By Ethan James, Trending Writer
Cryptocurrency is all the craze amongst those looking to make quick cash, seeking other options besides venture capital, or even following the new popular thing. With every innovation, a step back is needed to look at the innovation at not just face value, but future value and potential risk. Cryptocurrencies, like Bitcoin, Ripple, Ethernum, Dash, and Litecoin, are perfect examples of why we need to understand further.
One of the greatest dangers so far present with cryptocurrencies is their volatility. The inability to pinpoint valuations on cryptocurrency has been a double-edged sword. In some cases, investors have reaped a fortune in the upward volatility of the cryptocurrencies out there, but not everyone has fared as well. Fluctuations of price based on speculation, fear, or external factors can cause dramatic drops in valuation and cause major loss in valuation with no guarantee or legal back up, insurance, or sort of protection from the loss.
This creates huge risk that many are not willing to subject their portfolios to, but those that do are in danger of legal ramifications, either from unreported gains in tax systems, lack of insurance, or financial protection on such large debts lost. There have been reports of investors taking out loans, remortgaging houses, and maxing out credit cards to try and invest in cryptocurrencies. Even worse, in some cases, people use cryptocurrency as a way to money launder.
Another one of the dangers of cryptocurrency is the fact that it is anonymous. Although this is the main appeal of cryptocurrency, the issues that arise from this can be concerning. There is not a way to claim cryptocurrency as yours without the password and devices used to access the digital currency. This can be problematic in the fact that if someone else, including hackers, accesses the information or device used to access cryptocurrency, it is hard to prove it is yours and nearly impossible legally try and retrieve it. Also, there has been an issue occurring where if the cryptocurrency is sent to the wrong place or person, there is no way to get a refund. The government is also finding cryptocurrencies’ anonymity to be an issue in keeping of track of taxes for investors, causing there to be major complications in how to tax, when to tax, and who to tax. This in turn is discouraging some investors whom fear high taxes.
As governments look to pursue their own official virtual currencies, friends and family pursue investing in cryptocurrency, and possibly your own interest in investing into cryptocurrency, it is important to keep in my the potential risks. Understanding these risks can help protect from making rash decisions based on speculation and encourages seeking information before investing.
A version of this article appeared in the Tuesday, March 20th print edition.
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