The blockchain technology on which cryptocurrencies are based is inherently secure. It is a distributed, public and decentralised ledger technology. What’s more, every transaction goes through an encryption process.
However, the security of cryptocurrencies differs from that of a traditional currency such as the US dollar. Because cryptos are not backed by a government authority, they do not have the same protection.
In the US, money deposited in a bank is insured by the Federalista Deposit Insurance Corporation (FDIC). This is not the case with cryptocurrencies, whose losses are not covered by the government if the company goes bankrupt.
In a notice published in 2014 on cryptocurrencies, the Consumer Financial Protection Bureau warns on this point. The institution also warns about more specific risks such as volatile exchange rates, potentially high fees on exchange platforms and the risk of fraud.
If funds are lost or stolen, it is virtually impossible to recover them due to the decentralised nature of Blockchain and the absence of any government oversight.
What’s more, even if the cryptocurrency is secure, that doesn’t mean it’s a safe investment. Its value remains based on pure speculation.
As is often the case, experts recommend diversifying your investment portfolio. Ideally, cryptocurrency should represent only part of your investments.