Dangers of Investing in Digital

Currency
Ahmed El Sayed

Abstract: The alternative source of currency, which has not been treated like conventional money,
has arisen from digital currencies, as Bit coin. As such, digital money is a crazy boundary for buyers who
otherwise might purchase gold or foreign currency with significant risks. This work looks at digital
currencies from a conventional price point of view. We deem fluctuation and systemic chance of Bit coin
price if we leave aside the risk of the seller's fraud or currency robbery. From this point of view, Bit coin
does not tend, considering its high volatility, to face much systems risk, and is thus a fair candidate for
investment portfolios inclusion. Any examples demonstrate that Bit coin’s optimum worth to investor
accounts can be minimal or large - up to 21% of overall capital assets. This paper will identify different
blockchains and dangers of investing in crypto currency and discuss solutions in order to provide safety
for investors.

Keywords: Dangers of digital currency, Investment risks, Bit coins.

1. Introduction: Digital currencies live on global lists or statements. Crypto currencies are not
regulated as traditional currencies are controlled by central banks by a central authority. The most
popular format of the public ledgers is a blockchain. This blockchains serve as peers for peer networks
and allow anyone to deal with someone else directly. The blockchains are operated by miners and the
overwhelming agreement of all miners has accepted all transactions. Since Bitcoin was founded in 2009,
the crypto currency industry has developed considerably. Advances in blockchain technologies have
improved users' data privacy and confidentiality, decentralized banking has expanded enormously and
digital currencies in central banks give banks and companies limitless opportunities. The explanation is
clear for this development. Blockchain technology facilitates more reliable market transfers, lowered
costs and simplified connectivity across the supply chain. An open source digital protocol network is a
digital currency which is issued and exchanged. The Bitcoin Network is an online peer-to-peer network
using the "Blockchain" distributed transaction ledger that is held in full or in part on software programs
of all users. Any transaction would be registered in a publicly accessible Blockchain, stamped, time
stamped and publicly displayed, thereby providing a verifiable transaction history for all current bitcoins
except for off-blockchain transactions. The Bitcoin Network protocols enable a limited amount of
bitcoins to be generated. Other competitive crypto currencies, such as Ethereum and Ripple, have
therefore been created. Provided that crypto-currency networks are not focused on the development,
transfer or determination of digital currency values by government authorities or financial institutions,
consumers are able to obtain digital currencies and exchange them without the intervention of
intermediaries. Let us learn in depth what the benefits and drawbacks of digital currencies and its forms
are.

2. Blockchains: It is instructive to see it in the sense of how Bitcoin was applied with a view to
understanding blockchain. Like a ledger, Bitcoin requires a device array to store the blockchain. For
Bitcoin, this blockchain is just a special form of archive that saves all Bitcoin transactions you have ever
performed. Unlike other databases, in Bitcoin's case these machines do not all come under one roof,
and a particular person or group of people is running each computer or computer group. Imagine a
corporation has a 10,000-computer server with a data base that holds all the account records of its
customer. The business has a warehouse holding all these machines under a single roof and has direct
surveillance of each and all of them. Bitcoin likewise comprises of thousands of machines, but each
machine or community of computers with a blockchain is situated in a separate geographical area, both
of which are run by individuals or groups of people. These Bitcoin network computers are called nodes.
In this model, a decentralized use of the Bitcoin blockchain is created. However there are proprietary,
centralized blockchains that own and manage the machines that make up your network. Each node has
in a blockchain a complete record of the data stored since it was launched. For Blockchain, all Bitcoin
transactions are registered throughout history. If a node has an error in its data it can fix itself like the
thousands of other nodes. Thus no network node will modify the information stored within the network.
As a consequence, Bitcoin blockchain past of transactions is immutable throughout each block.

3. Security Issues: Since crypto currency is primarily cash, a large number of criminals have
been drawn. During online transactions, hackers concentrate on individuals, service handling and
storage areas by means of means such as spoofing/phishing and malware. To secure the bought crypto
currencies from fraud, investments must depend both on the strength of their computer protection
systems and third-party security systems. In addition, crypto currency is heavily dependent on
businesses not regulated, including those lacking adequate internal controls that can be more
vulnerable to bribery and cheating than regulated financial institutions. Technology should be changed
frequently and often suspicious. Blockchain technologies can provide vendors with substantial liability
exposure to third parties. The threats to the economy are unusual, since money only trades on demand.
The currency is limited, so that value can be impaired and limited ownership can make it vulnerable to
market manipulation. Further the currency may seem more unpredictable than other physical
currencies, stimulated by spectra-based demand and aggravated by hoarding, considering its small
adoption and shortage of choices.

