1. Hacks & security breaches
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When you think about cryptocurrency, such as Bitcoin and the like, you might instantly think about the hacks and security breaches that have hit investors hard over the years. In fact, it was reported by CNBC that according to the blockchain analytics firm's report, cryptocurrency hackers stole nearly $4 billion in 2022. In fact, in just one month that year, the study mentioned previously found that nearly $776 million was stolen in 32 separate attacks.
2. Some of the largest hacks so far
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According to the study, reported by CNBC, it was the Decentralized finance protocols which are commonly referred to as the DeFi protocols were hit the hardest in 2022, with around 82% of all cryptocurrency stolen by hackers. And according to Crystal Blockchain, between January 2011 and February this year, a whopping $16.7 billion in cryptocurrencies have been stolen.
3. Why do hackers want crypto?
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This begs the question: why do hackers actually want cryptocurrency? Well, to answer that, some sources have found that many hackers use cryptocurrencies like Bitcoin to pay for illegal services online. In fact, on the dark web, one study found that illegal vendors only accept certain cryptocurrencies as payment methods too. Cryptocurrencies allow for the possibility of making anonymous payments, so it's clear to see why it is profitable for criminals.
4. Is it easy to hack?
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Blockchain technology is an advanced database tool that records information in a way that makes it really difficult to change, hack, or cheat the system. So with this technology in place, it should be nearly impossible to hack into the blockchain, right? Well, not entirely. According to Investopedia, weaknesses outside of the blockchain can create opportunities for thieves to hack wallets and steal the crypto from them.
5. Lack of regulation
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The regulation for cryptocurrency, like Bitcoin, varies across the world, and in the US, even from state to state. And in truth, it seems that financial market regulators and governments around the world are still finding it tough to make sense of cryptocurrency. And no wonder when it was originally developed to operate beyond government control, according to Forbes.
6. Market volatility
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Cryptocurrencies are notorious for their price fluctuations. In fact, you might know of an investor or two who nervously watch their shares go up and down as if they're on a very anxiety-triggering rollercoaster. So with this in mind, cryptocurrencies are often seen as a risk for investors. To illustrate, a report by CNBC found that in 2022, the cryptocurrency market dropped by nearly $1.4 trillion!
7. Market manipulation & price distortion
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Market manipulation works both inside and outside of the realm of cryptocurrency and is illegal in all of its forms. The purpose of market manipulation is for businesses and investors to snatch up big profits and it is done by inflating or deflating market prices. According to a study, there are many signs that this is happening in the crypto world, though there isn't any definitive proof... yet!
8. Lack of consumer protections
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Traditional financial systems, like the ones that most people are probably way more familiar with, tend to offer certain protections to consumers. For example, when taking out a traditional loan or credit card, you're more than likely covered and have your rights protected by the Consumer Financial Protection Bureau in the US, or something similar elsewhere. But this is not necessarily true for cryptocurrencies.
9. No tangible assets
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Some cryptocurrency critics tend to argue that many cryptocurrencies lack any intrinsic value because they exist in the digital space. This means that because cryptocurrencies do not usually have tangible assets backing up their value, concerns tend to be raised surrounding the apparent inevitability that they will eventually drop to zero. However, some argue that Bitcoin's value is similar to that of precious metals, meaning that they are limited in quantity and can be used for specific things, according to Investopedia.
10. Anonymous transactions
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Now some believe that cryptocurrencies allow for anonymous transactions, but according to some sources, this is not entirely true. You see, Bitcoin transactions are not completely anonymous, but they are what some describe as pseudonymous, which means fake names can be used. But despite this, crypto assets are more traceable than you think and can be traced using the wallet address, transaction history, and the blockchain, according to Cloudwards.net
11. Environmental worries
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Some cryptocurrencies have been found to use extremely energy-intensive mining processes which have raised concerns about the clear negative impact on the environment. This could mean that there might be a backlash in the future against the entire cryptocurrency industry, particularly from the negative public perception that might grow from these concerns as well as increased regulatory scrutiny.
12. Initial Coin Offerings (or I.C.O.s)
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An Initial Coin Offering, usually referred to as an I.C.O. is a way for businesses and investors to raise funds for products and services that are related to cryptocurrency. They sound quite ideal in theory but the truth is, many of these projects have a very low success rate. In fact, as reported in Investopedia, one study from back in 2018 claimed that 81% of the Initial Coin Offerings (I.C.O) turned out to be scams, whilst another 5% had 'gone dead' and 6% had failed.
13. Pump & dump schemes
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Crypto pump and dump schemes are a dishonest way for fraudsters to make profits as other investors make losses. In order to do this, they tend to spread false information about a coin or token to inflate its price. To spot these, some sources suggest that you look out for an unknown coin rising without any real reason to do so.
14. Ponzi schemes
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It is probably clear now that cryptocurrency is targeted by many fraudsters and scammers in numerous ways. And another fraudulent investment scam is called a Ponzi scheme. It is quite similar to a pyramid scheme where it convinces people to invest with the promise of a high return but then pays them that return out of their own money, rather than the money earned by the individual or organization running the scheme.
