Bitcoin is a digital currency that has exploded in popularity in recent years. While it has provided many people with the opportunity to make a lot of money, it also comes with many risks. This blog post will discuss the top six risks of investing in Bitcoin. So if you’re thinking about investing in Bitcoin, make sure you read this post first.
Let’s take a look at these risks.
- Fraud
One of the main benefits touted by bitcoin supporters is that it’s less susceptible to fraud than traditional payment methods. While this may be true, it’s important to remember that bitcoin exchanges themselves are frequently targeted by hackers who can breach large exchanges and drain customer accounts.
It should go without saying that such an incident would not only lead to financial losses for customers but could also damage the public perception of the benefit of using cryptocurrencies like bitcoin over traditional currencies.
- Technology Reliance
Bitcoin is a technology that’s still in its early stages. Just because it was the first cryptocurrency to the surface doesn’t mean it’ll be around forever. Plenty of other digital currencies could grow and overtake Bitcoin as the largest crypto by market cap, including several that already have a sizeable lead over Bitcoin.
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- Negative Publicity
The media loves to cover Bitcoin negatively, so much so that news stories will surface about how people have lost their life savings because they invested all their money in Bitcoin, and it crashed. When you read these stories, keep in mind that everyone who sold during a crash or bear market lost money – even if they locked in huge gains during those periods prior to cashing out.
If your investment thesis for Bitcoin is based on the assumption that negative news reports will drive down the price of Bitcoin over time, you’re setting yourself up for a major disappointment.
- Limited Use
Bitcoin is not widely accepted, so its use as a currency pretty much stops at the online level. Bitcoin might be the future of currency, but it isn’t widespread enough to be considered ‘standard’. People are using Bitcoin more frequently now, so this risk may decrease over time. But for now, Bitcoin is still very limited in its physical uses.
- Financial Loss
While investing in Bitcoin, you must be aware that it could lose its value at any time. If Bitcoin goes out of favour tomorrow and disappears from the market, then your investment will go down the drain. Also, there is no guarantee that bitcoin will continue to rise in price, and it can just as easily fall off a cliff and never recover again.
So, when you invest in bitcoins, don’t put all your eggs in one basket, so to speak — diversify.
- Block Withholding
One of the biggest risks Bitcoin investors need to be on the lookout for is block withholding attacks. Block withholding attacks are generally more complicated than simply overpowering a network majority with a hash rate.
Instead, a miner must find a block solution before broadcasting it to their peers, but not broadcasting that solution to any other peers. Then, they find a different block solution and broadcast that to the network.
The Bottom Line
Bitcoin is a new form of virtual currency issued and usually controlled by its developers and used and accepted among specific virtual community members. Bitcoin can revolutionize e-commerce markets in the same way it changed how people pay for things online. However, there are some risks involved with purchasing Bitcoins since they are not tangible assets.