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Bitcoin – Great opportunity but understand the risks!!!

 

Many of you might have heard of the valuation surge in cryptocurrency space led by the poster child – Bitcoin.

The marquee proponents like Raoul Paul, Chamath Palihapitiya, Michael Saylor, or even institutional investors like JP Morgan, Citi bank, etc., are gung-ho about the future of the space, and bitcoin, in particular.

However, what is missed out in most of the conversations on the digital or mainstream media is the risks associated with the cryptocurrency space, which will be the major hindrances in its adoption in our daily use cases.

A few of these are listed below:

Hacking of crypto exchanges: This has happened several times in the last few years and billions of dollars have been lost. So, it is one of the most significant risks that may make you lose all your money if it is not stored properly.

Regulatory offense by central banks: Although central banks have started accepting the existence of a few of the crypto coins like BTC, ETH, there are many which can be hit real hard if any central regulator decides to come to it. Ripple XRP became the latest example when SEC law-suite made XRP lose almost 75% of its peak value within a few days.

Bitcoin miners decide to increase the issuance limit: One of the reasons behind BTC’s current valuations is its limited supply of 21 M coins estimated by the Year 2140. To deal with exponentially increasing demand, if any hard fork of the Bitcoin chain increases the limit, it will have a significant impact on the valuation. This one is a remote risk but still possible.

An increase in interest rates: The pandemic has compelled many central banks to reduce the interest rates to an almost all-time low. It has increased the value of all assets, and crypto-assets are not any different. So, if any event makes the central bank reverse the decision in the near future, it will reset the valuations immediately.

Slowness in its transaction: This is the major hindrance in Bitcoin’s adoption in our daily lives as a mode of exchange. Many new investors would be surprised to know that bitcoin can only execute 4-5 transactions per second (TPS) on average. It is almost 400 times slower than what credit card networks like Visa, Mastercard can do. So when the dust settles, and people look for this use case, bitcoins bulls may have to retract, and with Bitcoin, altcoins will follow the suite.

Bitcoin scams denting the credibility in daily use: while scams are not unique to cryptocurrencies, their complex transaction tracking and transaction irreversibility make them extremely vulnerable to errors. Moreover, because one of the ways of cryptos coming into circulation is through genuine bounties (awards), many investors may mistake fraudulent websites for genuine bounties.

To give an example, you can see the screenshot where seemingly genuine live streaming of expert talks on YouTube is combined with the Giveaway Scam.

https://www.youtube.com/watch?v=1Zw3YRi_NaI

So, while I have also maintained fractional investment in cryptocurrencies, I keep reminding myself of risks, which may spoil the party any second if materialized in full scope.

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