Is it safe to invest in Crypto ? Three important fundamentals for 2023
‘Crypto isn’t safe’ is a common objection raised to investing in crypto. These 3 fundamentals will help you decide whether there’s any truth behind this claim.
Perhaps you’ve ‘experimented’ with crypto by dabbling in buying some; or perhaps you’re considering giving it a go in 2023 in order to ‘buy the dip’. You might even be heavily invested and keeping tabs on the value of your coins or tokens daily. Regardless of where you find yourself in your crypto buying journey, your beliefs about how secure the asset is will determine how you choose to interact with it in future. This article points out some fundamental, counter-intuitive truths when it comes to crypto and security.
Security failures are not a ‘crypto issue’; but a human one
When it comes to buying tangibles like the latest noise-cancelling Bose headphones; or an iPhone, we all know that the ‘latest’ model will be the most advanced from a technology standpoint. Interestingly, however, the price of cryptocurrencies is not necessarily tied to underlying technology. Although many people believe that the value of cryptocurrencies like Bitcoin and Ethereum is directly related to the strength of their underlying blockchain technology, the reality is that the price of these assets is often driven by market sentiment and speculation as opposed to strength of ‘product’ (or in this case, code!). The prices of many cryptocurrencies have risen and fallen dramatically in recent years despite the fact that their underlying technology has not significantly changed. In other words, the price of a blockchain token is a reflection of its community; not its technology.
Taken a step further, it’s safe to assume crypto itself isn’t any ‘more’ or ‘less’ secure today than it was ‘back then’ because of technological changes. As such, it’s up to users (that’s you and me) to put the necessary processes, practices and regulation in place in our own use of this asset to create this security. Encouragingly, all the key ingredients for doing so are already there, if we’re smart about how we do this.
As the CEO of Blockchain Capital, Bart Stephens, said, the recent failure of FTX wasn’t a failure of crypto; but a failure of centralisation (i.e. the entity we allowed to control it and our assets). In other words, security failures are not a ‘crypto issue’; but a human one.
Crypto doesn’t automatically = decentralised finance
Decentralised finance simply means financial instruments that don’t rely on intermediaries such as banks. Crypto was created to be this instrument, and this has powerful applications. When money is moved outside of the control of the traditional banking system, we have the ability to transact more freely, more fairly and more globally.
However, it’s a mistake to assume that all crypto is decentralised. Exchanges (an online platform for buyers and sellers who trade cryptocurrencies and often ‘hold’ a customer’s crypto assets) are simply an alternate form of centralisation or control of this technology and therefore also vulnerable to hacking and other forms of cyberattacks – as we’ve seen recently. Crypto brokers such as Easy Crypto who simply facilitate buying and selling of cryptocurrencies don’t hold customer funds and therefore pose less risk.
(Important: Self-custody wallets – also called non-custodial wallets – are different from all of these intermediaries because they are required to transact using the blockchain which doesn’t require a third party to be involved when you send, receive or transact with your money. The blockchain is secure and transparent, making fraud near impossible. With these kinds of wallets, no one but you is in control of your money. Find out more about these wallets here.
Regulation isn’t the enemy of decentralisation
“If decentralisation gives us ‘more’ control of our money, is regulating the industry in direct opposition to this?” It’s a good question, but this is where things can get complicated. Although crypto is all about taking back financial control from central authorities, a tighter regulatory environment (or ‘more’ controls) is not necessarily a hindrance to the industry.
A supportive regulatory environment will help increase trust and adoption among consumers, businesses, and institutions. This could lead to increased investment and usage of cryptocurrencies, which in turn will help drive innovation and development in this space. What’s more, clear regulations will help prevent future instances of fraud and protect consumers from financial loss, further bolstering trust and confidence in the industry. A supportive regulatory environment will also provide a level playing field for all market participants, encouraging competition and fostering growth.
As a way to store and transact value, crypto was created to give us back control. Smart investors and users will recognise that centralised entities are starting to compete for that control. In addition, there are a proliferation of technology companies using the blockchain to solve incredibly complex problems. A regulatory environment that supports the responsible use of that control or innovation is a step forward. Importantly, let’s not forget our own role in the equation. Who we allow access to our crypto and our transaction data (if anyone) is crucial. We have a choice around using centralised or decentralised methods of transacting. Understanding the security risks inherent in both of these is an important part of making sound decisions; as is tighter controls when we do decide to trust a ‘third party’.
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Disclaimer: Information is current as at the date of publication. This is general information only and is not intended to be advice. Crypto is volatile, carries risk and the value can go up and down. Past performance is not an indicator of future returns. Please do your own research.
Last updated March 27, 2023