Part four
OVER the course of three articles, I have provided a comprehensive introduction and meticulously enumerated the reasons that render cryptocurrencies an unfavorable investment choice. The second and third segments of this series delved deep into the inherent issues of extreme volatility and the prevailing absence of regulation in the crypto landscape, respectively. Moving forward to Part 4 of this series, we will delve into the third key reason that illuminates why cryptocurrencies might be considered a less desirable investment option.
While it is true that cryptocurrencies have gained significant popularity over the past few years and touted as an alternative of investment, however, they are not without their issues, particularly when it comes to security. One of the biggest concerns surrounding cryptocurrencies is their susceptibility to hacking and the potential for funds to be sent to the wrong recipient.
These security issues, along with a lack of consumer protection, make cryptocurrencies a highly risky investment, and it is one of the reasons why several experts in investments and personal finance caution against putting money in what is touted as a new but untested asset class. This article will explore the security issues associated with cryptocurrencies and why they make crypto a bad investment.
One of the most prominent security issues with cryptocurrencies is the risk of hacking. Cryptocurrencies are stored in digital wallets, and these wallets are vulnerable to hacking, just like any other computer or internet-connected device.
Hackers can gain access to digital wallets and steal the funds stored within them. In addition, cryptocurrency exchanges, where users buy and sell cryptocurrencies, are also vulnerable to hacking. If a cryptocurrency exchange is hacked, the funds stored on the exchange can be stolen, and there may be no recourse for users to recover their lost funds.
The Mt. Gox breach in 2014 serves as a critical case study in understanding the security risks affiliated with cryptocurrencies. As one of the leading cryptocurrency exchanges at the time, Mt. Gox fell victim to a massive hack resulting in a loss of 850,000 Bitcoins, valued roughly around $450 million back then.
This incident, marked as the inaugural substantial breach in cryptocurrency history, underscores the inherent vulnerabilities of digital wallets and cryptocurrency exchanges. Almost a decade later, the problem has unfortunately persisted rather than abated.
In 2022 alone, it is reported that users suffered losses approximating $20 billion from a series of high-profile hacks. These include significant breaches on platforms like Binance ($570 million), the Ronin Network, the backbone of the popular Axie Infinity game ($625 million), the ill-fated FTX exchange, ($600 million), Wormhole ($325 million) and Wintermute ($162 million). A standout episode involved the decentralized platform Beanstalk where a shocking $162 million was siphoned off in a staggering 13 seconds, emphasizing the relentless and sophisticated nature of these cyber-attacks.
Another security issue with cryptocurrencies is the potential for funds to be sent to the wrong recipient. Unlike traditional investments where transactions can be reversed if the wrong recipient is identified, cryptocurrency transactions are irreversible. This means that if a user mistakenly sends funds to the wrong recipient, there is no way to recover those funds. This lack of consumer protection makes cryptocurrencies a particularly risky investment for individuals who are not familiar with the market and who may make mistakes when sending funds.
The security issues associated with cryptocurrencies also make it difficult for individuals to recover their funds if their digital wallet is lost or stolen. Unlike traditional investments, where lost or stolen funds can often be recovered through insurance or other means, there is no such protection for cryptocurrency investors.
This lack of protection for the investing public makes cryptocurrencies a risky investment for individuals who do not even have the technical knowledge to properly secure their digital wallets and who may be susceptible to losing or having their wallets stolen.
In summary, the security issues associated with cryptocurrencies, including the risk of hacking, the potential for funds to be sent to the wrong recipient and the lack of consumer protection make cryptocurrencies a highly risky investment. Despite the potential for high returns, the risks associated with cryptocurrencies, such as those mentioned above, cannot be ignored.
Investing in cryptocurrencies may be tempting, but it is important to remember that the security issues associated with crypto can result in significant losses, making it a bad investment especially for those who value stability and most especially security in their investments.
Atty. EnP, Zigfred Diaz, RFP, ReA, ReB and CSS, is a Cebu-based registered financial planner of RFP Philippines. Aside from practicing law, he is a licensed environmental planner (EnP), real-estate broker (ReB) and appraiser (ReA). To join the 103rd Registered Financial Planner program this September 2023, e-mail info@rfp.ph or text 0917-6248110.
