Why We're Scared of Cryptocurrencies, and How It Can be Fixed Many people have raised concerns, but there are potential solutions.
By Ejiofor Francis •
Opinions expressed by Entrepreneur contributors are their own.
Since the emergence of the first cryptocurrency, Bitcoin, many people have raised concerns about this technology. Unlike its parent technology, blockchain, cryptocurrencies have caused many to seek its alienation, if not outright ban. Financial sectors and governments across the globe are at the frontier in the fight against these digital currencies. In fact, some banks and other financial institutions have refused to offer their services to crypto-related companies, while some governments have gone out of their way to create laws that prohibit them within their jurisdictions. While these measures might be enacted for different reasons, the underlying factor is fear. So, why are people scared of cryptocurrencies, and how do we put them at ease? Let's dive in.
Lack of Understanding
Initially, the concept of digital money seemed far-fetched. People did not understand how they could transact with virtual money. More so, how could they use this money while no system or government is issuing and regulating the currencies? Despites various seminars, blockchain and cryptocurrency academies and other organizations seeking to help people better grasp the concept, many are still in the dark.
Knowledge of cryptocurrencies is widely spread in developed countries, but the evolution of crypto is not so established in developing countries, especially in some parts of Asia and Africa, which have little or no knowledge of them. Lack of understanding has caused some governments to seek services from experts within this space in the hope of helping their citizens understand the technology before investing all their assets.
Possible Solution: The best place to start would be providing education on blockchain and cryptocurrencies. This will go a long way in enabling investors and newbies to make the right choices. Education will ultimately reduce uncertainties, and knowledge will eventually replace some of these fears and increase the adoption of these technologies.
Related: Here's Why Cryptocurrency Can Be Considered Reliable
Zero Legal Tender
Cryptocurrencies are not issued by any central bank. Rather, they are decentralized smart contracts. This has caused them not to be recognized as legal tenders. The legality of cryptocurrencies raises fears along different circles, especially some governments that are afraid if this system fails, it will take down big economies. Others worry that since cryptocurrencies are not legal tenders, they encourage illegal activities like money laundering, terrorism and other frauds. Reports indicate there has been an increase in crypto-related crimes and scams over the past few years, and investors have ended up prey to conniving individuals who take advantage of a lack of knowledge among investors.
Possible Solution: Disrupting the financial flows to criminals. Typically, there is no perfect method to permanently solve this, but regulation measures that can bring cryptocurrencies in line with existing anti-money laundering and perhaps counterterrorist-financing legislation will definitely control illicit transactions.
Volatile Nature
Cryptocurrencies are the most volatile investments in the world. The price might drastically drop or rise just within a few minutes. For this reason, many fear investing in the industry, as was demonstrated when the price of Bitcoin skyrocketed throughout 2017 but plummeted the following year. While there's no doubt that the volatile nature of cryptocurrencies could cause fear, it's one feature that makes investing in the space a risk worth taking.
Possible Solution: Crypto's volatility is not as bad as many deem it. Notably, many have used this same feature to get lucrative trading returns. So if you're thinking of investing or trading any of cryptocurrencies, it's advisable that you not only understand your risk limit, but get a deep insight about the crypto market and the coin you want to invest in. Note: Invest only the amount you can afford to let go.
Security Threats
Digital currencies are available online, which makes them vulnerable to hackers. Keeping money safe online is not an easy job for some, especially those who don't understand how applications like crypto wallets and exchanges work. Despite the fact that exchanges and individuals are taking extra measures to secure their funds, hackers still find ways to steal, making people reluctant to use these cryptocurrencies.
Possible Solution: Firstly, crypto owners must secure their private key by backing up their wallets. (Once you lose your private key, you lose access to your money.) Secondly, opt for crypto exchange platforms like Coinbase, Poloniex or Kraken that offer exceptional security measures and address the key challenges surrounding security.
Related: Problems Faced by Facebook-Backed Cryptocurrency Libra
Too Many to Choose From
Over the years, the number of digital currencies have grown tremendously (unlike when the likes of Ethereum and Bitcoin were the only well-known coins). Interestingly, more projects are still underway, although the industry has seen many fall immediately after their launch, giving investors a good reason to worry and creating more uncertainty.
Possible Solution: Deep research is the key to ensuring you know the right cryptocurrency to invest in. Meanwhile, don't invest in any crypto project without understanding its potential. Be smart!
