The crypto industry is often portrayed as a challenger to the current financial system and traditional banking. The digital asset industry can liberate people from banks, increase financial inclusion, and create a fairer and more transparent economy.
However, amidst all the prospects painted for crypto, the industry is not one without any challenges. Regulation of digital currencies and crypto exchanges, volatility, scams, and money laundering are some of the issues faced by the industry.
Owing to high volatility in certain cases, it is safe to say that cryptocurrency markets don’t always play nice. Valuations fluctuate regularly. Technologies evolve, and regulators aim to make crypto work smarter and safer within the digital world. Challenges range from mild headaches to catastrophes that can cripple market operations anytime and ruin investments.
Here, we highlight some of the main concerns and issues for the crypto industry.
One of the major problems the crypto world faces today is security. Hacking attempts or data breaches occur every now and then. This makes crypto users demand more protection for their assets and data.
In the first half of 2018, the industry lost close to $1.1 billion. Similarly, in 2019, hackers were said to have carted around $4 billion. This year, the notorious Twitter hack alone saw hackers elope with over $121,000.
Additionally, further sophistication in technology allows for hackers to continually up their game. This will undoubtedly lead to more problems unless the security issue is addressed industry-wide.
Initial Coin Offerings (ICOs) are a great way to attract investors, but most of them are scams. In certain cases, exchanges list those crypto coins without performing any sort of deeper analysis. In some cases, fraudulent coins end up for trade on exchanges. This is a very problematic scenario, for multiple reasons.
Currently, the majority of crypto exchanges are only lightly regulated, leaving room for shady or abusive maneuvers. It is rumored that crypto exchanges use bots to manipulate the prices of coins. Years back, cryptocurrency trader and analyst Alex Kruger exposed a promotion on Bithumb which inflated the trading volume on the exchange.
1/ There currently are USD 250 million of fake volume traded at Korean crypto exchange Bithumb, every day at 11AM Korean Time, since August/25. Tweetstorm covers the math behind it in simple terms. #washtrading illustrated.
— Alex Krüger (@krugermacro) September 2, 2018
Every investment market is volatile, but crypto markets experience volatility in an entirely new way. The unpredictable future of crypto requires investors to maintain a long-term perspective in the face of wild short-term swings. The volatility may be a hindrance to investment and adoption on a broader scale. However, 2020 has been partially a good year for crypto in this regard. Bitcoin is being monitored to break into new highs before the end of the year.
This is usually a problem when it comes to ICOs. Many end up being fraudulent as the SEC has not stopped cracking down on them.
Many other expensive crypto projects often make a case for themselves claiming they are decentralized when in reality, 80 percent of the total cryptocurrencies in circulation are held by the top 20 wallets.
The lack of transparency, accountability, and professionalism from renowned institutions can poison the benefits of digital currencies. It also undermines the strength and influence of blockchain adoption in different industries beyond finance.
Liquidity is a vital element for any of the markets. A lack thereof creates an imbalanced environment, and things go out of control. Due to the decreased liquidity, orders are not placed/executed on time, and the doors are open for large holders to manipulate prices. Additionally, with a lack of liquidity, markets become more volatile and see more price slippages.