Avoiding risks when investing in Cryptocurrency

10 Jan

Avoiding risks when investing in Cryptocurrency

Basic Knowledge, Instruction

Investing in Cryptocurrency is super-profitable and considered a lucrative pie for investors. However, high profits will come with high risks. Therefore, the problem is how investors can still make profit from investing in Cryptocurrency and avoid potential risks. Learning how to invest is essential for new investors.

Reasons why investors have to face risks  

CRYPTOCURRENCY market is brand new, and the operation of this is completely different from other traditional investment channels. This is the reason why investors have many difficulties when putting their first steps in the market.

Potential risks that investors may run is relatively high because it proportional to benefits they can get in this game. There are both subjective and objective reasons.

Policies and market’s fluctuation are the objective reason. Since this currency is brand new and completely different from other currencies that are accepted in the world.

Therefore, countries, experts and even users still have suspicions and worries about Bitcoin and other Cryptocurrency. Bitcoin also has several difficulties because of strict policies of some countries in the world. This is the main reason that cause its fluctuation which causes the investor’s failure.  

And the subjective reason is investor’s lack of knowledge or information. Those who hastily invest without smart investment plans, plan B, C preparation are likely to lose their money.  

Potential risks when investing in cryptocurrency

Although the growth speed of Bitcoin and other Cryptocurrencies this year is quite fast, in fact, these currencies is on their early  stage. No one 100% predict if it will be globally accepted or removed in one day.   

Potential risks when investing tin CryptocurrencyPotential risks when investing tin Cryptocurrency

This is causing influences on Bitcoin and other Cryptocurrency’s fluctuation. Once deciding to invest in this field, you need to have knowledge about the following essential issues:

Legality

It poses one of the biggest risks to Cryptocurrency’s future. At the moment, some countries has banned the use and exchanges of Bitcoin and other Cryptocurrencies such as Bangladesh, Bolivia, Iceland, Vietnam,…With the limitation and prohibition, investing in this type of money faces some troubles.

Scalability

Another risk of Bitcoin is the domestic disagreements in increasing the size of transaction block.  Bitcoin’s growth means exchanges are increasing and Blockchain has to work more and faster. On average, it takes 30-40 minutes to finish a successful transaction.

Developers of Bitcoin Core has made a proposal to expand Blockchain but it is still under consideration. The miners will decide whether they support this idea or not. If this situation is not solved, Bitcoin transactions will continue getting troubles in a long time.

However, in September 2017, with the consensus of most miners, Bitcoin carried out Secwit and finished the increasing in capacity from 1mb to 2mb. Transactions are quickly solved.

Companies related to Bitcoin are attacked:

Big Bitcoin companies and exchanges are always ideal preys of technology criminals. This can cause the fall of Bitcoin’ price which sometimes happened in the past. Recently, that Bitfines was attacked make the price drop to the bottom.

According to statistics from 2009, about 1/3 available Bitcoin exchanges  were attacked, despite security improvement efforts of exchanges or start-up companies. This risk still might happen in the future, but these attacks only influence on Bitcoin’s price in a short time. Long term investors will not be disturbed.  

Bitcoin’s domination will be usurped by Altcoins

There are two concepts in digital currency world: Bitcoin and Altcoin (other digital currencies). Altcoin appeared with the aim to alter Bitcoin, and it can be a risk if it becomes the first choice of investors.

Altcoin is expected to be a better version of Bitcoin. Examples are Dash, Monero or Zcash that were born with the hope to improve the privacy of Bitcoin.  Or Litecoin with 4 times supply, and the issue time is only 2,5 minutes, thus transaction speed will be improved.

Altcoin might be a big risk when Bitcoin has some problems with its expansion. However, with the advantage of being the first currency of Blockchain, Bitcoin has a solid position in the digital currency world.

Bitcoin’s domination will be usurped by AltcoinsBitcoin’s domination will be usurped by Altcoins

51% Attack:

This is a risk that not all investors know about when they do not understand the technology behind Bitcoin. An 51% attack can reverse transactions and when they control the whole network. At the moment, mining activities are happening all over the world and Bitcoin is a decentralized network, however, if there is a group of miners controlling more than 50% of the network’s mining hashrate, this risk will exist.

Approach that will help you reduce risks as few as possible

At first, investors should carefully study about Cryptocurrency before investing. Information will help them thoroughly understand its operation to avoid making mistakes.

The current Cryptocurrency market is still unstable, so keeping information update is very important, as it helps to reach a solution when any change happens. At first, you should choose a safe investment.

You should only use your spare capital to invest to make sure you can wait for a longer time and there is no big influence on your finance when fluctuation happens.  

Cryptocurrency is a very new field in the market, but it receives a lot concerns of investors over the world. Before investing in this type of money, investors should carefully study about the market as well as its operation to have an overview of Cryptocurrency; find out smart approaches to avoid making mistakes; and update information to reduce potential risks as soon as possible.  

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