Cryptocurrency has been one of the hottest topics among everyone all over the internet for quite some years now, and its fame blew up exponentially ever since covid-19 spread in the world, and Bitcoin, the most popular cryptocurrency as of now, saw a huge hike in its price. In terms of engagement, Bitcoin, or any other cryptocurrency, is not different from any other forms of high-risk high-return investment, and just like any other investment, cryptocurrency has its own risks and drawbacks, which are often overlooked by most people when they decide to risk their money in the cryptocurrency market. Many famed investors (which include the world’s most famous investor Warren Buffet) refer to cryptocurrencies like Bitcoin as a “bubble” and an inflated investment, which will sooner or later face a huge drop in its price. As such, it is important to discuss and understand the drawbacks of cryptocurrency, which is believed to be the currency of the future, and which may refrain from mainstream adoption of these technologies in the near future.
Con 1:- Scalability
The number of digital coins and currencies exceeds ten thousand, and adoption of many of these coins is increasing rapidly, it is still heavily dwarfed by the transactions that payment giants like Visa process each day. The infrastructure offering the cryptocurrency services needs to be advanced greatly before crypto can hope to compete with the speed and level of the likes of Visa and MasterCard. Cryptocurrency is still in its infancy, so such an evolution will take a lot of time, and different difficulties and complexities will arrive, and although even as of now different solutions are being offered to make cryptocurrency a viable option, nothing has been implemented yet.
Con 2:- Losing wallets and cybersecurity
Wallets are stored in hard drives, and just like any other form of data, they can get corrupted if a virus attacks them, or they just simply get lost. There was the recent story of a guy from the USA who apparently owned one million dollars worth of Bitcoin stored his in his computer drive, which was completely lost when he accidentally threw the computer drive away along with the trash, and since cryptocurrency is not stored like money at the bank, something like this happening means that the crypto is lost forever. Losing the private key, without which it is impossible to access your wallet, also means that you lose your crypto forever. And, even if you take extreme care of your wallet and key, cyber security will always remain a problem. Block-chain systems and network protection are powerful but still cannot protect you from fraud. Hackers and thieves and very easily take away all your cryptocurrency, and there is no chance of recovery, simply because no central bank backs up cryptocurrency. Another way crypto-currency theft can occur is when a merchant does not deliver you the promised goods but has already taken payment in crypto in advance, in which there is no option to get back your lost money, since crypto is still, except for one country, legalized.(Explained in Con 3)
Con 3:- Legalization
Till today, El Salvador remains the only country in the world to officially legalize Bitcoin (not any other of the ten thousand cryptocurrencies). Legalization and allowing cryptocurrency trade mean very different things, because legalizing a currency means a person can even receive salaries in that crypto, can pay for a product in crypto, and can exchange crypto either with any other legal currency in the country or exchange to dollars. Legalization also means that no merchant can deny acceptance of crypto from the buyer to sell a product, and has to pay in dollars if unwilling to trade in cryptocurrency (in El Salvador’s case, only Bitcoin). On the other hand, although many countries allow trade of cryptocurrency, only in this case, merchants and buyers can refuse to deal in crypto, and in several cases, do refuse, because of the fact that no Federal Reserve Bank backs up crypto, so crypto-theft becomes dangerous since you cannot be refunded.
Con 4:- Volatility
Crypto-currency does not derive value from any material asset in the world (since it is a virtual currency) which makes it extremely volatile. This volatility only increases because, unlike traditional markets or share markets, the crypto market depends more on tweets from billionaires like Elon Musk, and less on logic and economics. A few favorable lines on social media from a tech giant and crypto prices skyrocket and vice-versa. All of this makes investing in crypto very hazardous, since just how quickly you can make a profit, you can make losses too, and the chances of making a loss are always higher in a volatile market.
Con 5:- National cryptocurrencies
Although cryptocurrencies like Bitcoin still haven’t come into proper usage by the masses yet, the blockchain system which supports has become very popular. Many countries like the USA and China, the latter has banned cryptocurrency, are planning to bring out their own legal national virtual currency which uses the same system of today’s crypto. This means that all the national currencies of a respective country will be made virtual, like virtual dollar for the USA, virtual pound for Britain, and so on, and implementation of this is already on the way. So, individual cryptocurrencies like Bitcoin will automatically go out of fashion in the next few years, which in Warren Buffett’s words, will burst “the bubble” of cryptocurrency in the market.
So, you should not invest in CryptoCurrency?
Owning some cryptocurrency like Bitcoin can never hurt, and can even increase your portfolio diversification, but the investor needs to have the belief that his investment will give profit in the future and needs to have a high risk, high return mentality. Deciding to invest in crypto or not is completely up to the individual, and the above points do not aim to discourage someone from investing, but all the possibilities should be taken into account, even more so because cryptocurrency can cause a lot of problems in the future should someone invest for the long term, something which most “financial advisors” guiding you to buy crypto with them as brokers, of course, will leave out of the conversation. Most big investors in the world still are preferring to buy stocks of companies, even stocks of companies that own cryptocurrency, rather than directly investing largely in crypto, because even though they may not have the same upside potential for profits as in Cryptocurrency, they are much less volatile and much safer.
