Are cryptocurrencies safe?
The safety of cryptocurrencies can be classified into two, the safety of the cryptocurrency as a whole, and safety in trading or investing in cryptocurrencies.
1. Safety of cryptocurrency as a whole
We know that cryptocurrencies are a peer to peer decentralized digital payments system, which runs on the blockchain technology. Decentralization means that there is no third-party involvement. Hence, in a cryptocurrency transaction, only the sender and receiver are involved.
Cryptocurrencies work on the principles of cryptography and protect the transaction from being accessed by any third party. The cryptocurrency transaction works on a lock and key system, in which the sender has a key as well as the receiver.
The sender sends their key along with the cryptocurrency to the receiver, and the latter can gain access to the cryptocurrency only if they possesses the key.
The details about the transaction in cryptocurrencies that have taken place are stored on an open-source database known as blockchain technology which acts as a digital ledger. Only those individuals can access this information that has authorization keys or passwords.
Individuals that own cryptocurrencies, store them in a cryptocurrency wallet. Cryptocurrencies are as such not stored in the wallet, but rather the authorization key or password is protected in the wallets.
Until this point, cryptocurrencies are completely safe and secure and owners are to be relieved about their assets. The only risk that owners are exposed to is the contents of their cryptocurrency wallets.
Cryptocurrency wallets that are stored on a device digitally and connected to the internet can be hacked. This in itself isn’t a major threat as individuals can have a cybersecurity system in place or can even choose to store their wallets in an offline mode by having their wallets in a pen drive or a hard drive. This eliminates the cyber risk but the risk of threat is still present.
By all this, I just want to infer one important point, that nothing is completely safe. Individuals have to take measures to protect their assets and lucky for us there are several ways by which cryptocurrency owners can protect their assets.
2. Safety of cryptocurrency trading or investing
Trading or investing a speculative activity in which individuals look to buy and sell financial assets accordingly in order to earn profits. These activities always have some risks associated with them which if managed properly can be limited to a minimum.
Cryptocurrencies are traded on exchanges just like any other financial asset. There are a couple of thousand cryptocurrencies but only a few experience decent trading liquidity and volumes.
Since these cryptocurrencies are not regulated by any authority as such, there is no control over their volatility. We have seen instances over the years of prices of cryptocurrencies skyrocketing, followed by a meltdown.
Compared to other financial assets, cryptocurrencies are relatively volatile assets to trade or invest in. But does this mean that trading or investing in cryptocurrency is not safe at all? No.
I have mentioned that trading and investing is a speculative activity, but I believe in a term known as organized speculation. Organized speculators are those that have a proper trade or investment plan in place before they carry out their trading or investing activities.
Individuals that have a good rationale behind the trade, manage risk properly, and are in the right state of mind are not merely speculating over cryptocurrencies or other assets, but are engaging in organized speculation.
Such individuals know the risks they are exposed to which in turn allows them to size their positions accordingly or implement other risk management tools in order to keep their risk exposure to the minimum.
Cryptocurrencies get a bad rapport owing to their high volatility, but this shouldn’t deter traders or investors from participating in the cryptocurrency markets. Higher volatility leads to higher chances to capitalize on price movements. I would sincerely suggest that before getting started with cryptocurrency trading or investing, you should learn the skill and try out your hand and apply the skill learnt learning in some other stable markets.
This will allow you to get adept with the markets and they can pick some additional required skills on the way. The cryptocurrency market is here to stay and it is only going to see an increase in participation in the years to come.
Legality of the cryptocurrencies
Cryptocurrency is a relatively new method of payments, and is completely technological which in turn is a bit complex to understand completely. This has led to a delay in incorporation of the cryptocurrencies into the system.
There are countries that have outrightly banned the use of cryptocurrencies in the country while some have passed laws to legalize and promote the use of cryptocurrencies. The stance that countries have taken on cryptocurrencies varies a lot.
Different countries refer to cryptocurrencies by different names such as digital currency, virtual commodity, crypto-token, payment token, cyber currency, electronic currency, virtual asset. The underlying meaning is all the same that they are a decentralized peer-to-peer digital payments system.
Countries have banned the participation of citizens in cryptocurrencies due to the risks associated with them because of their volatile nature and also because these cryptocurrencies are used for illegal means.
The countries that have outrightly banned cryptocurrencies are mostly those countries that are not so developed. These countries do not already have a robust economy and system in place and seek to protect whatever they have by not indulging in cryptocurrencies.
Many of the developed countries have brought legislations in place regarding cryptocurrencies and allowing citizens to deal in them. These countries include countries like the USA, UK, Germany, France, etc.
Cryptocurrencies were introduced back in the year 2008 and have only gained significance over the years. As people are getting aware of it and have begun participating in it, governments have sought ways to incorporate it into the existing systems.
There is a class of people that hold that the countries that do not legalize and incorporate cryptocurrencies, will be left behind in the future. There is also a class of people that argue that the world does not require cryptocurrencies and that countries should do away with them.
These arguments have no end and there is nothing constructive or fruitful that one can gain from such discussions. The most appropriate thing one can do is to test the waters and decide for themselves whether they are to participate in this or not.
You must strictly inquire about the laws on cryptocurrencies that are prevalent in your country before participating as it will allow you to avert any legal issues that you may get held up in, in the future.
Since I have been active in this cryptocurrency space and have been trading and investing in the various cryptocurrencies, I hold the view that cryptocurrencies might not be the only form of money in the future but they will surely grow to become something of significant value.
Are cryptocurrencies safe enough for you?
I have discussed some safety concerns that individuals normally have and these are risks but these risks are not those that cannot be managed and secured.
The issue of the legality of cryptocurrencies has been much debated upon. Some governments have restricted cryptocurrencies in their countries while some have brought legislations in place to promote and incorporate them in their countries.
What the future holds for the cryptocurrencies will be known only as time goes on, one can have a view in favor of or even against the cryptocurrencies.
I personally believe that cryptocurrencies will grow even bigger than what it is today and I believe you should certainly study this market and maybe participate in it too.
What is your stance on cryptocurrencies?
What do you think about cryptocurrencies? What is your opinion on it? Are you one of those people that actually acknowledge the value it can provide or are you one of those that still say cryptocurrencies are not worth it?
I would love to know what you think about it and maybe we could have a little chat about it too.
Feel free to reach out to me through the comments section with any questions or queries or anything and I will get back to it for sure.