A cryptocurrency is a digital currency that is used as a medium of exchange. This virtual currency uses cryptography for secure and verified transactions to control the formation of new units of a particular cryptocurrency. They are almost similar to e-money, like PayPal. Thus, it is clear that they also have some problems as classic e-payment system. Trading with cryptocurrency involves both the risks and reward. If you are a beginner in the realm of cryptocurrency you should understand the fact that crypto market is totally unpredictable and there are several risk factors associated with it. It is impossible to determine how the market will become tomorrow. The cryptocurrency experts can just give speculations based on their previous trading experience.
This digital currency coins are designed in encrypted and encoded way to enhance their security, but still there are also potential risk factors. This coding recognises the currency but it is impossible to recognize the owner of the cryptocurrency. The person who has the coin’s encryption code is then known as the owner of the coin. The coding does not say anything about the owner or the user. This anonymity increases the potential risks when the coin is taken. If you want to become a successful investor in the cryptocurrency market then you should have the required technical skill and the basic knowledge of how the Blockchain work. Below are some significant risk factors associated with the cryptocurrency market that the investor should be aware of:
It is quite impossible to predict the cryptocurrency market trend. There is a greater chance that you may end up with a great loss. If people start selling your chosen crypto coin then it is obvious that the price of the particular coin or token will decline resulting in a huge loss.
Destruction of the Private Key:
There are several cryptocurrencies which are stored in a digital wallet and are controlled by the possessor of both the private and public key relating to the digital wallet in which the coins are held. The private key plays an important role, if it is misplaced or damaged or compromised, the investor may become unable to access the coins that are held in the related digital wallet. If a third party get access to the private key then they also have access to the cryptocurrency.
Cyber Security Risks:
The cryptocurrency trading platform is vulnerable to cyber-security risks and other malicious activities. There is much news related to the server hacking of many cryptocurrency coins. As the cryptocurrencies are totally virtual coin there is a greater risk that the coins stored in the wallet can be hacked easily. In fact, if the private key is identified then there is a high possibility that they can easily transfer the coins into their wallet and once the process is done it cannot be reversed or tracked in any way.
There is a high chance that the government of any country can interfere with the cryptocurrency trading aspect. Moreover, they can pass legislative regulations to the cryptocurrency market trading. In more serious cases the government can totally ban the cryptocurrency trading. In such case, you cannot trade from that particular country. This will hugely impact your cryptocurrency market trading.
Risks Associated With the Transaction Method:
Digital currency can be traded on the numerous online platforms which are maintained by the third party service providers and the peer-to-peer transactions between the different traders. There are many marketplaces that simply bring together the counterparties without offering any intermediary services. They are not even regulated by any reliable authority. Thus, there is a huge risk associated with this double selling.
Other Associated Risks:
Online trading platforms are usually used to convert fiat currency into digital currency or to trade on cryptocurrency for another. However, it is a true fact that the digital currency trading platforms are unregulated and provide limited transparency in case of any operations. There are several cases of fraudulence, security breaches and business failure where the investors cannot gain any compensation.
The virtual currencies are the part of the new and the rapidly evolving “digital assets industry” that itself is a subject of uncertainty. The digital currencies are relatively less used in the retail industry and commercial marketplace. Most of the cryptocurrencies are not supported by the Central Banks, National or International organisations. Thus, their value is strictly determined by the value of that crypto market. This also brings that loss of confidence among traders may bring about trading activities and a sudden drop in the value.
If you are a novice trader in the cryptocurrency market, then you should start by selecting a company that offers an exchange and wallet. You need to select the trading coin wisely. You can start with the most popular coin in the crypto market like Bitcoin (BTC) and Ethereum (ETH). You also need to update yourself regularly to become a successful trader.