The Spanish magazine Muy Negocios Y Economia said that increasing investment in digital financial assets entails new legal risks. It assumes that entrepreneurs, investors and advisors are constantly aware of new regulations and take into account all applicable case law on this matter.
In this report, the magazine highlighted some of the main risks that a person can be exposed to when investing in cryptocurrencies.
1. Cybersecurity risks
Not having high digital skills can expose the investor to malware attacks, where someone will target your computer and steal your data and the digital currencies you own. This risk is not limited to hackers infiltrating each user's individual accounts; In fact, the blockchain system is also at risk of being hacked, which affects the value of currencies, causing market turmoil and massive financial losses.
2. Transaction risk
You can invest and do business with cryptocurrencies via various online platforms, through third-party service providers, or conduct direct transactions between various investors. It is important to be careful during this process, as many cryptocurrency markets simply facilitate communication between investors without regulating or providing any compensation or mediation services between them. In these cases, potential problems that arise between investors do not have a platform or body to supervise their resolution.
3. Risks of currency trading platforms
Cryptocurrency trading platforms are subject to almost no regulation, and their operations lack transparency; Therefore, fraud and privacy violations are common, and investors are not fully protected from fraud or losses.
4. Lack of trust
Given the limited scope of use of cryptocurrencies in retail markets, online platforms have created business activities aimed at speculators, looking for short-term profit. This could mean that a loss of trust could lead to the collapse of business activities and a sharp decline in the value of your cryptocurrency investments.
5. Legal restrictions
One of the reasons that explain this fear is that criminals and terrorist organizations use digital currencies such as Bitcoin to provide financing.
6. Lack of privacy
One of the most important things that distinguishes blockchain technology and transferring money in digital currencies through these networks is the element of privacy compared to traditional transfers through banks and transfer companies. This is because the transfer of funds here is done according to your wallet address, which consists of a series of random codes, unlike the transfer via your bank account and your name. But on the other hand, transferring money through blockchain networks carries other privacy risks, as all cryptocurrency transactions are recorded on the blockchain and these transfers are visible to the public. This means that anyone can see your transactions which is something many of us are not comfortable with.
7. Security
Despite the high level of security that cryptocurrencies enjoy thanks to blockchain technology, the platforms on which these currencies are traded are vulnerable to hacking, and therefore your money may not be completely safe on these platforms. If your money is entirely online, you are more likely to lose it. Once hackers steal your cryptocurrency, it is almost impossible to recover it. To hedge against these risks, you can save your money in what are known as cold wallets. In these cases, your funds are not connected to the Internet and cannot be hacked unless the wallet itself is stolen. If you do not trade digital currencies on a regular basis, it is better to store them in cold wallets.
8. Reputation risk
Despite the enormous popularity enjoyed by cryptocurrencies and the adoption of this technology by increasing numbers over time, the reputation of this market in general is still shaky because it is associated with high risks and is still sometimes viewed as a tool for illegal activity due to the nature of the technology that encourages... Privacy and escaping traditional regulatory restrictions. In addition, the numerous frauds that have invaded the cryptocurrency market, whether through the initial offering of the currency (ICO), the founders owning huge amounts of the currency before its launch, or the frauds associated with cryptocurrency trading platforms. All of these factors have contributed to distorting the image of the world of digital currencies.
9. Fraud
Due to the increasing popularity of cryptocurrencies by amateurs and people with no real experience in the market, this has made the market highly vulnerable to scammers who take advantage of beginners and their superficial knowledge of the market. With the lack of regulation imposed on cryptocurrency markets, scammers can easily create websites, products and services that generate high returns or even create entirely new digital currencies, but your money will be at risk and you may lose it completely if you do not carefully study the opportunities presented to you. One of the most famous methods of fraud in the cryptocurrency market is what is known as the initial coin offering (ICO), as this method aims to collect a certain amount from investors to carry out a project based on digital currencies.
10. Extreme fluctuations
Cryptocurrencies are highly volatile because they are still in their infancy and are not fully regulated, making them vulnerable to manipulation and fraud. Therefore, its value can change quickly and dramatically.
A trader can reap huge profits from this volatility, but in return may incur huge losses. Since the cryptocurrency market is largely unregulated, there are no certain guarantees or restrictions to prevent the market from collapsing.
Just by looking at the price chart of Bitcoin or any other digital currency over the past years, you can see the extreme price fluctuations that these currencies witnessed and the waves of price collapse that caused these currencies to lose most of their market value on several occasions.
Conclusion
In conclusion, we note that trading in cryptocurrencies involves great risks, and the investor must understand these risks and study them while thinking about investing in them. While the cryptocurrency market may seem attractive, it is important to understand the risks involved. It is advisable to conduct extensive research on the cryptocurrency you are interested in, the platform you plan to use, and market conditions before investing your money. In addition, make sure that your investments match your risk appetite, keeping in mind that it is best not to invest more than you can afford to lose.
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