The world of finance has been thoroughly rocked by the advent of cryptocurrency in recent years, propelling the once-nascent industry to the forefront of the financial industry.
However, similar to any other form of investment, there exist inherent risks and disadvantages that demand meticulous scrutiny. Despite the astronomical boom and the ubiquity of the crypto market, it is crucial to take heed of the potential traps and snags.
In this article, we will take a look at some of the most significant disadvantages of the crypto industry, including the obvious security threats, the complexities of the technical infrastructure that makes up most blockchains, and the ominous absence of regulatory frameworks.
By looking at these weighty concerns, potential investors can make informed choices to safeguard their investments during this bear market.
One of the most significant downsides of cryptocurrency is the threat of cyber attacks.
Hackers use various methods to steal cryptocurrencies from individuals or exchanges. In 2021, Chainlink reported that a hacker made away with over $3 billion in crypto among a multitude of cryptocurrency heists where several billions of dollars were lost
Phishing attacks are one of the most prevalent types of cryptocurrency hacks. In this type of attack, the hacker creates a fake website or email that looks like a legitimate cryptocurrency exchange or wallet. The user is then tricked into entering their login information, which is then used to access their real account and steal their cryptocurrency.
Malware is another common method of stealing cryptocurrency. Malware is malicious software that can be installed on a user’s computer or device, usually through a phishing email or website. Once the malware is installed, it can monitor the user’s activity, including their cryptocurrency transactions, and steal their funds.
Exchange hacks are also a significant concern in the crypto industry. These hacks occur when a hacker gains access to a cryptocurrency exchange’s system and steals the cryptocurrency held in user accounts. In some cases, these hacks have resulted in the loss of millions or even billions of dollars worth of cryptocurrency.
Easy to Lose
As revolutionary as crypto can be, they are also very easy to lose. Cryptocurrencies are virtual digital assets that solely exist on the blockchain. Therefore, once you lose your private keys, you lose access to the wallet and therefore the coins within that wallet.
This is why you should take proper precautions when dealing with crypto in any way.
Additionally, you can lose your coins by simply sending them to the wrong wallet address. The best option is to copy the entire string and paste as is on the recipients wallet address. Be sure to double check so that you dont end up losing your funds.
Complex and Technical
Another potential downside of cryptocurrency is the fact that they are technically complex and sophisticated in nature. Cryptocurrencie operate on blockchain technology, which is still relatively new and complex for the average person to understand.
Blockchain is a decentralized and secure method of storing information and data. In a traditional database system, data is stored in a central location controlled by a single entity, such as a bank or government agency. However, in a blockchain system, the data is stored across a network of computers, making it virtually impossible for any one entity to control or manipulate the data.
However, the data must be verified and validated through the use of a consensus algorithm. There are various types of consensus algorithms that make up different chains.However, as you can see, understanding how the entire crypto space works can be a bit daunting for the average person.
This level of complexity can make it challenging for individuals to manage their cryptocurrency effectively, leave alone understand how to use crypto. Be sure to first develop a basic understanding of blockchain technology before diving deep to invest in cryptocurrencies.
Cryptocurrency transactions can be subject to high fees, depending on the network’s traffic and the amount of cryptocurrency being transferred. Just recently, Ethereum’s network fees (also known as gas fees) skyrocketed at the peak of the NFT hype such that people were paying $100 for one transaction.
Network fees on any blockchain can be affected by a variety of factors. For Ethereum’s case, the complexity of smart contracts involved in NFT transactions at the time added to the high fees. The increased demand for NFTs also contributed significantly.
Smart contracts are self-executing agreements that are coded onto the blockchain, and they can be used to automate a range of complex transactions. However, more complex smart contracts can require more computing resources to execute, leading to higher gas fees.
Cryptocurrency is still largely unregulated, which means that there is no protection for investors if something goes wrong.
Cryptocurrency exchanges and wallets are not insured in the same way that traditional financial institutions are, and there is no government agency responsible for overseeing cryptocurrency transactions. This lack of regulation makes cryptocurrency investments riskier than traditional investments, and investors must be prepared to assume that risk.
On the flipside the lack of regulation and the promise of a more-inclusive financial network is one of the key appeals of crypto.
Conclusion: Consider the Pros AND Cons
In conclusion, while cryptocurrency may offer significant financial returns, it is crucial to consider the potential downsides before investing.
Hacks, easy to lose, somewhat technical, fees, and lack of regulation are just a few of the challenges that investors may face when dealing with cryptocurrency. It is essential to take adequate security measures, have a basic understanding of blockchain technology, and assume the risk associated with cryptocurrency investments. By considering