How many disadvantages of cryptocurrency | Motilal Oswal

Top 5 Disadvantages of Cryptocurrency




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Although there are those who laud cryptocurrency and the digital currency has a huge fan base, only touted to grow in the near future, many individuals are wary about cryptocurrency in India. Cryptocurrency disadvantages have been cited by the rich and famous, and successful investors like Warren Buffet have referred to the digital currency as  “the next bubble”. Considering that bubbles burst, it is vital to  know what these drawbacks are so we can make informed investment decisions. While cryptocurrency has the ability to reform the financial universe as we live and breathe, and questions the very prevalence of the conventional pattern of our financial structure, there are some pros to the new digital currency, and some significant cons. As with anything new (now, not so new), there are believers and critics. So it is with cryptocurrency. Like stocks, they can give you high rewards, but there is a high chance that you take high risks too. So where do you start? Once you know the cons, you can read up on the pros later and decide. 

Disadvantage # 1 - Scaling Problems 

There is a lot of hype around cryptocurrency in India and all over the world. However, one of the largest concerns about cryptocurrencies have to do with scalability. The adoption of digital coins and the sheer number of these is on the rise.  While viewing the advantages and disadvantages of cryptocurrency, this may be seen as an advantage to the crypto fans who welcome the variety. Nonetheless, it is still not as high as compared to other financial transactions and operations like those of, say, a payment icon like MasterCard or Visa. in addition to this, the speed at which transactions in crypto are made is no match for players like MasterCard and Visa. The problems of scale in cryptocurrency lie in their infrastructure and technology in this area has much room for improvement. Although improvement is ongoing, and of an evolving nature, claim embracers of cryptocurrency, it may not be going at such a fast pace.

Disadvantage # 2 - Crypto Exchange Security 

Cryptocurrency relies heavily on digital technology. As a result of this, it is open to breaches in cybersecurity. Among some worries over dealing with any crypto exchange is the fact that accounts can be hacked into. There is already living proof of this with reports of hacking into many ICOs, costing individuals millions in dollars. The security infrastructure, thus, has to be controlled and managed better than it currently is. Traditional banking security measures are not going to cut it for digital currency safety maintenance. 

Cryptocurrency does not pose risks brought on by the use of intermediaries, but security issues are prevalent in the system of their functioning. For instance, you may be a crypto owner with your crypto key letting you gain access to coins. However, this exposes all your holdings as well. Among cryptocurrency pros and cons, this is a huge con. Users of the currency may be at the wrong end of the stick when it comes to phishing, hacking and all the other varied means of maliciously encroaching on your financial instruments. 

Disadvantage # 3 - Cryptocurrency Value and Volatility

Cryptocurrency in India has taken over the young and old investor’s mind with vivid thoughts of making promising returns. While many investors are riding the wave of cryptocurrency, there are several who are finding out that cryptocurrency prices tend to be prone to a degree of volatility. This is because cryptocurrency exhibits some lack in its innate value, as the digital currency is not connected to any tangible assets. 

On the one hand, prices of certain cryptocurrencies surge to heights which can only be described as dizzying, but they may also be prone to crash very quickly, to lows that have terrified some investors. In terms of stable long-term investments, crypto may not be the best bet for certain kinds of investors. As with stocks, the crypto markets are driven by speculation, but unlike stocks where technical and fundamental analysis plays a huge part, cryptocurrency is more vulnerable to fluctuations that are sharp and quick. This wreaks havoc on investors and the coins themselves. 

Disadvantage # 4 - Lack of Proper Regulation

When Warren Buffet emphasised the drawbacks of crypto, the experienced investor stressed on the lack of any regulatory authority controlling assets in this market. Due to the apparent lack of any supervisory management, the system is bound to “implode”, to quote the word that Buffet used. You may perfect the inherent technology, but unless a regulatory entity does not adopt cryptocurrency, there will always stand to be a risk looming large. In citing cryptocurrency pros and cons in debates over the currency, the lack of any regulatory entity offers room for doubt as to the secure operation of the currency and its safe measures, not to mention the ethical standards tied to it.

Disadvantage # 5 - Worries About Changing Technology

There are particular logistical problems of trading in cryptocurrency in India, and the world over. These are largely connected with the technology that the digital currency involves. For instance, when the technology related to cryptocurrency needs to be altered, the changing of protocols is required. This can be a tedious process and takes a long time. Hence, the regular operational and functional flow could be interrupted and cause additional issues. 

Disclaimer

This article is solely for the purpose of education and isn’t to be viewed as recommendations to invest, or not, in any digital assets in question. Good advice would be to keep your finances secured via more tried and tested instruments that are regulated in nature. These could be in the form of bonds, stocks, debentures, IPOs, mutual funds, etc. You can click here to open a Demat account and know more about different ways to allocate your funds and diversify your portfolio efficiently. 

The Greatest Disadvantage

Possibly, the greatest disadvantage that many see in cryptocurrency and its many fans, is the lack of understanding of concepts surrounding the new currency. Cryptocurrency may take a while before you can get your head around it. If you are not a native of the digital land, cryptocurrency concepts, leave alone blockchain, can feel like a complete stranger to you. The first thought that enters you mind in such a case is the risk of not knowing what you are investing in, in the first place. 

Of course, there are a plethora of online resources just waiting to get you hooked, but you have to be dedicated enough to do your work. It may take considerable time and effort, and you may want to just stick with your tried and tested investments like stocks and other instruments. 

 

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