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Last year, the dollar value of a single Bitcoin more than quadrupled, rising by more than 160 percent in the last three months alone. Bitcoin and other cryptocurrencies have seen a boom in attention as its value has risen so rapidly, both in the media and among investors.
Bitcoin and other cryptocurrencies may now be paid for using a variety of payment methods like BitPay. Cryptocurrency trading is becoming easier and easier to do on well-known platforms.
Throughout this series, blockchain technology and cryptocurrencies have received a lot of positive attention. Because of this, the term "bubble" has been used to describe cryptocurrency, which has several problems.
Identifying and understanding the hazards connected with the broad usage of these technologies is essential. The Bitcoins fungibility is a well-known brand in the area of online investing for cryptocurrency.
Scalability
The scalability issues that are raised by cryptocurrencies are perhaps the most serious ones to be concerned about. VISA, the world's largest payment processor, handles more transactions per day than the number of digital currencies in circulation and their acceptance rate.
Until this infrastructure is widely developed, cryptocurrencies cannot compete with the likes of VISA and Mastercard in terms of transaction speed. It's tough to carry out such a progression in a smooth manner. The scalability problem has previously been addressed by numerous techniques, including lightning networks, sharding, and staking, among others.
Cybersecurity issues
Cybersecurity breaches and hacker access are inevitable because of the digital nature of cryptocurrencies, which will be vulnerable to cyber-attacks. Several ICOs have already been compromised, resulting in losses of several hundred million dollars to investors, only this summer. (One assault alone resulted in losses of $473 million).
We're already seeing several companies taking a proactive approach to address this issue, and they're using advanced cybersecurity methods that are much more advanced than those typically used in the financial industry.
The volatility of prices and a lack of intrinsic worth
Volatility in price is a big issue in the cryptocurrency ecosystem and one that Warren Buffet expressly mentioned a few weeks ago when he described it as a bubble. A critical issue, but one that may be addressed by explicitly tying Bitcoin value to physical and intangible goods. As more people use it, this volatility should be reduced as well.
There are no rules or regulations from the government
Even though a decentralized currency may be perceived as one of the advantages of cryptocurrencies, Bitcoin's lack of regulation can also be viewed as a drawback. Transactions using Bitcoin have no legal protection and are usually irreversible, making them vulnerable to frauds since they lack the legal protection provided by a central bank-regulated currency.
In addition, the lack of a guaranteed minimum value is one of the drawbacks of Bitcoin's decentralized nature. Because of this, the value of Bitcoin might drop significantly if a large group of investors chooses to stop using Bitcoin and sell them. This could have a significant impact on users who have a substantial number of Bitcoin.
Limited acceptance and poor value storage
Even while Bitcoin and other cryptocurrencies are becoming more widely acknowledged, the number of venues where one may exchange cryptocurrency for actual products or services is still quite restricted. Additionally, because of their extreme fluctuations in value when converted back into fiat currency, cryptocurrencies are unsuitable as a means of saving money for long periods.
Unrestricted and without support
There is no government control or regulation of the private sector's creation of cryptocurrencies. This implies that criminals may use cryptocurrency as a way of scamming unsuspecting investors. More than half of all Bitcoin transactions are linked to unlawful behavior, according to an academic report published in 2019.
But it's vital to keep in mind that this list isn't complete. Many believe that the potential upside gains outweigh the negative dangers and that these risks may be minimized by carefully sizing one's cryptocurrency position in the context of one's overall investment portfolio.
Ultimately, each person's evaluation of the pros and downsides of adding cryptocurrency exposure to a portfolio will determine whether or not to do so.
We've attempted to highlight the important ones in this letter. The use of blockchain technology in the financial system more widely has several benefits that are distinct from the current focus on cryptocurrencies.
Blockchain, despite the absence of legislation now surrounding it, has the potential to be a potent regulatory instrument. Blockchain might potentially be used to save costs and improve the efficiency of the financial system.
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