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Investing is Risking: Things to know before investing in Cryptocurrency

DIGITAL VENTURES X MARK BLOGNONE August 28, 2017 5:09 PM

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2017 is the golden year for Bitcoin and Cryptocurrency as their value increased several folds. This resulted in a significant increase of interest to invest in these currencies.

I measure this awareness based on my circle of friends, I repeatedly hear the question “Should I invest in Bitcoin?”

Additionally, many projects have been greatly successful in crowdfunding by Initial Coin Offering (ICO) wherein the “coins” are “sold” for actual money which will then be used for recruiting manpower and service development. These projects acquire tens and hundreds of millions USD because buyers believe that the “coins” will significantly increase its value in the future, therefore, they are willing to invest.

With the uptrend, Cryptocurrency investments seem to guarantee a profit. However, we must never forget that investments have risks. This article is a “warning” for those who are preparing to trade Cryptocurrencies.

  • Get to know Cryptocurrency before investing.

This may seem like a straightforward statement but it still needs emphasis. Regardless of which type of Cryptocurrency, the most important aspect is that the investor needs to truly understand what it is and how it works.

Cryptocurrency derives from cryptography which is known for its advanced security. It confirms the existence of our digital money but the coding process is very complex. It involves advanced mathematics and computer skills. Try identifying Bitcoin, Bitcoin Cash, and SegWit2x. These are advanced technical terms which can be quite complex for those new to the industry.

Investors should take time to learn about the currencies so that they can keep up with the “Guru” or “Investment Consultant” who may boast that they know more about Cryptocurrency.

  • Cryptocurrencies can be lost or stolen.

When we invest in gold, we get to keep the actual gold bar (or a ticket from a credible seller). However, with Cryptocurrency, we don’t get any tangible proof except for a digital password used for verification. These passcodes are files in a computer which can be lost (ex. broken hard disk or formatting). Also, they can be easily stolen.

An interesting case study was when a TV host showed a Bitcoin passcode on television and allowed hackers to steal the amount using only the passcode. Although the sum was equivalent to about
20 USD, this became a good example of how Cryptocurrency can be stolen, therefore, it is important to learn how to keep them safe.

  • Lost Cryptocurrencies can’t be retrieved.

Cryptocurrencies derive from cryptography which can’t be repeated. Therefore, if we misplace the key, that sum will never have a new owner. There have been several cases with people who were the early-investors of Bitcoin and may have disregarded them. Following new computers or broken old ones without backed up data, owners are left with only regret and inaccessible Bitcoin.

  • No central monitoring unit so no one is responsible.

With stocks, the Securities and Exchange Commission (SEC) is in charge and will protect users from fraud. However, Cryptocurrency was designed with a decentralized concept, therefore, no one is allowed to monitor the transactions. So, if fraud or crime strike, you will have no one to turn to.

  • Credibility is crucial.

There are several ways to “mine” Cryptocurrencies such as by yourself, with a team, or purchasing with actual money. Regardless of the channels, normally, the coins are received by a “medium” such as exchange websites or the mining team.

This is similar to ICO crowdfunding in new types of coins wherein an organization will offer coins using ICO along with other attractive offers.

Investors need to make sure that the organization chosen for the transactions is credible and accountable because, technically, refunds of lost cryptocurrencies are rare and the matter is beyond the responsibilities of the government.

  • Cryptocurrency is in its first uptrend with no downtrend yet.

Every Cryptocurrency is in its first uptrend in history and everything is looking great. However, no one has ever experienced the “downtrend”. When investing, always be mindful of this aspect and prepare a backup plan for the “bad days”.

  • Everyone is new to

Cryptocurrency is totally new, therefore, no expert is more experienced than anyone. No one can claim to have had 10 years’ experience of Bitcoin investment and no one can use a graph to forecast the Bitcoin trend.

Before deciding to invest and believing any expert, always be mindful and recheck every word or claim and compare them with your own Cryptocurrency knowledge.

Image from farmfolio.net