What is the future of cryptocurrencies? If you have invested in them or you are just planning to do, you might start to think about their potential and possible ways for your investment to go to zero. Maybe you can get hacked, maybe cryptos can get regulated or outright banned and cease to exist?
In this article I will try to briefly cover these things of potential doomsday scenarios for cryptocurrencies and how likely are they to happen.
Can Cryptocurrency Be Hacked
I don’t specialize in cryptography, nor am I a hacker, but from what I understand as a programmer cryptocurrencies are at the top-notch security level. The name of crypto currencies come from cryptography, the advancement in this field was what made the blockchain technology possible.
Still, I wouldn’t say that cryptocurrencies can’t be hacked. Ethereum has been hacked a long time ago and this is where Ethereum Classic comes from. IOTA recently got some press about their vulnerabilities that could have led to hacking attempts, if they were discovered by hackers, but IOTA is a different story altogether because it uses a different technology than regular cryptos.
So, there’s a chance for a cryptocurrency to get hacked, but it’s very low especially for the more established cryptocurrencies that have spent enormous amounts of resources to make them secure.
Yet there’s always a chance of new vulnerable code being introduced in updates, etc.
Overall, I would say cryptocurrencies are secure, but there’s a bigger problem out there. There are plenty of wallets, exchanges and different applications being created that are more likely to get hacked.
Never Hold Your Funds In An Exchange
This is a major rule in the cryptocurrency world to not hold your assets in the exchange sites. There are several reasons for that. The exchange sites have wallets with all of their user funds and that makes them a target for hackers.
Also, there’s no telling who’s really behind those exchanges, there are only a few transparent exchanges and the rest from time to time manage to do some account freezing, losing transactions and other things of that nature.
Lastly, they are very easy to regulate and that recently happened with BTC-e which got seized by the USA law enforcement with all the user funds.
So, use wallets to store your assets, if you are holding for the long term.
Speaking About Wallets…
When picking out a wallet you should also do some decent research because they can also be vulnerable to hacking.
Usually, the best wallets to use are the ones recommended on the website of the cryptocurrency. I would really discourage to use wallets that are new and barely anyone is using them.
Don’t be the testing rabbit. If there are a lot of people using a wallet there’s less likely that there’s a vulnerability for the wallet because it’s likely that more people looked at the code.
All in all, cryptocurrencies are rather safe, but there are a lot of ways where the funds can get hacked, that is unrelated to the cryptocurrency itself for example wallets, or exchanges. It’s more likely that the infrastructure will get hacked, there were instances when an ICO page was hacked and the address for investing was replaced with a hackers address.
Also, there are plenty of phishing attacks happening so, you have to be secure and you need to be aware of the dangers if you don’t want to lose your assets.
Can Cryptocurrency Be Tracked
Yes, cryptocurrencies by design can be tracked. All the transactions happening on the blockchain are written in blocks and saved forever. Every single transaction can be tracked, which wallet sent money to which wallet.
There are software tools called block explorers that you can use to analyze every single block of a cryptocurrency. This transparency also allows to track the transactions that you sent, if they got confirmed or not.
Still, there are tools for Bitcoin that can make your transactions untraceable back to you. They do that by spinning the money through several wallets, but this is rather expensive.
On the other hand, there are cryptocurrencies that specialize in anonymous payments. They work very similarly to regular cryptocurrencies, they have blocks with all the transactions tracked, but they implement different algorithms to make the transactions untraceable.
There’s a whole list of anonymity coins: Monero, Zcash, Verge, Dash and several more. Monero has the best anonymity technology out of them all.
Still, even if no anonymity features are being used, tracking down the person who uses a cryptocurrency isn’t that easy, even though all the transactions are stored in a blockchain no one knows to whom a cryptocurrency wallet belongs.
Only, after you use a cryptocurrency exchange you can then get identified if it requires user authentification, but you can get a hold of Bitcoin or another cryptocurrency by doing peer to peer transactions.
So, you are rather anonymous even with regular cryptocurrencies and if needed you can keep your anonymity.
Can Cryptocurrency Be Taxed
Yes, they can and they are. Obviously, the taxation differs from country to country, but generally, cryptocurrencies aren’t treated as currencies, but as an asset and you need to pay taxes on the capital gains.
You should research the policy of your own country and act accordingly.
Still, right now only Bitcoin is on the radar. Governments aren’t yet tracking every single blockchain so, if you don’t pay your taxes on your altcoin portfolio gains chances are no one will notice.
I’m not saying to avoid taxes, I’m just saying how it is.
In the future, the taxation is likely to evolve. If Bitcoin got the status of a currency the taxation would be different.
Also, as we talked before about anonymity coins, it’s very unlikely that governments would be successful to enforce taxation on these assets when they can’t actually know if you are holding any or not.
Can Cryptocurrency Be Regulated
Yes, and they are being regulated to an extent right now.
USA has released announcements about initial coin offerings (ICO), if the released tokens are used as securities, then they need to be treated as such. So, it’s not uncommon to see that people who want to participate in an ICO need to verify their identity.
China is drafting regulations for ICO’s as well. They also had regulations on Bitcoin and are also planning to regulate exchanges.
Russia hasn’t announced any regulations yet. All you can hear from them is that they are investing more money in blockchain technologies, which is a positive sign.
Europe hasn’t yet made any serious announcements considering ICO’s, but it’s likely to follow the footsteps of USA.
All in all, there are regulations on cryptocurrencies and there will likely be more to come. If the regulations would get out of hand there would likely be a bigger adoption of anonymity coins, which we did see happening after USA announcements about Bitcoin taxation the prices of all the anonymity coins skyrocketed.
In my opinion, regulation is a good thing to an extent. If the regulations don’t limit the growth of the technology, then it’s all good. Right now the cryptocurrency market is full of scams and regulation can protect the people who are investing. A more stable regulated market would benefit us all.
Can Cryptocurrency Be Banned
Yes, there’s a chance that a country can issue a ban on cryptocurrencies. The likelihood of this happening is very low. The biggest world powers have already made their stance on cryptocurrencies, they realize the potential of the technology and the growth that can come with it.
I could imagine some small countries with a weak national currency to ban cryptocurrencies, but the ban would likely be ineffective.
Still, such bans would likely have zero effect on the global cryptocurrency market.
Cryptocurrencies are here to stay. It’s still early days of the blockchain era. Only the last year the market has been going to the mainstream so, there are a ton of new regulations and changes coming to the market. All we can do is follow the news and witness the revolution of blockchain.