Why you need a better understanding of crypto

  • Cryptocurrency claims to be an anonymous form of transaction, but they are actually pseudonymous which means they leave a digital trail that the Federal Bureau of Investigation can decode. So, there’s a possibility of interference from federal or government authorities to track the financial transactions of normal people.  
  • On a blockchain, there is a constant risk of a 51% attack which means It is a situation when a miner or group of them gets more than 50% of the network’s mining hash rate control. While in control, an ill-natured group can reverse the transaction that is completed, pause the transaction in process, double spend coins, prevent new transactions from getting validation and much more. Nevertheless, this attack is only a risk to recently hard-forked networks and new blockchains.
  • The majority of blockchains work on the proof-of-work consensus mechanism. Network participants are required to use powerful ASIC computers and the right hash to make a block added to the network. Due to this, there is excessive power consumption and countries are taking majors to lower its impact on the environment. 
  • The lack of key policies related to transactions serves as a major drawback of cryptocurrencies. The no refund or cancellation policy can be considered the default stance for transactions wrongly made across crypto wallets and each crypto stock exchange or app has its own rules.
  • Scalability: Probably the biggest concerns with cryptocurrencies are the problems with scaling that are posed. While the number of digital coins and adoption is increasing rapidly, it is still dwarfed by the number of transactions that payment giant, VISA, processes each day. Additionally, the speed of a transaction is another important metric that cryptocurrencies cannot compete with on the same level as players like VISA and Mastercard until the infrastructure delivering these technologies is massively scaled. Such an evolution is complex and difficult to do seamlessly. However, some have already proposed several solutions, including lightning networks, sharding, and staking as options to overcome the scalability issue.
  • Cybersecurity issues: As a digital technology, cryptocurrencies will be subject to cybersecurity breaches, and may fall into the hands of hackers. We have already seen evidence of this, with multiple ICOs getting breached and costing investors hundreds of millions of dollars this summer alone (one of these attacks by itself resulted in the loss of $473 million). Mitigating this will require continuous upkeep of security infrastructure, but we are already seeing many players dealing with this directly, and using enhanced cybersecurity measures that go beyond those used in the traditional banking industries.
  • Price volatility and lack of inherent value: Price volatility, tied to a lack in inherent value, is a major problem, and one of the specifics that Buffet referred to specifically a few weeks ago when he characterized the cryptocurrency ecosystem as a bubble. It is an important concern, but one which can be overcome by linking the cryptocurrency value directly to tangible and intangible assets (as we have seen some new players do with diamonds or energy derivatives). Increased adoption should also increase consumer confidence and decrease this volatility.
  • Regulations: Buffet also touched on this problem in his talk:“It doesn’t make sense. This thing is not regulated. It’s not under control. It’s not under the supervision [of] any…United States Federal Reserve or any other central bank. I don’t believe in this whole thing at all. I think it’s going to implode.”Even if we perfect the technology and get rid of all the problems listed above, until the technology is adopted by federal governments and regulated, there will be increased risk in investing in this technology.Other concerns with the technology are mostly logistical in nature. For example, changing protocols, which becomes necessary when the tech is being improved, can take quite a long time and interrupt the normal flow of operations.

Volatility

Cryptocurrency prices can often fluctuate. While this volatility can lead to quick profits, it can also cause significant financial losses for investors under certain circumstances, such as when the price of cryptocurrency dips suddenly. This unpredictability can be a risky investment choice, especially for individuals looking for steady returns.

Risk of losing coins

To access the virtual wallet where the cryptocurrency tokens are stored, several cryptocurrencies, including Bitcoin, require the owner to have possession of a private key. However, should a private key ever be lost or stolen, it is impossible to demonstrate another proof of ownership or to recover the cryptocurrency tokens.

Excessive cost of production

Depending on its type, mining cryptocurrency may require a large supply of electricity and other resources. For example, most Bitcoin-related costs are associated with the energy required to create the currency, according to Harvard Business Review. This increased power usage may result in local pollution, noise and other consequences — such as increased greenhouse gas emissions — for communities living near the mining sites.

No refund or cancellation

Cryptocurrency is nonrefundable. This means that it can’t be refunded to the sender in cases where there is a disagreement between the parties involved or when money is inadvertently sent to the incorrect wallet. As such, people may use it to defraud others. Since there are no reimbursements, it’s simple to fabricate one for a transaction where the products or services were never delivered.

  • Related Posts

    Bull Run- another telegram tap and mine

    Bull Run. another telegram mining

    What can you buy with cryptocurrency?

    When it was first launched, Bitcoin was intended to be a medium for daily transactions, making it possible to buy everything from a cup of coffee to a computer or even big-ticket…

    Leave a Reply

    Your email address will not be published. Required fields are marked *

    You Missed

    Bull Run- another telegram tap and mine

    Bull Run- another telegram tap and mine

    Web3 and the Internet

    Web3 and the Internet

    What can you buy with cryptocurrency?

    Why you need a better understanding of crypto

    Why you need a better understanding of crypto

    The advantages of cryptocurrency

    The advantages of cryptocurrency

    Simplest way to understand cryptocurrency

    Simplest way to understand cryptocurrency