What drawbacks does the use of cryptocurrencies have?
The rise of cryptocurrencies has invaded the world of finance in an abrupt way. A large number of people familiar or unknown about investing, trading and exchanging digital assets are getting swept up in this current. And many of them have not even stopped to think. What are the drawbacks of using cryptocurrencies? The risks associated with trading cryptocurrencies are mainly related to its volatility. It is important to understand all the drawbacks before you start trading them.
Everything in the universe, from the smallest fern leaf to global financial exchanges, is just equilibrium. Everything is based on a certain form of balance, even if it is minimal. The more secure a medium is, the less profitable it will be. So if the gains and returns from cryptocurrencies can be very large, the risks will probably be large on the other side as well… It’s a matter of balance. We cannot forget that the cryptocurrency market is still developing.
Disadvantages of using cryptocurrencies
The digital currency continues to develop strongly, however, it still has drawbacks in its use, among which we can mention:
irreversible payments
Due to their nature and the principle of irreversibility that governs them, any error that occurs when transferring a certain amount of digital currencies is impossible to change or correct. In other words, if an error is made regarding the amount to be transferred or the recipient who is the object of the transfer, it will simply remain that way. Without a doubt, this is one of the biggest drawbacks of using cryptocurrencies. In fact, the only possible way to correct the situation is for the person who receives the import by mistake to return it and then redo the transfer with the correct data.
Not a universally accepted payment method
Despite the rapid growth and boom with which these relatively new digital assets have been developed, there is still a large commercial sector where they are still not accepted. Many physical stores do not know or are not able to accept payments in cryptocurrencies. Also, the number of websites and companies that trade digital currencies is not big enough. If you want to make online purchases with digital currencies, you must first identify the vendors that accept them.
Principal Loss Risk
Cryptocurrencies, regardless of their type, are store in a personal digital wallet of each user. This wallet is protected by blockchain technology. As well as a secret entry key held solely and exclusively by the owner of the crypto. However, if the wallet is lost for any reason internal or external to the computer system where it is host, the loss of the assets is final. There is no way to recover lost digital currencies.
Exposure to scams
Another inconvenience that the use of cryptocurrencies entails is associate with being a victim of theft or scams. Even though blockchain technology is consider the most secure yet, it cannot anticipate or prevent mistakes by its users. In other words, if a user’s private key is accidentally in someone else’s possession, it could be use for theft or fraud. Another case where the holder’s capital loss is definitive.
high volatility
Although perhaps for some optimists high volatility only represents an advantage to their investments, the reality is that it also represents a serious drawback. It is undeniable that thanks to this high volatility, the value of cryptocurrencies such as Bitcoin has skyrocketed on many occasions. However, it is no less true that it has also suffered serious falls or drops in its valuation that has caused the ruin of many. For this reason, cryptocurrencies are not consider a reliable trading currency.
Lack of institutional framework
One of the main disadvantages of cryptocurrencies, for a large part of the users of these digital assets, is that both their issuance (mining) and their circulation do not have any control by a government or central bank. However, today many agree that central banks should somehow regulate cryptocurrency transactions, and provide an institutional framework that regulates the operations of the digital asset market.
Possibility of its use in illegal activities
One of the biggest fears expressed by some sectors of the cryptocurrency user community is the increasing possibility of its use in illegal activities. And unfortunately, they are not entirely far from reality. Since thanks to the confidentiality and anonymity provided by its operations where it is not necessary to provide personal data of those who operate with these crypto actives, it is possible to use them for anything. Even, through the use of appropriate techniques, the “traces” of transactions, such as the financing of terrorism, can be eliminate.
reduced reliability
Another weakness of cryptocurrencies is the lack of reliability in their soundness, since they are not traditional currencies issue by a central bank based on specific rules. Furthermore, they are also not back by an institution that can act as an emergency lender, or guarantor of the funds such as a central bank. However, credibility is something that is build over time and thanks to this there are more than enough cryptocurrencies in the market.
lack of valuation
The importance and usefulness of cryptocurrencies rests on the assessment made of them. The same is true of other types of assets such as stocks and bonds. However, in the case of cryptocurrencies, this valuation will depend on several factors such as: supply and demand, user sentiment, and in many cases the opinion of financial market leaders who have a decisive influence on their price. .
