Understanding the risks of digital currency

Understanding the risks of any practice in which we trade, invest or spend money in is crucial for financial protection and preservation. This is fundamental to trading responsibly, and applies to any investments you make, not just with cryptocurrency.

In this section of the Beginner’s Guide, we’ll outline the risks you should be aware of before using digital currency.

Sending to the wrong address

The blockchain is designed so that transactions are irreversible. There is no way of cancelling or issuing a chargeback request for cryptocurrency payments once they’ve been sent to the blockchain. If you make a payment to the incorrect address, those funds are lost unless the receiver chooses to send them back to you.

Before you make any cryptocurrency payments, we recommend triple checking the address and doing a test transaction of a small amount first before making a full payment to avoid making this irreversible mistake.

Price fluctuations

Bitcoin especially is well known for the volatility and unpredictability of fluctuation of its price. In most markets, especially digital currencies, prices are mainly driven by speculative trading activities.

As we are still far from these technologies maturing, volatility should be expected.

Cryptocurrency currently should be seen as a high-risk asset and therefore it is not recommended that you trade money that you can’t afford to lose when starting out in the cryptocurrency world.

Ponzi schemes

Be wary of falling into the trap of companies offering guaranteed high-interest payment in return for initial investments in bitcoin ‘packages’. This is a huge red flag of highly unsustainable business practices, and you risk losing all funds, including any initial investment, when participating in these schemes.

We’ve written about this before in our blog post on the ‘Five Commandments For Those New To Bitcoin.

It is important to note that this article is not comprehensive. We have outlined the most prominent risks applicable to our customers, and depending on how you’re using digital currency, there may be different risks you should be aware of.

There are new developments occurring daily, and we always have and always will advise you to conduct your own research before you make any financial decisions.