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Why are Cryptocurrencies Fragile? Why We Should Not Invest Money In It?

The Bank for International Settlements (BIS) believes that the foundation of trust in the cryptocurrency market is fragile but people who have invested in the market feel different and that’s the reason why recent few years have made bitcoin stronger than before.

The BIS also says that the price of cryptocurrencies is volatile and funds transfer through their channels is never guaranteed + secure. Moreover, the technical foundations through which these currencies are managed are more insecure than they appear. According to the BIS becauseto forking in the cryptocurrency market, the trust in individual payment is mostly uncertain and the underpinning of trust in each crypto currency is also fragile.

In a cryptocurrency fork, few holders of the currency coordinate on using a new version or protocol while the other currency holders stick to the older/original version. When a currency’s protocol changes in a way that it distinguishes previous blocks as authentic then it is known as soft fork whereas on the other hand when software enforces that the old algorithm will not recognize the blocks then it is known as hard fork.

Machine and Human Intervention

An assistant professor of Computer Science at the Princeton University, Arvind Narayanan says that there should be an external or human intervention in cryptocurrency development. He is also of the view that a human intervention can play a vital role to keep the cryptocurrency system secure.

One of the core developers of Bitcoin, Luke Dashjr thinks that the quality of decision making in the automated network has improved since the year 2013. According to Dashjr, the system is more secure and the developers are more aware of the issues which can affect to cause unexpected break in the consensus of the network.

Volatile or Strong?

Some bitcoin investors think differently even after seeing accidental soft forks and systemic weaknesses in the market, they think that the bitcoin has overcome bugs and system failures and it has made the currency stronger than before. They are of the view that machine failures are always a possibility but it is because of the human intervention in the system which makes it robust and system cannot be improved without human operators.

According to the BIS, although people are more inclined towards having internet based money instead of central bank money but one cannot trust money that is just an entry in a ledger. A well known bank in the UK has recently suffered a huge IT problem and a bank in Iceland suffered a financial blow due to IT system failure.

The arguments by the BIS is a proof that most people still do not trust the cryptocurrency but the debate in favor or against cryptocurrency is not going to end soon.

Why we should not invest in cryptocurrency?

According to the chairman RPG Enterprise Harsh Goenka, there are numerous factors such as the regularity of cryptocurrency, its fragility and because it cannot be considered as a tangible asset, we should avoid investing in it. He further suggests that if someone still wants to buy crypto money then he or she should not go beyond 5 percent of their portfolio.

These are some important points one should consider before investing in cryptocurrency:

  • Cryptocurrency is different from other financial assets such as gold or silver because gold and silver possess a valid value whereas cryptocurrency does not acquire value from any asset.
  • Regulation of cryptocurrency is difficult and most countries in the world are still reluctant to accept it. It is considered as a decentralized currency but since it cannot be traded in the open market, cannot be taxed and cannot be controlled by any government therefore we can easily assume that its future is still risky.
  • According to the BIS, cryptocurrency’s value is not more than an entry in a bank’s ledger.
  • If your money is lost then you can easily seek help from a bank or an authority but in the case of crypto this is not possible.
  • Many financial institutions have already banned crypto and they refuse to accept it as a legal tender.

Conclusion

It is also true that due to the Pandamic, people have started to understand more about online financial solutions because nowadays everything can be done through the internet. Due to this fact, people have started to learn about online trading and crypto mining. The governments from all around the world are still confused about this change and laws are being made in order to authorize and control cryptocurrency. Now it is up to us whether we should invest in it or not but it is suggested that we should do a thorough research before making a decision regarding crypto investment.

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