3.1 Loss or destruction of the private key: bitcoins are held in a digital wallet and are only controllable
by both the public and private size of the digital wallet that houses the bitcoins, both special, by the
owners of the private key. If the private key is lost, damaged or otherwise impaired, an investor cannot
be able to access bitcoins that effectively are lost in the linked digital wallet. This third party will be able
to unlock the bitcoins if the private key has been purchased by a third party.

3.2 Loss of Confidence in Digital Currencies: The modern and quickly developing digital asset market
includes digital currencies, which are itself subject to a great deal of confusion. Online platforms have
created a wide trading operation by speculators to take advantage of the short and long-term ownership
of digital currency and allow comparatively limited use of the retail or commercial markets. Many crypto
currencies do not receive a central bank, a national or foreign entity or other assets or other credit, their
worth solely defined by its value, meaning that a lack of trust could lead to a fall in the exchange and a
sharp drop in value.

3.3 Slow-Down of Network: For bitcoins, the method of mining is the development and verification of
transactions by bitcoins. The computers of the customer become a "node" validating blocks via the
installation of a particular. Bitcoins are immediately given to miners’ progress in adding a block to the
Blockchain (plus transaction fees for transactions recorded). However in the absence of adequate
payments for solving blocks and transaction fees or in the case of high transactions at the same time,
the Blockchain can slow down. For other coins, a slow-down is likely if there are very large transactions
on the network.

3.4 No Regulations: At present, there are no big controls in the Bitcoin industry. The government has no
strong view on crypto-monetary matters; the industry is too young. It is not taxable and can be
appealing as an incentive for investment. Any absence of taxation can however create difficulties if
Bitcoin is competing with state currencies. Crypto currency is not technically a generally recognized
currency, but the outlook continues to shift. Nobody says what the situation in the Bitcoin market will be
in a couple of years.

4. Solutions:
4.1 Understand the strength of the vulnerability and spend what you're able to lose: Understand the
strength of the risk and save what you will lose. Taking financial risks leaves some anxious, while some
take the time to save on a future chance. It lets you decide in which aspect of the fund you want to
spend. Worth investing in cryptography if you take chance makes you nervous. Other investing options
are not very risky. There are plenty. However in the event that things turn south, spend only one
component that you are able to sacrifice. Above all, no law applies for an equal investment. It doesn't
mean that you have to do the same because someone spent $4,000. This is your decision, if you are
willing to gamble more than others and are willing to risk less; it is also your choice. This is your choice.
It is necessary to invest within your limits. You are ready to sacrifice it.

4.2 Proportioning your capital for more than one coin: The distribution of your investment through
crypto currencies is a successful approach in reducing danger. It has its own complexities, but rather
than just investing in one coin. Yeah, the price of crypto currencies is enormously unpredictable, but
they all collapse at the same time besides Bitcoin, thousands more on the market. You have just to open
your eyes and several coins are still there. Among the "real" coins, research and choose those with
potential and then share your money with your measured risk. The concept – and one of these tips – is
to alleviate the risk of losing all of your money.

4.3 Avoid low-liquid crypto currencies: Low currency liquidity leads to a condition in which any effort to
sell the currency ends with a large price decline. To prevent this you can evaluate parameters such as
the rate of trade, the volatility and the liquidity of assets—fortunately, to date, these measures can be
easily tracked on all major exchanges.

4.4 Depend on the concept, not a particular crypto currency: With the advancement of blockchain
today, an increasing array of tokens has a real infrastructure solution, a concept that overshadows the
limited "currency function." If all of these proposals sound promising to you it is wiser to invest in a
variety of projects in this area in order to reduce the effects of unforeseeable variables that might
adversely affect even the most promising project.

5. Conclusion: Crypto currencies can also be viewed as risky investment, but also as huge returns.
The amount of investment made in the industry now makes it virtually clear that new technologies will
appear and there will certainly be a new kind of economy. At least this is a valuable learning class for
buyers, but they should be careful not to gamble too much.

References:
https://medium.com/@anthonyback01/the-risks-benefits-of-investing-in-cryptocurrencies-digital-
assets-52689c2a222e

https://www.consumerreports.org/cryptocurrency/why-investing-in-digital-currencies-like-bitcoin-is-so-
dangerous/

https://catanacapital.com/blog/cryptocurrency-introduction-investing-bitcoin/

https://www.investopedia.com/terms/b/blockchain.asp

https://www.intechopen.com/books/blockchain-and-cryptocurrencies/blockchain-and-digital-currency-
in-the-world-of-finance