Critics say Bitcoin is the most significant business disruptor that would destabilize almost all global economic sectors. However, Bitcoin’s recent performance and increasing mainstream adoption suggest otherwise. It offers unique benefits, including a peer-to-peer network, efficient and low-cost money transfers, and a lucrative store of value. Bitcoin’s blockchain technology promises increased security and transparency in financial transactions.
Nevertheless, Bitcoin also bears significant risks that you should understand before rushing to invest in crypto. The main threats include price fluctuations, high energy consumption, cyber theft, and illicit financial transactions. Some also claim Bitcoin concentrates economic power among relatively few and wealthy users. The following article will discuss those risks and ways of solving them.
Price Volatility
Bitcoin’s price is constantly changing, like other cryptocurrencies. For example, the cost of one Bitcoin on leading crypto exchanges such as bitcoin-eraapp.com/ was about $6,461 as of November 6th, 2018. That was an increase of about $20,000 from the previous year. Just a few days later, one Bitcoin could not fetch more than $14,626. Those statistics show that the crypto market swings back and forth, sometimes making it difficult to tell whether your investment would generate returns.
While you cannot control Bitcoin’s price volatility, keeping a vigilant eye on the crypto market and making small investments could help you avoid huge losses in the long term. Even if you are interested in trading Bitcoin, it would still be best to invest small amounts per price.
Cyber theft
Bitcoin and other cryptocurrencies are technology-based, leaving such investments vulnerable to cyberattacks. Hacking is one of the most severe risks, which has left many crypto owners with massive losses. There is usually no way of retrieving the lost or stolen crypto when someone hacks your account. Reports suggest most buyers lose their virtual investments on crypto exchanges and mining losses. Crypto exchanges are more likely to experience hacking since even smart wallets are vulnerable to cyberattacks.
It would be best to carefully research cryptocurrency wallets to find the most reliable option with better security measures against cyber theft. However, a hardware Bitcoin wallet would be much safer since it stores your private keys offline.
High Energy Consumption
Bitcoin users rely on miners to generate new tokens and verify transactions on the network. However, mining operations are increasingly demanding and need vast computing power. More than 80% of global mining activities occur in remote parts of China, Russia, Kazakhstan, and Iran. Only 7.2% of operations occur in the U.S.
Those regions tend to produce energy from coal and fossil fuels, which contribute to significant pollution. Reliable statistics reveal Bitcoin mining consumes the same amount of electricity as Norway annually, with a carbon footprint matching Morocco’s. Those revelations have impacted huge concerns about the environmental impact of cryptocurrencies.
Many crypto mining facilities are currently pursuing alternative energy sources such as nuclear power, wind, and solar to reduce the industry’s carbon footprint. For example, a Bitcoin mining company, Compass Mining, recently announced a 20-year commercial partnership with nuclear reactor manufacturer, Oklo, to power part of their mining operations with atomic energy.
Fraudulent Transactions
The cryptocurrency market is currently operating without any significant regulatory frameworks. It is still new, and most governments do not have a clear stance on crypto. That creates room for several illicit financial activities, especially fraud. There are several genuine crypto exchanges but, many fake platforms are also coming up to rip off unsuspecting Bitcoin buyers and sellers. The lack of clear market regulations creates significant security risks for investors. The Bitcoin network and crypto exchanges are constantly updating their security measures to deal with such problems.
Bitcoin is associated with certain risks but, it has also proven to be a valuable investment instrument and payment method that could stand the test of time. So, do your due diligence, invest with caution and take steps to secure your digital assets, as discussed above.
