7 Risks Associated With Crypto Currencies

September 6, 2021 | Dwaipayan Regmi

What Wikipedia explains about crypto currencies is that this is the currency where the binary data is designed to work as a medium of exchange where the individual coin-based ownership would be recorded or are stored within a ledger that exists within a form or turns out to be computerized. Be it Bitcoin, Ethereum, or Dogecoin, the charm has been rising recently. It is believed that the daily turnover or of these currencies is in billions every day. It has been stated that even India holds a daily turnover of Rs 1000-15000 crore.

Though termed illegal – both Indians and Nepalese bunch are getting into this currency, and have been trading it. There is the belief that these forms of currencies are all about the future. Though there seem to be positive aspects that would be measured at any point in time. Bitcoin is supposed to be around for more than twelve years now, as the history of crypto currency was recorded since 2009. Be it because of a shortage of money, or looming economic problems – the charm has been increasing regularly.

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Major Risks In Crypto currencies

Following are the major risks that are associated with crypto currencies.

1. Volatility

The unexpected changes that would be seen in the market sentiment have a huge possibility to impact the prices that they would possess. Furthermore, it is not uncommon for the values of those crypto currencies to quickly drop in their amount. It is not known, when the prices would go high or when they may fall, so the biggest risk that these crypto currencies hold is regarding their volatility.

2. Unregulated

Crypto currencies are entirely unregulated aspects, that are not regulated by both Governments and the Central Banks. They operate on their own and have been gaining an increased level of attention. It is yet unknown whether to classify them as some sort of commodity or virtual currency, which creates further confusion in these recent days.

3. Fear of Error and Hacking

With improvement and advancement that could be noticed around, it is important to understand the fact that there lies equal chances of these crypto currencies to be hacked, or be equipped with some sort of error. There lies no perfect way to prevent them from such errors – viruses or any such threats which would attack them at any period. Hackers have been alert and have been attacking for a long, so it does matter here. Recently 600 million dollars worth crypto currencies were stolen – indicating how risky it is.

4. Fear of Discontinuation

Crypto currency-based trading does have an additional form of risks of discontinuation. If it gets discontinued, be that of any reason – operational issue, or regulatory issue, the investment would be all uncertain and would not be known about how they would operate around. Hence, a big bunch of investors does fear that this form of currency, which is said to be the future of trading could be discontinued at any point in time.

5. Easy Entrance, Complex Exit

On the other hand, what has been regarded that for crypto currencies there is more than 100 digital minted formation, which has democratized different aspects of finance. It has created a big and open door for entrance – but since this would be kind of uncorrelated to any form of the traditional economy, it can create market panics or runs too.

6. Unsafe Havens

Next crucial risk that gets attached is regarding coordination over clarity upon regulatory, financial, tax, or legal treatment. What would then count is the illegal term that has been defined by different regulatory bodies there. It is not equipped with a global financial system, and there is no integration as such which would create further risk in the entire process. It can be store for black money too.

7. Operational Risk

As the centralized clearing house would not guarantee the validity of such transactions as they do over the monetary transaction, that comes down as availability for reversing the monetary transaction within any coordinated manner if any issues be that related to compliance, or any fraud takes place, there would not be anyone to look after it. The solution is yet unknown.

(Mr. Dwaipayan Regmi is a banker.)

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