Risks Associated with Cryptocurrencies:

There are various degrees of risk associated with cryptocurrency. Firstly cryptocurrency has
become a target for speculators, which makes it a risky financial instrument. Cryptocurrency
are usually traded by speculators whose main aim is to profit on short or medium term price
changes. International financial agencies like Federal Reserve, European Banking Authority
and Financial Industry Regulatory Authority have called cryptocurrency market a speculative.
Digital currency is not only used like bill-and-coin currencies for purchases & online payments,
but is also considered a commodity, like silver or gold which makes cryptocurrency just as
vulnerable to market fluctuations as any other stock or commodity would be. As per S&P,
cryptocurrency is over 8 times as volatile as the S&P 500 and 7 times as volatile as gold. High
volatility of cryptocurrency exchange rate damaged the ability of cryptocurrency to be a store
of value. But on the other hand there were some investors which has made a fortune on
cryptocurrency market.
Also, major disadvantage associated with cryptocurrency system is connected with
vulnerability to hacking and theft. Cryptocurrency is based on coding which identifies the
currency and not its owner, so whoever holds the coin's encryption code becomes its owner.
Cryptocurrency's coding has nothing that says it belongs specifically to any individual. This
built-in anonymity feature means when a coin is stolen, it's gone and there is little to no recourse
in getting it back.
Another major aspect related to cryptocurrency transactions are connected with possibility of
criminal activity. Cybercriminals trade cryptocurrencies on black market. Criminal activity
with Cryptocurrency transactions like theft of the currency, money laundering, the use of
cryptocurrencies in exchange of illegal items or services is much higher nowadays. With the
development of online services, black market which involves cryptocurrencies attracts the
attention of financial regulators, law enforcement and journalists. The terror attacks on the
French newspaper, Charlie Hebdo, perpetrated on January 7th, 2015 were allegedly funded in
part through finances delivered via Bitcoin transactions. Due to the terrorist attacks in Paris,
France issued a declaration focusing specifically on digital currencies. It said that, decisive
action needed to be taken with respect to terror financing through cryptocurrencies. Regulators
in France have requested that EU regulators in adopting a resolutions which would make
Bitcoin and other cryptocurrency transactions essentially illegal in the Eurozone.
The above example brings us to the regulatory aspect, cryptocurrency transactions are out of
governmental control. Indian government has made its stance clear through RBI, which is the
central bank of Indian that use of virtual currencies like Bitcoins is not authorized and could
result in breach of anti-money laundering provisions. Cryptocurrencies are not regulated in
most of the countries and having this form of currency may lead to Anti-Money Laundering
charges and criminal charges against individuals found having possession of the same. In 2014
the operators of 2 exchanges system for the cryptocurrencies were arrested and had been
charged with money laundering.
Many critics consider cryptocurrencies systems a newer version of Ponzi scheme that has
cropped up in the 21st century. Its a type of fraudulent investment operation in case of
exchange system where the operator pays returns to current investors from new obtained capital
from new investors. In case of shortage of new capital system collapses. European Central
Bank in the year 2012 published a report on Virtual currency schemes stating that some
Cryptocurrency shares characteristics of Ponzi schemes.
Transacting in cryptocurrency is not only unsafe but also keeping them in wallet is not
considered secured by cyber experts. Theft often happens to users who keep Cryptocurrencies
in their online wallet. These thefts are primarily caused by bugs that are there in the exchange
system or by malware which steal the private keys.