Bitcoin, Litecoin and other cryptocurrencies have garnered significant attention in the last several months. Bitcoin prices, for example, have risen at one point to over $4000 per bitcoin.
Purchasing digital currencies could prove to be a great long-term investment. For now, predicting where cryptocurrencies could go is really just pure speculation.
Before you run out and spend your hard-earned capital buying Bitcoin or other digital currency, here are a few things you should know.
You Can Lose a Lot of Money
Just because Bitcoin prices have been on the rise doesn’t mean that prices cannot fall. In fact, if the network were to somehow become completely compromised or rendered unusable as a medium of exchange, prices for bitcoins and other electronic currencies could decline to zero.
That’s right: zero.
Make sure that any capital you decide to invest into cryptocurrencies is risk capital that you can afford to lose.
On The Other Hand, You Can Make a Lot
The sharp rise in Bitcoin in recent trade has many traders and investors excited over the digital currency’s potential for price appreciation. There simply is no telling just how high prices could go. Some estimates have already suggested that Bitcoin could reach $500,000 by 2030.
Cryptocurrencies Are Not Yet Widely Accepted
Although more merchants are now accepting Bitcoin, this form of money still has not reached mainstream status. Don’t expect to pay your mortgage using cryptocurrencies just yet.
Security May Be An Issue
As a new form of money, cryptocurrencies have not yet been fully tested for potential vulnerabilities. Cyber crimes are on the rise all over the globe, and digital currency security is sure to be a primary issue as these products become more mainstream. If a Bitcoin wallet file is lost, for example, all of the bitcoins contained in it are likely gone.
Fraud May Be Perpetrated
As cyber crimes rise, so does the amount of good old-fashioned fraud. Double spend attacks are just one example of the types of fraud that may be seen with digital currency. As hackers and cybercriminals become even more technically advanced, other types of fraud could also begin to take place.
There is no Buyer Protection
If you were to make a purchase using Paypal or a credit card, you would likely have a degree of fraud protection. If the funds were sent to a fraudulent seller, those funds can be called back in the form of a chargeback. However, no such protection exists with cryptocurrencies, and all transactions are irreversible.
Only Time Will Tell if Cryptocurrencies Are the Wave of The Future
There has been much discussion already about the future of Bitcoin and other digital currencies. Although these currencies have become more popular, they have not yet been fully tested. It may also be unlikely that digital currencies could fully replace fiat money, as central banks can increase or decrease the paper money supply in order to tackle inflation, deflation or other economic issues.
Cryptocurrencies like Bitcoin and Litecoin could become the next major vehicle for global commerce, or they could prove to be a complete and total dud. Before buying cryptocurrencies, carefully consider the risks involved and only invest with risk capital.