Cryptocurrencies under Scrutiny
When it comes to risky investments, cryptocurrencies come in as one of the most intriguing assets right now. They are also quite risky to deal with, what with hacking incidents, scams, and large value fluctuations. Yet again, the same risks do attract a lot of investors from around the globe with many success stories being told.
In this article, we talk about what these digital coins are and what should an investor look for in them while protecting himself from a variety of issues. We also compare cryptos with other commodities throughout our review as to provide a better picture of what is going on in the industry.
About Cryptos – What are They?
To understand what exactly digital money is, one needs to delve deeper into the technology behind it. All cryptocurrencies base their network on a blockchain system. The blockchain, put in simple terms, is a ledger record of all transactions done in the network. As a result, you also have cryptos, such as bitcoin and Ethereum, which are used as monetary means of transfer.
These assets are considered to be a currency but, on the other hand, they are stored in wallets and act as online assets. Thus, in most countries, they are treated as such and not as legal tender as fiats do.
The Market So Far
The cryptocurrencies’ road was a rocky one, to say the least. Started in 2009, the industry only started to really grow at the end of 2017. Until then, it was only selected few enthusiasts that knew of blockchain and opportunities it offered. Now, however, it is getting quite popular, being one of the first topics people talk about in or out of the office.
The first (and only so far) large push happened in December 2017 and continued until February 2018. The price went up by almost 4.000%, from $1.100 to $20.000 in a matter of one month. The major focal point was hard to fork in August 2017, which resulted in the creation of Bitcoin Cash, a new cryptocurrency that held improvements in fees and speed of transactions.
As you can see in the graph, things were looking rosy at the beginning of the year 2018. However, the natural drop in value occurred, as many experts predicted. At this point, the value hovers around $8.000 with occasional ups and downs occurring. Another development is the boom of new coins and tokens in the market. A large amount of ICOs saw the light of the day, many of them becoming either a giant blockchain network (Ethereum) or a scam (Pincoin and iFan).
There are many forks going on at this point, especially around the leader of the pack, Bitcoin. It is hard to say which direction the industry will take in the next few months, as the value can continue to drop or to skyrocket depending on the market behaviour. After all, the crypto world is organised as a decentralised financial sector, with only market trends being the sole influencer of its adoption and price.
Scams and Hacking Incidents
One of the main issues when it comes to market adoption of cryptocurrencies in other industries are scams and lack of security. Although priding themselves as one of the “most transparent systems in the world” due to public ledger records, that did not stop hackers from taking what is not their due.
The list of companies accepting coins as means of payment is limited, even with big names, such as Microsoft, Subway, Expedia, and Shopify. The main reason, apart from large fluctuations of the value, are hacking incidents that happened and still do. The most famous is the case of Mt. Gox, DAO, Bitfinex, NiceHash, Bitstamp, and Coincheck. All of these accumulate for nearly $1.17 billion of lost funds.
In most cases, although addresses of hackers were located, split accounts were created, transferring a small amount of coins into several directions. Up to this point, very few were arrested in these incidents while a large portion of investors never saw their money back.
Innovation in Blockchain
The other side of the coin is the innovation that blockchain presented to the financial markets. The use of smart contracts through the Ethereum system was a breath of a fresh air in the industry. There are many other tokens now, that connect people from around the world in specific industries, including forestry, pharmacy, medical aid, arts, and many other sectors.
The idea itself of the decentralised market might have a merit if the general populace would accept it as an idea. The transfer network without a middleman (banks) does provide lower fees and faster transfers, when compared to more traditional means of funding, such as SEPA or SWIFT. We can say that ideas are yet to be implemented fully and that technology has a lot to offer. However, the issue with scams and low scalability remain the main obstacle for blockchain to reach its full potential.
ICOs and Regulation
As mentioned before, the crypto world now experiences an ICO boom. ICO (Initial Coin Offering) is a new type of fundraiser that accepts cryptocurrencies as a means of investment. In many cases, the project basis its promises on the future value of new cryptos that would come out as a result of crowdsale or through business prospects of the organiser.
At this point, the year 2018 kept breaking its own records in terms of ICOs’ number and value. This year, the total value raised passed the $6.2 billion mark according to the ICOData, which is practically the same value entire 2017 had.
Their number increased as well, from 873 to 997. Consequently, the biggest number of scams resides precisely in ICOs. There have been many cases in which coins were either stolen or not returned back to initial investors if the fundraiser was unsuccessful. According to some sources, the sheer value stolen from interested parties floats around $1 billion so far.
Outlook on the Future
At any rate, cryptocurrencies have issues to solve and yet a lot of potential to reach for. However, it will be some time until they are fully incorporated into the mainstream markets, such as retail, trading, and others. At this point, we would advise caution while investing in digital coins, especially concerning ICOs.
You may want to read our other article about the cryptocurrency and on binary options. It will provide you with a good idea on how to secure yourself from frauds. Additionally, contact us if you do have issues that we can solve.