Information and risks to know when investing in cryptocurrencies

(Baonghean.vn) - Cryptocurrency (virtual currency) is a form of currency designed for security purposes and to provide anonymity for transactions. Currently, there are many cryptocurrencies appearing on the market.

How does cryptocurrency work?

Cryptocurrencies use decentralized technology to allow users to make secure payments and store money without using their name or going through a bank. They run on a public ledger called a blockchain - a record of all transactions that is updated and kept by the currency's owner.

Cryptocurrency units are created through a process called “mining” which uses computer power to solve complex mathematical problems and create coins. Users can also purchase currencies from brokers, then store and spend them using cryptocurrency wallets.

Which cryptocurrency is the most popular?

Bitcoinis the first version and the most popular currency to date. This currency was developed by Satoshi Nakamoto in 2009, as of July 2017, bitcoin has a market capitalization of about 45 billion USD.

Ethereumwas developed in 2015 and is now second only to bitcoin in terms of popularity and value. Ethereum has a market capitalization of about $18 billion as of July 2017. Its value has reached a high of $400 in recent months.

Rippleis a distributed ledger system founded in 2012 that can be used to track many types of transactions, not just cryptocurrencies. It is used by banks including Santander and UBS and has a market capitalization of around $6.3 billion.

Itecoinis a currency that is similar to bitcoin, but has breakthroughs such as faster payments and a process that allows for more transactions. The total value of all litecoins is currently around $2.1 billion.

Why use cryptocurrency?

Cryptocurrencies are known for being secure and providing anonymity when transacting. Transactions in them cannot be forged or reversed and have low fees, making it more trustworthy than conventional currencies.

As a new form of money, cryptocurrency markets can help users “take off”, meaning a small investment can become a large sum of money overnight. This is something that is difficult to do with conventional forms of money. But this also means there are certain risks.

The risks of investing in cryptocurrencies

1. There are no specific laws for exchanges

Unlike the stock market which is tightly controlled by government agencies with numerous strict laws and regulations, and relatively difficult regulations to be listed on the exchange. The cryptocurrency market is quite free, there are almost no restrictions for coins to be listed on the exchange, and it is not even too difficult to create an exchange for cryptocurrencies.

Some exchanges try to maintain their reputation by limiting only trusted coins to be traded, while others are quite lenient in accepting a wide range of coins. Some exchanges charge transaction fees, while others do not, so statistics on transaction volume may be inaccurate.

Because there are no binding laws and regulations, the activities on the exchange floor alone contain many risks for traders. In addition, looking at the information on the floors to evaluate will also have many inaccurate factors.

2. Risk of market manipulation

Unlike the stock market which is limited by laws and regulations of national securities commissions, market manipulation is still possible but more difficult than on digital currency exchanges where there are no specific regulations. Therefore, performing tricks to manipulate the market on digital currency exchanges is not very difficult.

The robots on the floor are programmed with little difficulty, allowing their owners to freely create virtual transactions to raise or lower prices. Not only that, people also openly buy and sell robots and rent them to those who need them.

Plus, many exchanges don't charge transaction fees, so people can freely place virtual transactions to make the transaction volume of a new coin look like a lot, but in fact it's just virtual transactions between those robots.

3. Hackers and security issues of exchanges

Because there are no laws or regulations that specifically bind the responsibilities of exchanges, if the exchange is hacked, for large exchanges, they may have some compensation, but most hacked exchanges probably cannot compensate customers at all. Specifically, in 2014, a very large Bitcoin exchange collapsed, Mt. Gox - due to hackers infiltrating and stealing all the Bitcoins of users uploaded to the exchange.

Small exchanges have much worse security. The fact that an exchange supports many types of coins also contains many risks, because someone creates a virtual coin to install malware on the exchange's machine with the purpose of withdrawing money from other wallets.

4. Lots of virtual elements

In addition to the virtual transaction volume, virtual users, hacker attacks... there are many other virtual factors such as creating a new coin with very good introductory information but in reality there is nothing, or creating many virtual accounts participating in many forums and social networks to spread misleading information to make people think that a coin is good, has many users, has many transactions...

Not to mention the need to make quick money of speculators who can take any opportunity to inflate the price of some trash coin to the sky to attract gullible people.

Recognizing these virtual elements is not simple, it requires information searching, comparison and testing.

5. Can generate as many coins as you want

For digital currencies to be trustworthy, they need to be open source so that everyone can see and check the source code to see if it is trustworthy. Unfortunately, this allows people to copy and modify the source code of coins to create new coins very quickly and easily.

But checking the source code of coins is not simple, reading and understanding them is also extremely difficult, moreover, the number of lines of code in each coin is huge and the number of new coins is born more and more every day.

6. It's too easy to copy each other's features

A digital currency has an advanced technology that is highly appreciated by many, but when it is announced, its source code is public and people can create a new coin from it with just a few steps.

In addition, an existing coin can also copy the features of other coins, so technically, it is relatively easy for people to copy each other or clone new coins.

7. It is very difficult to withdraw money normally especially when the market is in panic.

Buying and selling digital currency goes through certain stages, people usually trade between coins with each other, rarely trade coins to regular money. Especially in Vietnam, trading with regular money is very difficult and time-consuming.

Therefore, if the market has bad news that causes prices to drop across the board, there will be a lot of people selling and very few people buying coins, so it will be very difficult to withdraw regular cash when the market panics.

8. Risks involved in keeping your coins

In addition to the above risk factors, keeping your coins can also have certain risks such as machine failure, hard drive failure, forgetting the password, not setting a password so it is taken by someone else, hackers infiltrating the machine and transferring money, being scammed online.

Ngoc Anh

(Synthetic)