The Crypto Rush: Potential & Risks
We have all heard about cryptocurrencies and the story of the famous Bitcoin, which was the first to appear on the market. 2017 was a fairly interesting year for investors worldwide, in which top cryptocurrencies such as Bitcoin, Ethereum, Ripple, Dash, etc., showed quite amazing results with increases between 2,000%-30,000%!
But where there is big money and matching opportunities, there are also risks. We will discuss them in more detail in this article!
Cryptocurrencies can be obtained in two ways:
- Mining
- Speculation on price differences
Mining means complex mathematical calculations performed by the processor (CPU) or video card (GPU), and for this you receive remuneration in fractions of cryptocurrencies. Besides the fact that these components are quite expensive and you need around 5,000$ minimum to build a so-called “mining farm”, the money invested is currently recovered in about one year, but the period is becoming longer and longer. There is also the risk that one or more components may deteriorate, which also requires investment. The work of these CPU, GPU components produces heat and loud noise, so a special room is also needed!
Speculation on price differences – you can buy cryptocurrencies from certain sites, so-called “Exchanges”, or through a Financial Broker, with a STOCK account!
Exchanges offer the possibility to buy, for a commission, the cryptocurrency you are interested in and keep it on their site, which is not sufficiently secure because your funds are held by a third party! Commissions are quite high, with currency exchange reaching an average of 10%! Such sites are always targets for hackers, and history has many cases where different Exchanges were hacked, some even going bankrupt (bter.com, mtgox.com, btc-e.com, youbit.co.kr and others). For such websites, there is currently no regulatory procedure and clients' funds are not insured.
The Financial Broker offers the possibility to buy Bitcoin and more, also for a commission, but usually a smaller one. Here you are the sole holder of the assets and NO ONE can withdraw the funds except you. The security level is much higher because the brokerage company is regulated by a regulator (the competent body for regulating financial institutions at state level). In addition, clients' funds are insured, with maximum limits of up to 50,000GBP in case the Broker goes bankrupt. Deposit and withdrawal commissions are zero!
Attention: even if a brokerage company can offer you the highest level of security, we still advise you to investigate very carefully who your partner broker will be, because there are many scam brokerage companies that can mislead you with “amazing offers”!
A recent case occurred on 26.01.2018, when a Japanese Exchange blocked cryptocurrency trading after becoming the target of a cyberattack in which around 533 million USD in the NEM cryptocurrency was stolen. Following this attack, 260,000 clients suffered and lost their assets! The Exchange named Coincheck committed to paying clients compensation equal to 90% from its own funds, but it is not mentioned when.
NEM Foundation director Lon Wong stated that there should be no claims against the NEM cryptocurrency and that Coincheck is to blame for neglecting to use the multi-signature function offered by NEM.
Conclusion: YES, cryptocurrencies are quite volatile instruments with enormous potential, but for investors the safety of funds must come first, which, from our point of view, only a Financial Broker can provide.
Disclaimer: This article is for informational purposes only. Trading.md only makes a comparison and analysis of the current situation in this market.
Translated from the Romanian original with AI assistance.