Is investing in cryptocurrency risky?

Cryptocurrency

Cryptocurrency is a virtual unit of value whose transaction takes place only online and is based on a computer protocol of encrypted and decentralized transactions also known as blockchain. There is no middleman and this "money" is not controlled by any central bank or state. The best known and also the first crypto currency created was Bitcoin. To answer the question of whether it is risky to invest in cryptocurrency, you must first understand how it works.

How cryptocurrency works

The first crypto currency was created in 2009 under the name Bitcoin. This unit of account actually corresponds only to computer code created by a computer. So you will never see any notes or coins referred to as Bitcoin. However, it can be used to conduct trade and in this it is similar to a currency. While the Euro has legal tender status, recognized by the states of the euro zone within which you cannot be refused a transaction in this currency, not everyone accepts Bitcoin as a value of exchange. The Bitcoin price is extremely volatile because, unlike the Euro, it is not monitored by a body such as the European Central Bank.

The value of a Bitcoin therefore depends only on supply and demand and can be subject to huge fluctuations within a very short time. It should also be noted that the issuance of real currency depends on central banks and can be endless as the creator of Bitcoin decided that there would only be 21 million bitcoin issued and in circulation. To date practically 85 % of this fixed quantity already exists.

The risks associated with cryptocurrency

The extreme volatility of a cryptocurrency's value makes it the main risk today. Conversely, and paradoxically, what also makes it so attractive. It is therefore necessary to have a certain taste for risk to buy cryptocurrency.

When you have units of cryptocurrency it is always possible to exchange them for euros or dollars, which are the only two real exchange currencies. In the event of fraud, the customer will also have no recourse except to have taken out private insurance protecting him from the risk of loss.

Purchases of crypto currencies are also carried out only on internet platforms and online brokers also offer to carry out these transactions through CFDs (Contract For Difference).Customers see this as a way to avoid technological complexity, but they need to be even more vigilant.The CFD is a contract between a client and a broker in which one is a buyer and the other seller.The former will be forced to cash in or pay the difference between the price of the asset at the time of its sale and its price at the time of purchase.The product backed by the CFD is called the underlying and this type of financial instrument that is already risky with a classic product is even more so with cryptocurrency.AMF.

Cryptocurrency is the future according to some, but it still presents a lot of risk to be used and invested by the greatest number of savers.