Crypto threats

Cryptocurrency values can rise dramatically and in an extremely short period of time. For example, the value of Bitcoin rose from around €8,000 in 2020 to nearly €50,000 in 2022, falling to €15,000 in 2022, and rising to €61,000 in 2024. This high volatility makes cryptocurrencies a very risky investment, especially in the short term.

Crypto platforms and wallets have been victims of hacking, resulting in stolen assets. Unlike traditional financial systems, investors may not get their money back in such cases. For example, in 2021 Mt. Gox nearly half a billion dollars in Bitcoins due to stock market hacking.

The cryptocurrency market is currently governed by few rules in many countries. This can create opportunities for scams and price manipulation. The use of cryptocurrencies in illegal activities is also a concern, as their anonymity can be exploited to commit money laundering and other crimes.

Some shares pay investors regular dividends, i.e. a share of the company's profits. For the investor, this is similar to the income usually paid on a dividend payment schedule. Dividend stocks are suitable for investors who want to receive a regular cash flow from their investments.

Many cryptocurrencies are based on blockchain technology, which has limited transaction processing capacity. This can lead to slow and costly transactions, especially when there are many users on the network. For example, the Bitcoin network can currently only process around 7 transactions per second, compared to the Visa network, which can process thousands of transactions per second.

Some cryptocurrency mining algorithms require a lot of computational work, which consumes huge amounts of electricity. This increases greenhouse gas emissions and raises environmental concerns. For example, it has been estimated that the energy consumption of the Bitcoin network is equivalent to that of a small country.

Transactions in cryptocurrencies are pseudonymous, i.e. they are associated with a crypto address and not a specific person. This provides a degree of privacy, but it can also be exploited for illicit activities such as money laundering, arms and drug trafficking and terrorist financing. 

Pump-and-Dump schemes are scams where investors pump up the prices of little-known cryptocurrencies by creating artificial demand. They then sell off their assets at a higher price, leaving other investors at a loss. Social media and anonymity in the crypto world make pump-and-dump schemes difficult to detect.

Example of a pump-and-dump scheme

In 2017, there were pump-and-dump scheme a cryptocurrency called Centra Tech. Centra claimed to have partnerships with large payment processors, but this turned out to be false. Celebrities promoted Centra Tech on social media, generating a lot of interest among investors. After the price spike, early investors sold their stakes, leaving later investors with large losses. The founders of Centra Tech have been accused of fraud and money laundering.

The anonymity of cryptocurrencies and the relatively new regulatory environment make this an attractive area for fraudsters. Shitcoins are worthless or low-value cryptocurrencies, often created for pump-and-dump schemes or to defraud investors. They can be difficult to identify, especially for novice investors. Examples include DogeCoin and Shiba Inu, which are currently very popular.

Due to the pseudonymous nature of cryptocurrency transactions, they can be exploited for money laundering. Criminals can use cryptocurrencies to legalise illicit funds. 

Exit scam is a scam where the team behind the project raises money from investors through an ICO (Initial Coin Offering) and then disappears with the investors' money. Investors are left with worthless cryptocurrency or nothing at all.

Insider trading also takes place in the world of cryptocurrencies. Developers of a crypto project or other insiders may use their knowledge of the future of the project to buy and sell cryptocurrencies at a bargain price, making unfair profits at the expense of other investors.

A fork is a situation where a cryptocurrency blockchain is split into two. This could cause confusion for investors and a fall in the value of both branches. Bitcoin Cash, for example, was created as a result of Bitcoin forking.