Cryptocurrencies have unfolded themselves as one of the most fascinating yet baffling investments on the global front. Earlier, we shared views on reasons why Cryptocurrencies are in so much demand.
In spite of plethora of merits in its lap, the question that hits our mind is that why cryptocurrency has not found favor with the governments and a legal status. Why the payments in cryptocurrency still fogged with doubts? This analysis will surely sort out your queries as we talk here about the negative side of the digital currency:
1) EXTREMELY VOLATILE
The highly volatile nature of cryptocurrency has changed the fortune of many. It is a high-risk investment and therefore can either double your investment in one day or bring it to ashes on another. The speculations witnessed in Bitcoin over the years can be survived by only hard-core investors. Spikes and drops are everyday story at a crypto exchange.
The markets are driven more by the sentiments across the globe. The currencies which are booming today might lose their values in future due to shift of investor’s interest in some other digital currency.
2) RISK OF DATA LOSS
Technology fail can happen at any time in the blockchains due to which all the stored data can be lost leaving all the coins in an orphaned stage forever. It can also occur due to drive crash or a malware attack.
Another problem could arise if you lose the private key to your wallet as there is no system of recovering the lost currency and might incur huge losses to the wallet owner.
3) SUSCEPTIBLE TO HACKS
Anything that is available on internet has high vulnerability to hacks. Though it is quite unlikely to hack blockchains, the instances of theft by hacking the exchange that facilitates the buying and selling of cryptocurrency are evident in the history of last decade.
We cannot move further from here before narrating the incident of Mt. Gox.
THE RISE AND FALL OF MT. GOX (Magic: The Gathering Online Exchange)
Mt. Gox was a Tokyo based exchange which was initially set up for trading Magic Fantastic – game tokens. It included Bitcoin in 2010 when the currency started picking up steam and allowed trading of Bitcoins against cash and was one of the richest exchanges in infancy stage of cryptocurrency. But the rise of any wealth generating online platform also becomes an epicenter of malicious activities.
Mt. Gox was hacked several time between 2011 and 2014. The Bitcoins were replicated and invented by the hacker which implies that they were never on blockchain and were exchanged for the original ones. This created a void in the reserves of Mt. Gox to the extent that almost three- fourth of the wealth in terms of Bitcoins was gone. By the time, this came under the notice of the management, it was handling almost 80 percent of Bitcoin trade. The exchange paid all its investors and is still entangled in a series of lawsuits.
The fraud at Mt. Gox was a major setback for the currency itself. Bitcoin not only lost its value in the emerging markets but also shook the confidence and trust of many.
Mt. Gox finally collapsed in four years after filing for protection against bankruptcy and eventually liquidation.
4) NOVEL IDEA WITH POWER IN FEW HANDS
The concept is still in its gestation period and a new one for the masses. Many changes would be required to make it more palatable for the general public. Though the role of intermediaries has been cut off but still the power lies in the hands of those few who have amassed a huge number of crypto wealth.
5) RULES FOR CONSUMER PROTECTION MISSING
Though countries have allowed trading of Cryptocoins but they have not legalized it fully. It means that any dispute arising out of cryptocurrency trades cannot be taken before law for seeking justice. The whole system is deprived of even minimal support from any regulatory authority.
6) ILLEGAL TRANSACTIONS
Cryptocurrency has gained popularity in the dark realms of internet. As the anonymity can be maintained easily, so the payments for iniquitous activities like drugs and arms can be easily processed through cryptocurrency. Moreover, it has become a new platform for the investment of black money to evade income tax.
7) NO REFUND OR CANCELLATION
Once a transaction is made in digital currency, then there is no chance of reversal which implies that if by chance any wrong entry is made, the transactions cannot be undone.
8) HIGH APPETITE FOR ELECTRICAL ENERGY
The way crypto guzzles electrical energy is really alarming. The amount of electricity consumed by crypto miners in a day is enough to support the electricity needs of a small town. So, the carbon footprints of crypto are not in sync with sustainable development. The computer power needed behind the validation process consumes enormous amount of energy and doesn’t show possibilities of scaling up the crypto transactions.
According to a news report published by NY Times in 2021: “The process of creating Bitcoin to spend or trade consumes around 91 terawatt-hours of electricity annually, more than is used by Finland, a nation of about 5.5 million”. Moreover, this need for power is augmenting day by day.
Though the concept of mining is being replaced by better options like minting, it will still take time for the whole system to be environment friendly.
9) LIMITED USE IN THE MARKET
The crypto currency cannot be exchanged with all types of goods which gives them limited hold over the markets. Very few products, so far accept crypto coins instead of fiat currency today but the scene is probably going to change in future.
10) EXCHANGE OF SOME CURRENCIES WITH FIAT CURRENCY A COMPLEX TASK
Another major drawback to digital currency is that not all types of cryptocurrency can be exchanged with fiat currency and hence it becomes a tedious process for the investors. They have to first convert them into other cryptocurrencies like Bitcoin and then convert it to their desired fiat currency. It not only enhances the cost as added transaction fee but also the hassle.
Technocrats involved with Cryptocurrencies or Digital Assets are working to make them more acceptable and sustainable as the potential that the cryptocurrencies or digital assets carry cannot be understated.
