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Tuesday, December 5, 2023

Cryptocurrencies and their dark side: the dangers of investing in the financial trend of the moment

The high profitability of investing in cryptocurrencies and its growing popularity have made more and more individuals put their savings in this asset.

However, the very nature of this ‘coin’ generates a series of dangers that must be taken into account before launching to buy.

On Friday, February 19, the bitcoin market surpassed $ 1 trillion, rising from $ 55,000 in its price. There are many large organizations that have begun to bet on this investment vehicle. The purchase of a portfolio of 1,500 million dollars in this cryptocurrency by Tesla , Elon Musk‘s company , and the announcement of its purpose to accept payments in this virtual currency, have been the most talked about movements in recent times.

” We are facing a new paradigm of investment opportunities , with rules and ways of doing things that we have never faced before,” says Enrique Hernández Nuez, Bitcoin Consultant and Blockchain Master. “The main problem is that we find large amounts of information on the internet in this regard, many even contradictory. We are living a real infoxication of the crypto world from which three great dangers arise : heartless scammers, untrained investors and ignorance in management and security of the own cryptocurrencies ”

The main dangers of cryptocurrencies , which are a digital asset based on computer code, are their volatility, their lack of regulation and their inherent vulnerability to their digital nature. The Bank itself of Spain and the CNMV warned in a statement that ” the criptomonedas not considered a means of payment , nor are backed by a central bank or other public authorities and are not covered by protection mechanisms client and Deposit Guarantee Fund or Investor Guarantee Fund “, which is why they qualify this investment as” high risk ” . Anyone considering buying cryptocurrencies must be aware of the reality of this asset.

The rules for investing in bitcoins or cryptocurrencies

Hernández Nuez establishes as the first basic rule never to use the capital that you need for your day-to-day life , but rather remnants and ‘extra’ money that you have. “The volatility of bitcoins is so high that in the short term we could find ourselves with the unpleasant surprise of a loss in value. The long term is our ally. That leads us to position ourselves as a type of investor that in the crypto sector is called a hodler ”.

This volatility is evidenced by the meteoric increase in value that it has suffered since the beginning of 2020 – when it was at $ 7,000 at the exchange rate. Immediately after reaching its peak at the end of February, however, it experienced a 19% depreciation , its worst fall since March 2020, when in a week it lost 35.91% due to the outbreak of the coronavirus. Even so, at the end of the month of February it presented a revaluation of 59% since the year in which we find ourselves began.

The security of the technology that supports cryptocurrency is the other great uncertainty that affects it. “Although it is still described by many as experimental, distributed ledger technology has been in existence for more than a decade, in the case of Bitcoin, a period in which there is no evidence that its security has been compromised . There are very few technologies in the world with such a solid track record, “explains Alberto G. Toribio, Cryptoplaza Ambassador.

User confidence in cryptocurrencies and their investment products has grown exponentially in the last decade. More than 7 million people have already made investments in Bitcoin in Spain. “It is estimated that 67% of the population that invests in cryptocurrencies is between 30 and 59 years old , and that 31% live in Europe.”

But danger does not always come from outside in the form of hackers , but the simple loss of security codes is a present risk , and more common than you can imagine. According to a report by the firm Chainalysis, it is estimated that of the 18.5 million bitcoins that exist, around 20% are ‘lost’ .

There are many owners of bitcoins who have lost the keys to their ‘wallets’, some of them even in the early days of cyber currency, and they have witnessed how the lost has increased in value over time to reach be possessors of true fortunes that inhabit a digital limbo.

The company Wallet Recovery Services, dedicated to the recovery of lost digital keys, claims to receive around 70 requests a day from people who want to recover their cryptocurrency portfolio , and it is a trend that is on the rise.

Privacy in the days of cryptocurrencies

The very nature of cryptocurrencies, deregulated and private, makes them conducive to engaging in questionable or even criminal operations. It is no secret that they serve as a means of payment on the darknet for transactions of items such as illegal drugs, weapons and other restricted goods.

“There is a starting point in cryptocurrencies, and especially in Bitcoin, which is totally contrary to any regulation and is in its own conception: to carry privacy and freedom as a flag. The regulation starts from centralization, seeking that the Authorities, the center, control citizens without privacy. In Bitcoin there are no centers and all users live in the periphery under equal conditions and enjoy high privacy, “says Enrique Hernández.

However, and apart from the growing regulation that public guarantee agencies have been generating since the appearance of this new reality, the expert Alberto G. Toribio believes that the Civil Code in Spain provides protection to most aspects of the cryptocurrency trading, equivalent to that of other non-financial assets. ” We must dismantle the story that there is a lack of regulation in the current legal framework so that the crypto industry can contribute to improving the competitiveness of our country’s financial sector.”

The solution to some of these dangers seems to be mitigating with the emergence of intermediary agents that create a security and legal framework for cryptocurrency transactions. “The volume of business that is being generated around these increases substantially, new players appear that are providing services and generating considerable income that traditional players are not capturing at the moment, although some entities, such as BBVA, for example, have already launched buying and selling services and custody of these assets for their clients “, says Jorge Ordovás, co-founder of NevTrace.

“During the last few years, a good part of the technological evolution in the cryptocurrency ecosystem has been aimed at solving this problem, building more efficient solutions on existing networks , creating a technological ‘second layer’ that provides higher performance and lower transaction costs. , without sacrificing the decentralization and security provided by the ‘first layer’ of cryptocurrencies . “

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