It is quite obvious that cryptocurrencies are promising, however they’re still in an experimental phase. Bitcoin (the first ever cryptocurrency) was launched in 2009. Since then, over 4,000 other cryptocurrencies have been created. Some of the most well known alternatives are litecoin and ethereum.

However, to the date I wrote this article, a bitcoin was worth slightly more than € 6,000. For people who invested in bitcoin around December 2017, this was terrible news. It seems that interest in cryptocurrencies has been falling during the first half of this year and that the market value has followed suit.

Among the three top cryptocurrencies (bitcoin, litecoin and ethereum) bitcoin is the only one that still remains a global trend. Nevertheless, ethereum still gathers interest in certain pats of Asia and Eastern Europe. Litecoin, however, doesn’t really appear anywhere.

So, if you want to invest in cryptocurrencies, you should bear in mind these 5 risks.

Volatility

As previously stated, the value of bitcoin has increased dramatically in 2017 but suffered a steep decrease at the beginning of 2018. In general, most cryptocurrencies experience huge volatility. Several financial authorities in Europe have put out statements saying that investors must be prepared for the possibility of loosing most or even the totality of the invested capital in cryptocurrencies.

Protection

Cryptocurrencies are digital assets designed to function as a medium of exchange. However, these assets, as well as the respective negotiation platforms are not regulated nor supervised by official authorities. When investing in cryptocurrencies it is also extremely important to bear in mind that the companies behind trading platforms are most probably based in a different country. Therefore, the resolution of eventual problems one might have is outside the jurisdiction of national authorities.

Information

Most people are unaware of how cryptocurrencies values are defined. Thus, there is the risk of consumers not being offered a fair price. Furthermore, information available on cryptocurrencies is often inexact, incomplete or unclear. Therefore, when investing in these assets consumers are often unaware of all the risks their investment is exposed to.

Risk of Fraud

Cryptocurrencies are frequently associated to fraud. Several national financial authorities in Europe, and overseas, emphasise that cryptocurrencies are recurrently linked to illegal activities. Moreover, authorities highlight the high potential for fraud and market manipulation. In fact, third parties might be able to explore small “mistakes” within the protocol’s code of cryptocurrencies.

Inadequate for most ends + not able to inherit them

It is very hard to predict the future of cryptocurrencies. There is no consensus among experts. This accrues from the asset’s volatility and lack of regulatory framework, of course. At the end of the day, cryptocurrencies are inadequate for most consumers, including short-term investors as well as those with long term financial goals (such as retirement savings). Furthermore, given all of the above, cryptocurrencies cannot be, or are very hard to inherit. Potential heirs might be completely unaware of fortunes that are left hovering in the internet forever – complete value destruction.

Cryptocurrencies must still overcome many hurdles and problems. Scalability, criminal activities, price manipulations, tax and legislation just to name a few aspects. We could compare this situation to the early stages of the internet (and we all know what happened there). In fact, cryptocurrencies are still in their infancy. For sure, there is risk and reward.

Some experts actually argue that interest has only dropped in the short term and that crypto and blockchain technology remain forces to be reckoned with. In fact, several experts claim that the behavior exhibited by bitcoin over the last few months is in line with previous variations of its value and that we could expect, in the short term, a steep increase of value.

I hope this article has helped in clarifying what you should look out for before investing in cryptocurrencies. Many have delved into the world of cryptocurrency investment over the last months/years without knowing what was lying ahead. In my opinion, if you are considering investing in cryptocurrencies you must be clearly aware of the risks I stated above. It is quite obvious that the rewards might be huge, but be careful.

Nevertheless, if you are comfortable with all these risks and believe that the experts are right, you could go ahead and try investing in cryptocurrencies. In my opinion, the easiest and quickest platform to do so is Coinbase. Good luck.

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It is going to be a fascinating time.  We have seen huge change in financial institutions in the past few years. This transformation is definitely set to continue this year and beyond.  One of the most noticeable trends is that the sector is becoming ever more focused on making the customer experience as easy and seamless as possible.  This is where a lot of resources are being directed.  The sector will have to go even further in innovating around this and how they deploy their staff.  In a sense the world is broadening for the financial sector.  They will have to develop new and perhaps unusual partnerships outside the sector to forge ahead on the technology that this customer service will require.  We will see more and more cases where offerings from multiple vendors will need to be integrated in one platform, which will be a challenge for some institutions to cope with internally.

What should we know about this interface between finance and technology.

This is a dynamic field.  Fintech is luring customers away from their traditional institutions.  We are going to see a speedy uptake of application programming interfaces (APIs).  In simple terms, this is technology that connects apps, including on your mobile, to the IT of the bank’s back office.  This is not new, but we are going to see institutions and consumers embrace this much more rapidly in the near future.  Banks are going to need to pair up with fintech companies to deliver this.  

