Understanding Cryptocurrency Forks
February 12, 2025
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In the previous articles, we have read about the meteoric rise of cryptocurrencies. We know that investments in these currencies have provided unprecedented returns. Many experts are attributing it to the number of advantages that cryptocurrencies have to offer. However, it needs to be understood that cryptocurrencies are still a nascent technology. Hence, there are still many significant disadvantages to investing in cryptocurrencies. In this article, we will provide an overview of the various disadvantages. It needs to be understood that each of these disadvantages needs to be explained insignificant detail which will be done later in the module. This article is just providing a checklist that can be used for ready reference.
Since cryptocurrencies are not regulated by the government, criminals find this to be the best way to launder their money. As an investor, this can be problematic. Since the market is completely anonymous, it is possible that investors could be aiding and abetting such money laundering activities without having any knowledge of the same. It is possible that investors might end up in a legal quagmire simply because they traded cryptocurrencies.
In order to avoid such problems, many investors avoid investing in cryptocurrencies altogether. Apart from the issues mentioned above, many countries have made issuing and accepting cryptocurrencies an illegal activity. If investors trade these currencies despite the ban, then too, they are involved in illegal activities and could face legal repercussions.
Since governments do not have a strong mechanism to determine the exact income from cryptocurrencies, some investors have tried to avoid paying taxes on them. This has landed them in trouble with the tax authorities. In many cases, investors genuinely wanted to pay their dues. However, due to the confusion about the exact nature of tax that needs to be applied to cryptocurrencies, they have been unable to do so. Hence, paying taxes on cryptocurrencies is also a complex task that requires significant transaction costs.
Data theft is common amongst cryptocurrency investors. In the year 2020, the estimated value of data theft related to cryptocurrencies shot up to $2 billion. This number was the result of a 45% increase in the value of thefts as compared to the previous years.
Since there is no centralized authority that facilitates cryptocurrency-based transactions, data thefts are common. Some fintech companies are trying to provide security solutions. However, those solutions will have to be implemented at the individual level and will have to be paid for individually.
The bottom line is that cryptocurrencies markets may have become popular because of the boom in asset prices. However, they have still not become mainstream. Hence, from the point of view of a retail investor, there are still a wide variety of risks that have not been mitigated at the systemic level.
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