Should you invest in cryptocurrency?

In an era where digital technology is the rule, cryptocurrencies seem at first sight to be a wise and beneficial investment. However, you need to be aware of the risks of such an investment before taking the plunge.

A cryptocurrency, what is it?

A cryptocurrency is a private and virtual currency, which does not pass through traditional financial institutions (for example, banks or payment processors like Paypal www.cryptos-monnaies.fr/paypal/). Cryptocurrencies aren’t like conventional currencies. They are not based on a physical entity nor directly exchangeable for tangible value. The dollar, for example, is directly exchangeable for gold, and it is precisely on this possible transaction that the confidence of its users rests.

Cryptocurrencies, on the other hand, are issued via a blockchain process, a kind of registry that includes the history of all financial transactions between users of the given cryptocurrency. This database is accessible and completely transparent to all users of the currency in question. Thus, users’ trust in a cryptocurrency is entirely based on this blockchain and the traceability of other users’ data.

A rogue currency?

Cryptocurrencies, not being supervised by conventional monetary institutions, are more vulnerable to fraud: Libra, Facebook’s cryptocurrency, is already the source of many scams, even one year before its launch. Between false platforms to help investment and the sale of counterfeit money, one thing is sure: crypto-currencies are continually developing the imagination of hackers.

A currency subject to computer errors

One of the main dangers associated with crypto-currencies is the computer bug. Indeed, a simple coding error can lead to hyperbolic losses. The crypto asset called Ethereum, for example, is particularly exposed to this type of dysfunction. In 2016, an Internet user detected a flaw in his algorithm and exploited it to divert the equivalent of 50 million dollars or nearly 5% of the total mass of ethers at the time. Although cryptocurrencies are becoming more and more secure following this incident, it is essential to keep in mind that risk 0r does not exist.

A volatile currency

Because they are not based on values as tangible and reliable as traditional currencies, cryptocurrencies are much more volatile, and their prices display vertiginous curves. Their costs vary upwards and downwards in a short period: Bitcoin, for example, collapsed by 10% in a matter of minutes last June. It is, therefore, vital to understand that investing in cryptocurrency is a risky investment.