In this article, you will learn the major risks that Cryptocurrencies carry and solutions for each problem.
Do note that I’m a pro-crypto individual. However, ignorance is never bliss, not with Cryptocurrencies. Hence, I believe understanding the risks is the best way to avoid them, isn’t it?
The best part? None of the risks are unmanageable. Mitigating most of these risks requires just a few basic tweaks on your end of reading up for a few minutes.
Table of Contents
Extremely Volatile
Cryptocurrency is a high risk high reward asset. Meaning, it makes people millionaires overnight or over the week, true. But, it also carries the potential to dump massively, sometimes up to 90% within a span of hours.
While “risk” is associated with nearly any business on the planet, the range of the risk is what makes crypto special.
The risk becomes even worse when you’re trading futures or options as losses in these scenarios would be irrecoverable.
And yes, regardless of the exact Cryptocurrency, the market is generally way more volatile than stocks, real estate or basically anything else.
The solution:
I’ll recommend doing your research before choosing your cryptocurrencies. Also, it’s best to hold for the long term, or trade “spot” instead of leveraging.
Scams
Again, this isn’t a crypto-specific risk. However, crypto being a new technology and many users still being largely uninformed, scammers have found naive crypto users to be their easy targets.
There are tons of scams in the industry, some as simple as hacking into accounts with weak security, to very sophisticated attacks such as the address poisoning attack that led to a user losing about $70million!
Some popular scams in the crypto industry include:
- Account hacks: Users may employ various techniques such as phishing, social engineering or complex brute force attacks to break into accounts.
- Rug pulls: Cryptocurrencies are developed with the sole intention of stealing money. The coins are marketed massively, like any other scheme, and then they suddenly run away with all the funds.
- Crypto-for-crypto exchange: These are popular on Youtube! You’re asked to send some crypto and the other party claims to send you a 2x/10x or some other amount of the crypto you send. At times, they even send you coins the first few times baiting you into depositing large amounts.
- Fake exchanges/wallets: Don’t simply trust every wallet/exchange you come across. Many of these are fake and will disappear with your funds in a jiffy. Here’s a list of the best anonymous cryptocurrency wallets in 2024.
The solution:
- Triple check each address you send your funds to.
- Authenticate every crucial e-mail you receive from your exchange/wallet by checking the address and if possible contacting the support team manually.
- Use very strong passwords for your wallets/exchanges and enable as many 2-FA options as possible.
Technicalities
Cryptocurrencies are primarily a “digital” asset. This means, at least some technical know-how is required to understand and get involved with crypto. It’s no rocket-science, but it’s still harder than “buying gold”.
Now, it’s important because there are a few common stages where you’ll frequently need technical know-how when using crypto:
- Setting up accounts and wallets: A lot of users misplace their “private keys” or store it wrong (e.g. on a digital platform) which may lead to them losing their funds in the future.
- Fee calculation: Many wallets and exchanges allow users to manually set the amount of fee they’d like to pay. This is a risk for new users as they may end up configuring a much higher fee than they ought to pay.
- Address management: Cryptocurrency addresses aren’t just random numbers. You must match each address to its network, fork and some other things. New users may often get confused and send funds to the wrong addresses even if they look and feel the same with slight technical differences.
The solution:
Before getting started, research the basics of cryptocurrencies. Understand how to set up wallets, send and receive funds, increase your wallet security and other aspects.
The official Bitcoin bank breaker website is a good place to start learning about Cryptocurrencies from the experts.
Regulations and taxes
Most governments and banks have a lot to lose by accepting Cryptocurrencies. They’d lose their control over their citizens as Cryptocurrencies are private, decentralised and take away the control these institutions have over their citizens.
Hence, many countries are trying their best to regulate cryptocurrencies after failing to ban them entirely.
What makes it a “risk” is that nations pass laws overnight that may impact your Cryptocurrencies or add taxes to them.
The solution:
Use anonymous exchanges and wallets. Those that don’t ask for documents or identification. This guarantees funds can’t be linked to “you” and hence whatever laws exist do not impact you.
Conclusion
I’m guessing you’ve got a pretty decent idea about the risks cryptocurrencies carry by now, haven’t you?
Do note that Cryptocurrencies aren’t a unique case. Stocks, any other investment, or even gold have their own risks.
It’s just that cryptocurrency risks are mostly “digital” which may seem like a towering problem for some. That’s not the case. Most of these problems can be solved with very basic caution and technical understanding.