We will also see institutions choosing cloud-based storage over private-data centres.  Mobile banking will also be on the rise and will really be the norm, as it becomes ever more convenient for customers and more safe and secure.  Identifying customers through biometrics such their faces, voices and fingerprints will become more prevalent.   

Should we be as excited by artificial intelligence (AI) as the media tells us to be?

AI as a technology will have a big impact in the next years.  Already it is helping banks further automate their processes and I think customers will feel the benefit from that in terms of efficiency.   We are seeing more and more that banks can automate decisions based data gathered and machine-learning.  Chatbots are another area where we can expect rapid progress, where a computer programme can essentially chat to a customer to resolves tasks and queries.  I think we’ll even see the wealth management, data analysis and fraud departments of institutions embracing this technology more.

What can we expect for blockchain technology in banking? 

We have already seen quite a bit of progress in terms of blockchain being adopted in the financial sector. I’ll be very interested to see how many of the applications in development become actual working products in the months ahead.  Good contenders for success in this field are probably blockchain solutions for payment and so we will have to see how that impacts the old school wire transfers and SWIFT.  

And cryptocurrencies?

There were so many different views about crypto currency last year within in our sector.  We saw bitcoin soar.  Some senior figures remain averse to the trend but we are seeing others setting up cryptocurrency trading desks.  As that starts to happen, this obviously boosts the legitimacy of cryptocurrency and my feeling is that more banks might start to come around to the idea.   

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You could be forgiven for asking what exactly cryptocurrency is.  It has crept up on us so fast that many people are just catching up with it.  Essentially, it is a digital currency designed to be secure, and in some cases, it is even designed to be anonymous.  It relies on blockchain technology and actually has its roots in the cryptography that many of us associate with the codes and secure communication developed in World War II.  To understand this blockchain technology , you have to visualise a ledger that everyone can see.  This ledger essentially lists all the transactions that are happening in the cryptocurrency system.  But it is not a physical, paper ledger.  Instead it is run through computer code on thousands of networked computers around the world.  Together, these computers are confirming who owns what amount of a cryptocurrency, for example Bitcoin.

The code is designed to release new currency, ie Bitcoins, on a schedule.  To get them, a cryptographic puzzle must be solved.  ‘Mining’ of the currency takes place by computers trying repeatedly to solve the puzzle until they succeed.  The computer that ‘wins’ then publishes its solution to all the other computers on the network and receives the coin.  Anyone can become a ‘miner’ by downloading the software.

There is no question that cryptocurrency is becoming increasingly common and that there is a market for it.  We are even seeing Initial Coin Offerings (ICOs, the digital take on an IPO).

What is the average person to make of all this?  Should we all be rushing to get in on the act?  Or is this all some bizarre pyramid scheme?  Will the emperor turn out to have no clothes?  The advantages of  cryptocurrencies is that they are secure payments. You can’t fake a transaction or reverse it. Fees are generally low.  They are decentralised and essentially available to everyone, with none of the hoops to jump through that a traditional bank would demand to allow an account to be opened.  As we have just seen today, markets tend to take off, meaning the value of just a small investment could increase overnight.

But isn’t this all a bit volatile?  Should we be nervous of a bubble that could burst? The soaring price of bitcoin is certainly jangling some nerves.  The currency has grown by a staggering 850% since January this year, breaking through the $10,000 barrier.  IG Group, the world’s largest online trading platform told the Financial Times that it is suspending trading on some of its bitcoin derivatives yesterday as they felt the huge demand left them facing a high security risk.  Plus500, another online marketplace, have raised the fees they charge in dollars to hold an open position in bitcoin.  There is definitely a nervousness around the volume and risks of trading cryptocurrency. Another concern is that it isn’t physically based anywhere and so is not subject to reassuring regulation.

What does it mean if the bubble does in fact burst?  David Shrier, academic and CEO of Distilled Analytics, told CNBC that he does accept there is feverish speculation going on with cryptocurrencies but that he believes this in itself is not a bad thing: « There is enough utility and utilisation of bitcoin that it will retain some kind of value, even if the price settles down a bit. Amazon didn’t go to $0 when the dotcom bubble burst, but other frothy stocks with no reality behind them did. Similarly, bitcoin won’t go to zero, but I do believe a number of these other cryptocurrencies will fail, » said Mr Shrier.

It will be fascinating to watch.  There are many who believe that bitcoin has a lot further to rise. The man who successfully predicted that bitcoin could hit the $10,000 mark, fund manager Michael Novogratz, has over 20 percent of his net worth in cryptocurrencies and he told CNBC that he sees the possibility of it reaching $40,000 by the end of next year.  That seems hard to resist.

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