The lack of regulation of the cryptocurrency network has been criticized and seen as a potential threat to society. Concerns abound because cryptocurrencies can facilitate transactions made by anonymous web criminals. Cryptocurrencies are known to be used to purchase illegal products. In addition, the anonymity system offered by most cryptocurrencies can also serve as a means of money laundering and tax evasion:
Cryptocurrency money laundering is possible through anonymous transactions instead of using offshore bank accounts.
Cryptocurrency transactions are not processed by banking systems, so it is difficult to track them.
1. The risk of theft and fraud is high:
Despite its promises of security, cryptocurrencies are not immune to fraud and theft. Digital currencies can be stolen by illegal means, such as phishing or hacking. In February 2014, the world’s largest bitcoin exchange, Mt. Gox, filed for bankruptcy. The company revealed that it had lost nearly $350 million in bitcoins from its customers, possibly due to theft. There are other examples of cryptocurrency thefts worth over $600 million in total: Binance, Bitfinex, Bitstamp, Coincheck, NiceHash, and Zaif. Companies must therefore be aware of the risks and the consequences they may have to pay.
2. Cryptocurrencies are volatile due to intense speculation and trading activities:
A currency needs stability so that traders and consumers can determine a fair price for goods. Stability is a prerequisite for cryptocurrencies to become the currency of the future. However, so far they have been anything but stable for most of their history. This is due to intense speculation in the financial markets and related business activities. The volatility of cryptocurrencies means that a coin worth $50,000 today could be worth $30,000 within weeks. Since cryptocurrencies are still a speculative asset today, traders should be prepared to potentially lose money if there is a rapid change in value. Are the CFOs of luxury companies ready to take this risk?
4. The legal status is still undetermined, in some countries cryptocurrencies are prohibited:
The legal status of cryptocurrencies varies greatly from country to country and is still undefined in many of them. Cryptocurrencies are allowed in Canada, Japan, Switzerland, the European Union and the United States of America, while prohibitions apply in countries such as: Algeria, Saudi Arabia, Bahrain, Bangladesh , Bolivia, China, Colombia, Egypt, United Arab Emirates, Indonesia, Iran, Iraq, Kuwait, Lesotho, Macao, Morocco, Nepal, Oman, Pakistan, Qatar, Dominican Republic and Taiwan. The situation could change quickly and merchants should be aware of this risk: today their products cannot be paid for in cryptocurrencies in some countries and there is no guarantee that tomorrow the countries that allow it today, won’t make it illegal.
Despite its recent collapse, the cryptocurrency ecosystem continues to grow. Thousands of businesses around the world already accept cryptocurrencies and some payment service providers like PayPal have started accepting them, allowing millions of merchants to take advantage of this opportunity. However, despite this enthusiasm, the future of cryptocurrencies seems rather uncertain, as governments want to control their growth, and their legal framework remains to be defined. How soon will cryptocurrencies be accepted by states? Only time will tell. The fact that many governments and central banks have accelerated discussions on digital currencies leads us to believe that cryptocurrencies will be around much longer than most people realize.