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The value of cryptocurrencies changes over time. Unlike fiat currencies, the issue of new coins is not controlled by a central bank but by an algorithm that predetermines how many new coins will be issued over time.
The most prominent feature of cryptocurrencies is their decentralized nature–the digital records are stored on thousands of computers around the world rather than in one central database.
One of the reasons for this decentralized nature is to prevent a single entity from having total control over the currency. This prevents censorship; in theory, it cannot be regulated and restricted by any government or organization. The problem with this self-regulation is that there is an absence of direction and no responsibility when issues arise. If a person is scammed in a transaction, there is no way to seek legal redress. You can learn more by checking out Ilium.
Cryptocurrency transactions are irreversible so if a transaction goes wrong it can cause significant problems for both the buyer and seller. This nature of cryptocurrency has been used by cybercriminals to scam people. In one case, hackers pretended to be from the government of Dubai and convinced some companies to make payments to them in Bitcoins rather than the legitimate bank.
It is worth noting that cryptocurrencies can be hacked or suffer technical problems themselves. There have been several cases of hackers stealing large sums of cryptocurrency through cyberattacks on the exchanges holding the currency.
For example, Japan’s largest exchange Coincheck was hacked in January 2018, and hackers walked away with 523 million US dollars’ worth of NEM coins. In another incident, a bug in an Ethereum based gambling app resulted in the loss of over 30 million dollars.
Despite these issues, users continue to invest in cryptocurrencies on Bitcoin Evolution due to its decentralized nature and potential for profits.
Currently, there is no way to control inflation in cryptocurrencies. The algorithms that control the issue of new coins are not influenced by economic factors so there is no central authority that can put a price on value. This has created an extremely volatile cryptocurrency market, with significant increases in value quickly followed by dramatic crashes.
The lack of regulation and accountability means cryptocurrencies hold massive potential for fraud and money laundering. In 2016, the US Treasury Department identified 140 cryptocurrency exchanges worldwide that could be used to launder money or finance terrorism.
How Crypto Affects Financial Markets
In 2017, Bitcoin skyrocketed in value–it started the year at a price of 964 US dollars and by December reached a peak of 19,843.06 USD. This massive increase in value led to a subsequent rise in other cryptocurrencies too as investors looked for alternative investments on which they could make profits. As the prices of cryptocurrencies climbed, the prices of other assets went up too.
A similar correlation was seen when cryptocurrencies started falling–in 2018, Bitcoin lost 40% of its value; at one point, it fell below 6,000 UDS per coin. This lead to a corresponding fall in other cryptocurrencies as investors started to sell off their coins. Investors are unwilling to part with cryptocurrencies because they believe the value will rise again.
Sum-up
Cryptocurrencies have a lot of potential but they are yet to become a stable and reliable form of currency. Furthermore, the decentralized nature of digital currencies means there is no method for seeking redress when a transaction goes wrong or for protection from cybercrime.
This combined with the intense volatility of cryptocurrency markets means that there is no sure way for investors to make profits. Anonymity and decentralization are two characteristics that have made cryptocurrencies attractive for both legitimate transactions and criminal activities.
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