The document outlines several disadvantages and risks of blockchain technology and cryptocurrency:
1. Blockchain technology is new and still being figured out, allowing some criminals to take advantage in the meantime.
2. Cryptocurrency investments are extremely volatile, with values that can rise and fall sharply in a short time period.
3. Cryptocurrency scams are a growing problem, using fake apps and websites to steal users' crypto assets.
The document outlines several disadvantages and risks of blockchain technology and cryptocurrency:
1. Blockchain technology is new and still being figured out, allowing some criminals to take advantage in the meantime.
2. Cryptocurrency investments are extremely volatile, with values that can rise and fall sharply in a short time period.
3. Cryptocurrency scams are a growing problem, using fake apps and websites to steal users' crypto assets.
The document outlines several disadvantages and risks of blockchain technology and cryptocurrency:
1. Blockchain technology is new and still being figured out, allowing some criminals to take advantage in the meantime.
2. Cryptocurrency investments are extremely volatile, with values that can rise and fall sharply in a short time period.
3. Cryptocurrency scams are a growing problem, using fake apps and websites to steal users' crypto assets.
The document outlines several disadvantages and risks of blockchain technology and cryptocurrency:
1. Blockchain technology is new and still being figured out, allowing some criminals to take advantage in the meantime.
2. Cryptocurrency investments are extremely volatile, with values that can rise and fall sharply in a short time period.
3. Cryptocurrency scams are a growing problem, using fake apps and websites to steal users' crypto assets.
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Disadvantages
1. Blockchain technology is still relatively new
Blockchain’s cryptographic nature—as well as the decentralized peer-to-peer network that validates transactions—provide some inherent security features. For example, the use of encryption with hashes and timestamps makes it virtually impossible to alter the data in a block once it’s been added to the blockchain.
But decentralized blockchain technology is still relatively new, and we’re still figuring out how to best use and regulate it. In the meantime, some criminals have been able to take advantage of the anonymity offered by crypto to scam users, who may have little recourse to reclaim their assets.
2. Cryptocurrency is an extremely volatile investment
Cryptos tend to be unstable investments, so don’t be surprised to see their value go up or down by very significant amounts. In fact, they’ve been known to rise and fall by double- digit percentages within the span of hours. Past performance isn’t a good indicator of future performance when it comes to any risky investment—and that certainly includes cryptos. All this said, you shouldn’t invest more than you can afford to lose.
3. Cryptocurrency scams are a growing concern
Unfortunately, the world of cryptocurrency is awash with scams. Criminals may use fake apps, crypto wallets, and emails to lure you into giving up your private keys, giving them access to your crypto assets. NFT scams are also increasingly common, with some buyers being duped by fake accounts with fake names, or promised royalties that never materialize.
Cryptos themselves can also be quite scammy in nature. This was the case with the Squid Game token, which had a built-in mechanism that prevented many holders from reselling their tokens.
4. Cryptocurrencies are still largely unregulated
Despite some moves around the world to regulate cryptocurrencies, they remain less regulated than many other asset classes. If a platform that exchanges or holds your crypto assets goes bankrupt, there’s a risk you could lose all your capital. Similarly, your assets could be at risk if an exchange holding your crypto is hacked by criminals.
In addition, cryptocurrency taxation is in its infancy, and future changes could have ramifications for your investments. 5. Diversity is key There are thousands of cryptocurrencies, and many of them are still in the earlier stages of development. It’s still difficult to tell the ultimate winners from the losers.
As with risky investments in general, it’s never a great idea to put all your eggs in one basket. If you choose to invest in cryptocurrency, it could be better to spread your investment across a variety of different cryptos.
Highly Unpredictable Value: Virtual currencies are easy to create and spread in the market quickly. Their underlying value is highly subjective and unpredictable. As a result, prices can swing wildly upward and crash without warning or any change in the real economy.
Difficult to Cash Out Investments: Virtual currencies are not traded on traditional exchanges by established financial institutions. If you purchase one of these virtual currencies, you might not be able to find a buyer for it when you want to sell.
Conflicts of Interest: Many operators of virtual currency trading platforms are
themselves heavily invested in virtual currencies, and trade on their own platforms without oversight. The financial interests of these operators may conflict with your interests.
Increased Risk of Market Manipulation: Many virtual currency trading platforms have few, if any, rules about insider trading or other protections available to traders on traditional stock exchanges. In addition, many trading platform operators are not appropriately monitoring for market manipulation or other harmful trading activity.
Limited Protection from Fraud: There are no central or comprehensively-regulated
exchanges, like the New York Stock Exchange or Nasdaq, for virtual currencies. Virtual currency trading platforms operate from various places around the world, many of which are inaccessible to American law enforcement. Most platforms are subject to little or no oversight. If you are the victim of fraud, you may have no recourse in the United States.
RBI cautions users of Virtual Currencies against Risks
VCs being in digital form are stored in digital/electronic media that are called electronic wallets. Therefore, they are prone to losses arising out of hacking, loss of password, compromise of access credentials, malware attack etc. Since they are not created by or traded through any authorised central registry or agency, the loss of the e-wallet could result in the permanent loss of the VCs held in them. Payments by VCs, such as Bitcoins, take place on a peer-to-peer basis without an authorised central agency which regulates such payments. As such, there is no established framework for recourse to customer problems / disputes / charge backs etc.
There is no underlying or backing of any asset for VCs. As such, their value seems to be a matter of speculation. Huge volatility in the value of VCs has been noticed in the recent past. Thus, the users are exposed to potential losses on account of such volatility in value.
It is reported that VCs, such as Bitcoins, are being traded on exchange platforms set up in various jurisdictions whose legal status is also unclear. Hence, the traders of VCs on such platforms are exposed to legal as well as financial risks.
There have been several media reports of the usage of VCs, including Bitcoins, for illicit and illegal activities in several jurisdictions. The absence of information of counterparties in such peer-to-peer anonymous/ pseudonymous systems could subject the users to unintentional breaches of anti-money laundering and combating the financing of terrorism (AML/CFT) laws.