15. Regulatory uncertainty
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So according to sources, regulation of Bitcoin and other cryptocurrencies varies on both state and also on federal levels. And because there is uncertainty surrounding the regulation of cryptocurrencies, the regulatory landscape creates a lot of uncertainty for investors and businesses. So, inevitably, it is no wonder that many of investors and businesses avoid using it.
16. Scaling challenges
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According to Ethereum.org, the main goal of cryptocurrency scaling is to increase the transaction speed and throughput (amount of transactions per second), but without sacrificing security. However, some cryptocurrencies have faced their own challenges with scalability and transaction speed which can inevitably cause issues for investors, whether they're individuals or businesses.
17. Security & phishing attacks
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The security of cryptocurrencies can be subject to phishing attacks and other threats too. This means that users could be tricked into sharing their details and then lose access to their cryptocurrency wallets. This is especially evident if they lose their private keys, passwords, and any other information, particularly if they fall victim to phishing attacks.
18. Threats from developments in quantum computing
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Current security measures include encryption methods such as Elliptic Curve Cryptology (E.C.C.) and they are seen to be generally effective at the moment. But technology advances so quickly and security methods can become out of date and therefore vulnerable to new advancements. For example, some believe that quantum computers could potentially compromise the security of blockchains.
19. Social media influences
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So we have discovered that markets can certainly be manipulated by investors by inflating or deflating prices with the ultimate goal of generating profits. But this is not the only method that can be used in order to manipulate markets and distort prices. In fact, coordinated efforts on social media platforms can also influence cryptocurrencies too.
20. Lack of user-friendly interfaces
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One problem that has been identified by multiple sources, and perhaps a reason why the uptake of cryptocurrencies by merchants has been so slow might be down to the lack of user-friendly interfaces. It has been reported that cryptocurrency wallets and platforms can be really challenging for newcomers to be able to navigate which can lead to a lot of confusion.
21. Uncertain tax implications & confusion
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Cryptocurrency is not only regulated differently around the world and even within countries but it is also treated differently in terms of taxation purposes. And because this seems to vary quite widely from country to country, it can certainly lead to a lot of confusion for the investors. This might mean that individuals and businesses choose to avoid it or might be one of the reasons for the slow uptake.
22. Government intervention
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There is also a big potential for governments from around the world to crack down on cryptocurrencies, particularly due to the issues surrounding tax, regulation, and fraudulent activity. This means that there might be the possibility that governments decide to impose restrictions on cryptocurrencies which might affect their value and usability...
23. Dependency on technology
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Like with anything that is dependent on technology, there is obviously the possibility that it might not always work how it should. Cryptocurrency lives entirely within the digital world where technical glitches or infrastructure failures could occur. And problems of this nature could lead to significant financial losses for businesses and other investors.
24. Lack of legal recourse
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Unlike traditional financial institutions that most people are more aware of, cryptocurrency transactions tend to be irreversible. This means that recovery of funds can be very difficult. In the cases surrounding fraud, it can be challenging to seek legal recourse due to the international nature of cryptocurrencies, as well as due to the fact that they are decentralized.
25. So do real-world cases exist?
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In legal situations, where an individual or organization is seeking legal recourse, there is also the argument that real-world cases don't really exist when it comes to cryptocurrencies. Some sources have stated that because there are no tangible assets, everything with cryptocurrency is speculative rather than factual. Especially because they fluctuate so much.
26. Lack of understanding
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Some sources believe that there is a lack of understanding by individuals and organizations when it comes to cryptocurrencies. So some people and businesses have been known to invest in cryptocurrencies without a real understanding of how they actually work or how to manage them effectively. There is also said to be a real lack of understanding on the whole when it comes to understanding the risks as well as using the technology involved.
27. Limited acceptance
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The adoption of cryptocurrencies has been growing for some time and continues to grow. However, despite this growing adoption across the world, cryptocurrencies are still not widely accepted as a mainstream means of payment. So despite having the cryptocurrency, it can be impossible to actually use it in mainstream transactions. Some believe that it is worthless in most domains, however, it is still in its discovery phase so its uses and value are being explored.
28. Where are the experts?
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Financial experts have said that there is a lack of experts within the field of cryptocurrency, especially as its popularity has been soaring. And this concern for the lack of talent spans the globe. With the global blockchain industry reporting a shortfall of skilled candidates, according to a study from LinkedIn Corp. This obviously causes issues for the industry itself but also for the investors needing advice.
29. The simulation hypothesis
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Some people believe that cryptocurrency might be evidence of our existence within a simulated reality. You know The Matrix, right? Well, those that believe in this theory believe that advanced beings or entities might have introduced cryptocurrencies as a way of observing human behavior and economic systems within the simulation. But as interesting, and rather mindblowing, as this hypothesis is, it does actually lack empirical evidence and exists within the realm of speculative and philosophical thinking.
30. But the entire crypto space is not a scam
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As with any new advancement in technology and finance, there are many concerns surrounding its security and viability. However, it is important to understand that the entire world of crypto is not a scam. As previously mentioned, it is a brand-new technology in the grand scheme of things and it is still in its discovery phase. As with anything new, it is going to have its challenges and drawbacks and if you are thinking of investing, it is important to get clued up and understand the risks associated with cryptocurrencies.