Possible Cryptocurrency Risks to Be Aware of

The security of cryptocurrency has been one of the major concerns for most people.  The new age currency is relatively new to the world hence it presents a lot of opportunities for hackers and cryptocurrency fraudsters. The rise of cryptocurrency has been one of the most remarkable things happening in 2017. Cryptocurrencies are a form of digital money that utilizes cryptography for security and anti-counterfeiting measures. They can be used as a medium of exchange, store of value, or simply as an alternative to hard currencies such as dollars.

1) Cryptography Risks Involved In Cryptocurrency Transactions

Cryptocurrency transactions involve cryptography which is basically using scientific principles (mathematical algorithms) in order to secure communications between parties involved in crypto transactions like mining, trading or payments etc. While these cryptographic processes are supposed to offer some security for cryptocurrency transactions, they are not full-proof.

Cryptocurrency transactions are generally irreversible and anonymity is preserved to a large extent. It is theoretically possible that these factors can make cryptocurrency vulnerable to crime such as cyber heists, money laundering, terrorism financing etc. Hence, law enforcement agencies in several countries have identified cryptocurrency transactions as potential methods for funding illegal activities like drug trafficking and terrorist attacks

2) Security Risks Involved in Cryptocurrency Storage

Since there are very few regulations governing the use of cryptocurrencies, cryptocurrency exchange-based wallets and various cryptocurrency web-based services do not offer any kind of secure storage for secret keys. Hence, using them can be an invitation to theft or loss due to hackers ‘ ability to identify security loopholes in the storage medium. This is a potential risk that you can’t ignore.

3) Risks Entailed in Cryptocurrency Exchanges

Cryptocurrency exchanges carry with them a reputation of getting hacked often. A high profile cryptocurrency exchange hack happened as recently as June 2016, where the Hong-Kong based Bitfinex lost about $65 million worth of Bitcoins to thieves. When trading, it is important to ensure you are using secure platforms like the Bitcoin System.

4) The Risk Involved in Getting Too Attached to Your Stored Cryptocurrencies

A lot of people are inclined towards becoming emotional and sharing their private keys or passwords with others. Such behavior makes you more vulnerable to risks related to theft or loss.

5) The Risk Related to Unknown Origin of your Cryptocurrency:

Cryptocurrencies have no set origin, and there is very little information available about the developers. This is a major risk factor whether you are an investor or a trader.  The lack of transparency and the anonymity involved is also a major risk factor and you need to be aware of this.

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6) The Risk Involved in Trading with Margin

Some exchanges offer margin trading, which allows you to borrow money from the exchange itself to trade using leverage. This type of loan comes with its own terms, and it can be very risky if the market moves against your position. Irrespective of whether you’re an investor or a trader, do not trade on margin unless you are quite familiar with all these risks in the crypto world.

7) The Risk Involved in Copy Trading

If you’re interested in copy trading, be aware that your funds are not owned by a separate company, but by the exchange itself. These platforms can freeze or suspend your account without warning if they suspect any illegality is involved.  If your account is frozen, you may have to wait for up to six weeks before being able to access your money again.

Closing Remarks

Even when everything is done properly, it’s quite hard to make sure that the market will move as expected after doing copy trades. That’s why this strategy requires some serious study of the crypto world and its financial instruments first. If you’re an investor who wants to invest via copy trading, make sure that you’re aware of all possible risks.

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