The advent of technology has created the digital era where even currencies exist digitally. A cryptocurrency is a form of a new currency that only exists virtually, and many people have adopted it to transact. The advent of digital currency has created a lot of dialogue among various stakeholders as they try to think about how to regulate the concept. Despite the concept being very new and unregulated, many people have engaged in the trade. Here we will discuss the risks you assume as you trade using different types of cryptocurrency.
Risk of Loss
Cryptocurrency trading requires that people purchase the crypto from a dealer through the legal tender. Also, people use the time to mine the cryptocurrency instead of purchasing them from a dealer. Once people begin trading, they risk losing a lot of money because of the volatility of the cryptocurrency. The prices are susceptible to changes in the overall economic status of the world. Therefore, when something unexpected happens and interferes with the global economy, people lose money as the cryptocurrency price dips. When the price becomes too low, people no longer recover the money they had initially invested.
It is Highly Unregulated
The governments have shown great reluctance to recognize digital currencies. People usually trade without the necessary safeguards, which becomes very risky. For instance, the Monetary Authority of Singapore has done little to guarantee the protection of the traders. The most it has done is limit the promotional messages of the different digital currencies to the public and recognize the digital currency as a good for tax purposes. Therefore, traders cannot get any legal relief if the service provider goes insolvent or if their funds get misappropriated. To learn more about the regulation of digital currency, visit https://www.fameex.com/en-AU/.
Likelihood Of Hacking
Those engaged in buying and selling cryptocurrency risk losing their accounts and investments to hackers. Malicious computer experts have recently hacked close to five hundred top accounts for a top cryptocurrency platform and siphoned millions of dollars. Even if the crypto platforms use software that allows for multiple authentications, the hackers will always find a way of bypassing the safeguards. Also, because of the intricacies involved in tracing hackers, the customer remains exposed and unable to claim back the lost proceeds at the end of the day.
Software Upgrades and Discontinuation
The software that enables the trading of digital currencies is owned by developers who engage in cryptocurrency mining. Therefore if they decide to change the software and the codes, many traders who are not tech-savvy will lose out. Also, the forks can result in permanent changes, which means that the older version will not run on the new version. The hard forks cause discontinuation of the trade, and many people lose investments.
Therefore, though digital currency traders have a high chance of reaping high profits from a single trade, they risk losing all their investments in a second. First, the government authorities have not regulated the industry to secure traders from manipulative traders, dealers, and losses. Therefore, customers chose the risk of losing everything and the opportunity to make profits in an unregulated trade.