Risks You Must Know About Cryptocurrencies in 2022
Cryptocurrencies are the hottest topic in almost all circles as more people make the big decisions to get involved. By the start of January 2022, there were more than 6,000 cryptocurrencies and over 300 million users across the globe.
This number is growing rather fast, with the confidence rate hitting 97% by the end of 2021. Now, no one wants to be left behind, but it is important to start by understanding as much as possible about digital coins before buying. Particularly, you need to learn about the involved risks.
This article was prepared to demonstrate all that you need to know about crypto risks. We will also highlight what you can do to keep the risks low.
What are Cryptocurrencies?
Before we can look at the risks associated with cryptocurrencies, let’s start by understanding what they are. These are digital currencies that are secured using cryptography technology. Unlike fiat currencies, crypto coins are decentralized and only exist in their native blockchain networks.
Being decentralized implies that the coins do not have a central authority, such as central banks. Instead, control is decentralized, implying that all the operations in the respective blockchain networks rely on consensus.
When you initiate a transaction, perhaps to send some coins, on the network, it is the nodes or users on the network who does the job. Indeed, the work of the nodes is simple: check whether the sender has ample coins to send, confirm transactions by transferring the coins to the recipient, and adding that information to the next block.
Cryptocurrencies can be used just like fiat currencies, but the transactions are only possible between those who are members of the same network. For example, you can only send ETH to another person on the Ethereum blockchain. If you need to send ETH to another person on the Cardano blockchain, the first step is changing the coins to the targeted network. Make sure to use a trusted platform, such as hi.com, to do the conversion.
Risks that You Need to Know about Cryptocurrencies
Cryptocurrencies come with a lot of benefits, such as offering you the opportunity to make some returns when the price increases, but they also come with a number of risks. So, here are some of them and how to avoid them.
High Volatility
The most notable risk of using cryptocurrencies is that they are highly volatile. The price of the coins can be so high today and then falls with a huge margin in response to the happenings on the market. For example, the price of Bitcoin shot up by about 5% when Elon Musk indicated that Tesla would start accepting Bitcoin.
However, it fell with almost the same margin when Musk indicated that he had changed his mind a few days later. This is only one instance. Cryptocurrencies’ prices can also shoot down or up when new policies prohibiting them are released, banks start accepting them, or new coins hit the market.
Risks of Losing the Private Keys
When you buy crypto coins, one of the most important things is the private keys. You are required to keep these keys as safe and private as possible. However, this is not always easy for many people. The risk of losing the private keys always looms. If you use a desktop wallet, the computer can crash. But even a hardware wallet can get lost and the hot wallet hacked, resulting in the loss of your coins.
Risks of Hard Forks in Cryptos
As we indicated earlier, cryptocurrencies are governed through consensus, but even this model can still hit a snug. When the nodes or participants cannot agree about important issues, the risk of a hard fork always looms. In most cases, forks result in the weakening of the new coins. Let’s take the example of the Ethereum hard fork of 2016.
Everything appeared to be going as planned about the Decentralized Autonomous Organization (DAO), which was intended to run as an investor-directed venture capital firm. However, hackers exploited vulnerability in the DAO in 2016 and siphoned 3.6 million.
The idea to raise the money and return to investors divided the blockchain users, resulting in a hard fork that saw the creation of Ethereum Classic and Ethereum. Other coins that have gone through hard forks include Bitcoin, which has been forked a number of times to create Bitcoin Cloud, Bitcoin Gold, and Bitcoin Private.
These are some of the risks that you need to know when getting into cryptos, but the lovely thing is that you can minimize them by working with experts. With experts on your side, you can learn more about cryptos, the emerging challenges, the best wallets to use, and how to keep your coins safe. One such platform of experts is hi.com. Visit them now for the best crypto services or help to send, save, earn, and convert cryptos.
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