The Dark Side of Cryptocurrencies

Cryptocurrencies have risen to fame in recent years as many investors foresee a promising future for virtual currencies. However, the risks associated with them have significantly hindered their growth and downplayed their benefits. Recent events have caused the cryptocurrency bubble to burst, revealing cracks in the concept of cryptocurrency. Despite its viable underlying blockchain technology, this article highlights several reasons why you should avoid investing in cryptocurrencies… at least for now.

1. Uncertainty and Volatility

Cryptocurrencies are relatively new in the investment sphere and no one really knows how much they are worth. They have no intrinsic value as compared to commodities like gold which can be made into jewelry, or traditional currencies backed by governments. Its extreme price volatility is also affecting mass adoption which casts further doubts over whether cryptocurrencies can ever be used as a real currency. To put this into perspective, the price of Bitcoin fell from US$19,000 in December 2017 to just over US$6,800 in August 2018, a drop of 64% in a span of just 8 months.

2. Security

Despite cryptocurrencies boasting high security using cryptography and blockchain technology, there are still concerns regarding its security. There have been several high-profile hacks since the inception of cryptocurrency exchanges, with the most notable being the US$500 million Coincheck breach in January. Clearly, more work needs to be done to enhance the security infrastructure surrounding cryptocurrencies.

3. Government Regulation

As cryptocurrencies are unregulated, many countries worry about how this might affect the economy and have since put in place control measures. This threatens the potential of virtual currencies as they are a government regulation away from shooting up or falling drastically in value. For instance, China’s extreme crackdown on cryptocurrencies have caused their values to plummet significantly.

Final thoughts

From an objective point of view, one is likely to conclude that cryptocurrencies have a lot of potential, but a lot of problems to overcome. However, it remains to be seen how these problems will be addressed, with Ethereum founder Vitalik Buterin warning that prices of cryptocurrencies “could drop to near-zero at any time”. As such, it is best for one to steer clear of cryptocurrencies for the time being.

By Guan Jia, Chee

References:

1. https://sg.finance.yahoo.com/quote/BTC-USD?p=BTC-USD%3D – “Price of Bitcoin USD” by Yahoo Finance, accessed on 15th July 2018

2. https://www.forbes.com/sites/tromero/2018/02/14/how-the-500-million-coincheck-hack-exposes-deeper-security-flaws-in-corporate-japan/#34e3c8f24113 – “How the he $500 Million Coincheck Hack Exposes Deeper Security Flaws In Corporate Japan” by Tim Romero, accessed on 15th July 2018

3. https://www.theguardian.com/technology/2018/jan/17/bitcoin-continues-slide-drop-russia-china-regulatory-fears-cryptocurrency - “Bitcoin continues rapid slide as Russia and China stoke regulatory fears” by Samuel Gibbs, accessed on 15th July 2018