Cryptocurrency: Stark warning as investors told to be prepared to ‘lose all their money’

One of the biggest issues for those looking into cryptocurrencies is the risk factor, and the vast amount of scams involving these untraceable currencies. David Woodward, Managing Director of Woodward Financials, explained to Express.co.uk in an exclusive comment everything investors need to know before putting their money forward.

What is cryptocurrency? 

Mr Woodward began: “Cryptocurrency is a digital or virtual currency that is secured by cryptography, this makes it near impossible to counterfeit or use more than once.  

“Many cryptocurrencies are based on blockchain technology and a decentralised network.

“A defining feature of cryptocurrencies is that they are generally not issued by any central authority, rendering them theoretically immune to government manipulation or interference.”

This is a big risk factor as well as an ethical issue for some investors, but alongside this is the risk that crypto investing is nothing more than a popular trend that could soon die out, the expert claimed.

“Cryptocurrencies hold the promise of making it easier to transfer funds directly between two parties, without the need for a trusted third party like a credit card company or bank, but is it ahead of its time?

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“In a hundred years, will there be a common global cryptocurrency? Possibly yes, but is Cryptocurrency 100 years ahead of itself like the first electric car built over 130 years ago which has taken over 100 years to gain a real foothold in society? Will it take this long before we know if crypto will be a good investment or go the way of the dodo?”

He continued: “The whole point of using a blockchain is to let people, mainly those who don’t trust one another, share valuable data in a secure way. But the security of even the best-designed blockchain systems can still fail.”

Another touchpoint to keep in mind is the anonymity that cryptocurrency provides often comes with the threat of being used for illegal expenditures and transfers, the expert suggested.

“The semi-anonymous nature of cryptocurrency transactions makes them well-suited for a host of illegal activities, such as money laundering and tax evasion and may explain the emergence and increased usage over recent years.” 

Mr Woodward added: “Some cryptocurrencies are more private than others, Bitcoin is a relatively poor choice for conducting illegal business online, since the forensic analysis of the Bitcoin blockchain helped authorities arrest and prosecute criminals.

“And most recently, it enabled the US government to track, access a password protected wallet and recover $2.3Million dollars paid to cyber hackers.
It’s only a matter of time before crypto wallets are being emptied by hackers on an exponential scale,” he claimed.

“In modern cryptocurrency systems, a user’s ‘wallet’, or account address, has a public key, while the private key is known only to the owner and is used to sign transactions. Fund transfers are completed with minimal processing fees, allowing users to avoid the steep fees charged by banks and financial institutions for wire transfers. 

“You could argue this to be a good thing,” he added.

How risky is it?

Like all investments, there is an element of risk with Cryptocurrency.

“If consumers invest in cryptoassets, or investments and lending linked to them, they should be prepared to lose all their money and they are unlikely to have access to any redress or compensation schemes.

“Quite a stark warning from the regulator which gives a clear indication as to the level of risk associated to cryptoassets is that it is categorised as a high risk or adventurous investments.”

The FCA themselves have also made their stance on cryptocurrencies clear to investors: “Many activities carried out using cryptoassets are unregulated even if they may appear similar to regulated activities.

“The FCA does not currently have the powers to regulate crypto advertising to UK investors, except where cryptoassets fall within the FCA regulatory scope. For instance, under the crypto derivatives ban, firms cannot market such products to UK consumers.

“The FCA has continuously warned of risks of investing in cryptoassets, or investments and lending linked to them. 

“All UK cryptoasset firms must be registered with the FCA under the money laundering regulations.

“A significantly high number of businesses are not meeting the required standards and this has resulted in an unprecedented number of businesses withdrawing their applications.

“The FCA continues to expect applicant firms to have robust Anti Money Laundering control frameworks in place to manage the increased financial crime risks arising in relation to cryptoassets.” 
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