The cryptocurrency market is a popular platform that enables people to have an additional source of income or make it their primary source of income. Cryptocurrency assets are digital representations of a value that can be transferred, traded, or stored electronically. A variety of crypto assets, including Bitcoin and Ethereum, are available in the market.
We have been hearing about the advantages and importance of crypto assets in traders’ lives for quite some time now, which is indeed true. However, this activity is not as straightforward as it appears. There are two sides to every coin, and the cryptocurrency market and its assets are no exception. In this blog, we will be unmasking the other side of cryptocurrency assets.
Digging deeper, our team learns more facts about cryptocurrency assets than just disappointed investors. Bringing to our readers’ attention, our investigators have discovered child exploitation under a North Korean hacking scheme and terrorism fundraising appeals as well. It is horrific to read such news. However, we will stick to how it impacts investors’ finances.
Dark Sides Associated with CryptoCurrency Assets
The purpose of this blog is to make you aware of the untold occurrences within the crypto market. Some common negative impacts observed in recent years are as under:
1. Volatility:
Trading in cryptocurrency is unpredictable, and the continuous fluctuation in the market can result in substantial gains and losses. Investors should know that risk increases when they treat cryptocurrency as an investment asset. Although risk is involved in any kind of trading, volatility is relatively more in a crypto market.
2. Unregulated:
This point has its advantages and disadvantages. Compared to traditional stock trading, investors feel that there is a lack of regulation in its working. Decentralization is a good decision, but there is always a ‘but’. It exposes investors to potential risks such as fraud, market manipulation, and illegal activities like money laundering and tax evasion.
3. Security:
The risk affects the investors and not the whole program. Cryptocurrency asset trading platforms are secured with the help of blockchain. On the other hand, investor wallets and individual accounts are not in control of the decentralized system. It is at the owner’s own risk. They can be vulnerable to hacking and cyber-attacks.
Some high-profile cases are registered because of a lack of security, resulting in major losses. Furthermore, if traders forget their account credentials and are unable to access their private keys, it means that they lose their cryptocurrency holdings forever.
4. Scalability issues:
Sometimes, cryptocurrencies face scalability issues despite the admiration that a large number of transactions can happen quickly and efficiently on the blockchain. In this way, the money is stuck while channelizing it could mean high transaction fees and delays in processing time. It results in hindrances to the widespread credibility of the cryptocurrency market.
Let’s understand with an illustration
You entered a famous ice cream shop, due to summer the place is crowded. The problem is, there is only one person to serve the customers and hence it takes time. It results in frustration as they are not getting served at the expected time.
Similarly, in the cryptocurrency world to process transactions a channelized network is built. If the network is not strong enough to handle a large number of transactions at a time, it can become overwhelmed.
So the moment a high volume of transactions is stricken, processing becomes time-consuming. The confirmation will get delayed and adding it to the blockchain will become a real challenge. Here, transaction fees will get higher and the irony is that traders are willing to pay more to make the process faster. Just like, you are paying more to break the queue and get the ice cream. This whole functioning comes under scalability issues.
5. Environmental Sustainability:
Cryptocurrency assets are hindering environmental sustainability because to produce coins like Bitcoin a lot of computational power and energy is consumed. The growing reach of crypto has led to carbon emissions and environmental concerns and therefore raised questions about sustainability and its long-term impact.
6. Speculation and bubble risks:
It is an important point to understand. Bubble risk is a major risk that can lead to a huge financial loss. Understand it with an example:
Let’s imagine a toy car worth $10, made of premium materials and available at cheaper rates. However, as the demand for the product enhances the rate will also get higher.
Now, this demand triggers the buyer’s mindset and they won’t think twice about purchasing a toy car at a high price. Let’s suppose, you purchased a toy car for $50 and its resale value is twice the buying price, around $100. This is called ‘bubbling up’.
But, after some time, traders will get to know that the prices are growing at an alarming rate and it is not worth it, immediately, the value of toy cars will drop down. Anyone who has purchased a toy car for that duration may face a high loss because the demand for the same has pushed down. This phenomenon is known as ‘bubble burst’.
Similarly, ‘crypto bubbles’ work in the same way that once it is devalued, the bubble bursts. This speculation is one of the worst financial losses. Investors should be aware of this scenario and shift from one coin to another by keeping themselves updated with the market movements and acquiring in-depth knowledge.
7. Acceptance and usability:
To your knowledge, you may have noticed cryptocurrency is a globally renowned activity but still is not accepted as an actual payment option. It degrades usability even if people are earning handsome profits.
Even if the platform is highly accepted in terms of investing and trading, crypto trading is given less credibility than it deserves. We never heard of anything being exchanged for cryptocurrencies. It might have an online presence but its acceptance and usability are still limited in this sector. It is far from replacing the traditional money mechanism.
Summary
We are glad you are habituated to investing and trading in cryptocurrencies. However, the dark side associated with it cannot be ignored. It is better to take known risks than unknown ones. Novices who are unaware of these situations can be alert and make sure that they are taking calculated risks to earn higher profits.
