley.
