Cryptocurrencies are pseudonymous even if they advertise themselves as an anonymous method of payment. Agencies such as the Federal Bureau of Investigation (FBI) can track the digital trail they leave behind. Governments, law enforcement, and other parties now have the ability to monitor financial activities.Criminals are using cryptocurrencies more frequently for malicious purposes including money laundering and illegal transactions. It is already widely known about the case of Dread Pirate Roberts, who operated a drug-selling marketplace on the dark web. Hackers have also come to love cryptocurrencies, using them for ransomware operations.
Cryptocurrencies are designed to be decentralized in theory, with wealth being shared among numerous participants on a blockchain. Investment fund managers are buying them to hold in their funds, and firms are buying them and holding them for price appreciation, indicating a growing concentration of ownership.The idea behind cryptocurrencies is that anyone with a computer and an Internet connection may mine them. However, mining well-known cryptocurrencies uses a lot of energy—sometimes as much as what whole nations need. Due to the high energy costs and unpredictable nature of mining, the industry has become concentrated among major corporations with billion-dollar annual revenues.
Wallets and exchanges are examples of off-chain crypto-related key storage repositories that are hackable, even if cryptocurrency blockchains are extremely secure. Over the years, a large number of cryptocurrency wallets and exchanges have been compromised, sometimes leading to the loss of millions of dollars’ worth of coins. Accurate price monitoring is necessary for investments since cryptocurrencies traded on public markets experience significant price volatility. For instance, the value of Bitcoin has fluctuated rapidly, reaching around $65,000 in November 2021 and then falling to slightly over $20,000 a year and a half later. By mid-2024, bitcoin values had surged once more. Because of their extreme volatility, a lot of individuals think that cryptocurrencies are a speculative bubble.
Even while there are many stories of bitcoin investments making investors instant billionaires, there are drawbacks to cryptocurrency as well.
The following are some common disadvantages of cryptocurrency:
· Volatility:
Prices for cryptocurrencies might change often. Although this volatility can result in rapid rewards, in certain situations—such as when the price of a cryptocurrency drops sharply—it can also cause investors to suffer large financial losses. Those seeking consistent profits on their investments may find this volatility to be a dangerous option.
· Lack of regulation:
Although cryptocurrency is allowed in many developed nations, central governments do not have the authority to control it. The potential of bitcoin frauds and market manipulation is increased by the lack of oversight and regulation in the cryptocurrency industry. Investing will always carry a higher risk until national governments embrace and regulate cryptocurrencies in the same manner that they do fiat currencies, like the US dollar.
· Security risks:
Despite the strong security architecture provided by blockchain technology, hacking attempts and security failures are becoming more frequent in the bitcoin ecosystem. Cybercriminals have targeted digital wallets and cryptocurrency exchanges, resulting in large financial losses for both individuals and companies. Moreover, it is challenging to get money back once it has been stolen because Bitcoin transactions are irreversible.
· Risk of losing coins:
A private key is necessary for the owner of some cryptocurrencies, like Bitcoin, to get access to the virtual wallet where the tokens are kept. But if a private key is ever misplaced or stolen, there is no way to retrieve the bitcoin tokens or provide another form of identification.
· Excessive cost of production:
Cryptocurrency mining may need a lot of electricity and other resources, depending on the kind. For instance, according to Harvard Business Review, the majority of Bitcoin-related expenses are tied to the energy needed to produce the currency. The communities who live close to the mining sites may experience higher greenhouse gas emissions, noise pollution, and other negative effects as a result of this increased electricity demand.
· No refund or cancellation:
Bitcoin cannot be refunded. This means that if there is a disagreement between the parties or if money is accidentally sent to the wrong wallet, it cannot be reimbursed to the sender. folks might therefore utilize it to con other folks. It is easy to make up a compensation for a transaction in which goods or services were never delivered because there aren’t any.