Many people make money by investing in cryptocurrencies. And while some see the prospect exclusively in Bitcoin, others prefer to invest in smaller, weaker cryptocurrencies. Some trade with them, others prefer mining. Still, they all have the same goal, and that is to increase their bank account. To achieve that, they need to do everything in their power to protect their investments, because there are many potential risks due to which all the money and money could fall into the water.
To successfully invest and trade cryptocurrencies, you need to know a few key things, and the most important is to know the working principle of blockchain, and in the text below you can read more about what investors should pay special attention to when talking about investing.
Table of Contents
1. Unsafe crypto wallet – loss of the private key
Cryptocurrencies are known to be kept in a wallet like any other money, but with a slight difference – this one is in electronic form. Wallets are divided into two groups – hot and cold. Of course, both exist only in digital form. Still, there is a big difference between them.
In other words, the wallet interacts with the blockchain and their main task is to receive cryptocurrencies.
There are two subtypes of hot wallets, namely desktop and mobile. What they have in common is that they need constant access to the Internet, and the keys are stored in the media, which is connected only in the case of a transaction. What we can say is that hot wallets are not safe precisely because they require internet access. In doing so, the desktop usually takes up a lot of hard disk space. On the other hand, we have a mobile wallet that is very practical and ideal for daily use. However, its disadvantage is that it is for single use only.
On the other hand, we have a cold wallet, ie hardware software that will keep your money safe, but it will also cost you a real fortune. Still, it is an investment that should save you money, so we will therefore say that this is a smart investment that you do not need to regret spending.
2. Peer-to-peer transaction risk
It is known that digital currencies can be traded in several ways, and one of them is peer-to-peer. However, we cannot say that this is a very safe way given the fact that the transaction between the two parties is carried out without intermediary services, and therefore the risk of double sales is at stake.
3. Price variability
We are witnessing that the new situation caused by the coronavirus pandemic has left a big mark on the economy worldwide. In February 2023, the cryptocurrency market experienced a sharp decline, and although the situation has visibly improved, the value is still 30% lower than it was until February. This risk still exists and unpredictable situations like this can cause great damage.
4. Slow network
With the mining process, bitcoins are created and transactions are checked. For every successful addition of a block to the blockchain, miners get bitcoin, but here there can also be a problem of blockchain deceleration if there are too many transactions. This can happen to other currencies, not just bitcoin.
5. Cybercrime victims
Everyone who spends time online is exposed to cybercrime, especially if money plays a major role in it. So far, hackers have been hit by some of the biggest exchange offices that have lost hundreds of millions of dollars. To avoid the risk of hacker attacks, the use of an exchange office is recommended, but an online broker is considered safer to use because they operate under strict regulations.
6. Market manipulation
Although it is not and will never be confirmed, there is a suspicion of trading from within, that is, that some work in collusion and that there is a group of people who own a huge wealth measured by cryptocurrencies. Many seeds, known as “pump and dump”, are used as a manipulative way to make coins burst by tens of percent in a short period to return to the old one the next day. In addition to this, other embezzlement tactics known as dark pools and sell walls are known.
It is important to be careful because by falling into one of the traps of big manipulators, you can lose everything.
7. No regulation
It is very difficult to understand the regulations under which the bitcoin market operates. The fact that the Government does not have a clear position on the existence of cryptocurrencies, ie that no fees are paid, makes it very attractive for investment. However, this can become a problem if a particular currency becomes in competition with the Government. We will see what the coming period brings us.
8. Limited use
Although for some bitcoin represents a step towards monetary exchange, it is still not accepted as a sustainable form of currency. And while some online stores and travel companies accept payment in cryptocurrencies, there are still plenty of those who do not.
9. Money laundering
There are insinuations that criminal groups are used to trade cryptocurrencies, that is, that they commit various scams such as money laundering and many other crimes. Very often investors can be seen in the position of a victim. Investing in cryptocurrencies always carries a certain amount of risk, because when they are stolen, there is no practice of returning the money.
Investing in cryptocurrencies is risky, but worthy. Therefore, investors need to have a good plan before investing their money. One of the major rules when it comes to investing is never invest more you are ready to lose and always invest in several currencies, except in one.
Investors should not run away from applications that are made to do all the work for you, or to monitor the situation on the market and inform you of any changes because, thanks to artificial intelligence, the software can react faster than the fastest investor.
Another very important thing is to find a reliable platform to spare yourself unexpected losses. You can read more about it https://anon-system.live.