Risks In Crypto Trading
Are you aware that if you had traded or invested in Cryptocurrency just a few years ago, you could have become a millionaire today? That is correct, and many people have been fortunate enough to profit handsomely from their cryptocurrency investments. On the other hand, Cryptocurrency has not lost its value since its inception. You've probably heard all the buzz and seen a lot of people invest in it, but you're still a little puzzled about how it works. So let's take a look at the digital money that's sweeping the world by storm and see how it works and what risks it poses.
Cryptocurrency is a type of digital money that exists only in the digital environment. Strong cryptography is used to create it over a variety of computer networks.
There is no physical bank where transactions may be completed, nor is there any tangible money in use in the real world. Cryptocurrency is held in digital wallets, and crypto monies are transferred to public ledgers. For transmitting and keeping your crypto between the public ledger and the digital wallet, it employs encryption, a sophisticated sort of coding. In summary, everything is available digitally to make transactions as safe and secure as possible.
Cryptocurrency is decentralised, which means it isn't governed by a single entity. Due to the lack of regulation, it receives no intervention. In terms of cryptocurrency legality in India, digital currency is neither regulated nor prohibited. There is a tax on crypto trading in India that is applied to your purchase.
Since it is a matter of investing our hard-earned money, many are hesitant to do so, and rightfully so since Crypto trading has its risks. Let's look at some of them.
Money Laundering and Hacking
The common perception is that cryptocurrencies' growing popularity provides criminal groups with a new way to launder money. Because of their internet dependency, irreversible transactions, and secrecy, cryptocurrency is extremely tempting to fraudsters. A transaction cannot be reversed once completed unless the other party agrees to do the same. Due to the anonymity of the identities, irreversibility is high.
The decentralised nature of digital currencies is also a factor here. When a cryptocurrency exchange is hacked, and customers' holdings are taken, victims of the crime are unlikely to have the same legal alternatives as typical fraud victims.
Despite the fact that crypto is highly encrypted, it is still vulnerable to hackers seeking ways to conduct fraud, which can be avoided through cryptocurrency risk mitigation.
The crypto market's volatility is exceptionally high, and sudden shifts in market sentiment can result in price swings that are both sharp and fast. The price swings are astronomically high. Furthermore, there can't be a precise explanation for the oscillations or volatility. A single unfavourable public news story about a cryptocurrency might cause its price to drop dramatically. It's quite common for the value of cryptocurrencies to decrease by hundreds, if not thousands, of dollars in a matter of seconds, with some individuals buying and selling their holdings as soon as a price drop is detected.
Nonetheless, the crypto market is calming down in terms of volatility. Most cryptocurrencies have recently seen large trading and investment organisations purchase considerable shares. Because of the stabilising influence of these huge corporations, those cryptos may begin to demonstrate healthy volatility.
Cryptocurrencies are categorised as capital assets, which means they are taxed the same way stocks are. When you use cryptocurrencies to buy goods and services or to swap them for other currencies, you are subject to capital gains tax, according to the IRS. Furthermore, any bitcoin obtained from mining is subject to taxation.
The income earned by crypto exchanges and other crypto service platforms is taxable under Chapter IV of the Income-tax Act, 1961, under the heading Business or Profession. Not all cryptocurrency transactions, however, are taxable. Buying, storing, and transferring cryptocurrency between exchanges or wallets are all excluded. The tax rate that applies will be determined by the taxpayer's status and category.
Unlike financial markets, which are reasonably safe because they are backed by a regulating authority that always aims for investor safety and interest, cryptocurrency is not backed by any financial institutions or governments. If a digital currency's value is not backed by a central authority, investors may be left out in the cold if transaction or ownership issues develop. The value of digital currencies is fully determined by the value ascribed to them by other owners and investors.
Most of the leading exchanges have outstanding customer support that can help with practically any issue. Despite this, the decentralised nature of most cryptocurrencies makes resolving legal disputes extremely hard, giving hackers an opportunity to get into networks and launder money.
Cryptocurrencies are based on a cryptographic system that authenticates transactions and converts plaintext into ciphertext using pairs of keys. One is a public key that is freely available to the public, while the other is a private key that is kept private and used for identification and authentication. When you open a crypto wallet, a private key is automatically generated, granting the user ownership of the funds in that wallet. The loss of a private wallet key is akin to losing a one-of-a-kind, unreplicable lock key. It essentially means losing control or access to any cryptocurrency in that wallet.
As a result, it's critical to never to store your private key online, especially if it's not encrypted, and to back up your private keys on a secure and isolated computer on a frequent basis.
Cryptocurrency is not the safest investment you can find. It has a lot of risks. You can lose your invested money, if you calculate the risk and invest wisely, you might make a very good profit on it. However, you also have to consider all the prices and factors before investing in any cryptocurrency.