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Can technology remove financial risks surrounding Bitcoin?

By Guardian Nigeria
13 September 2022   |   9:50 pm
Finance bears inherent risks. We can use technology to manage these risks. For example, we can use innovative technology to prevent illegal or unethical financial activities like corruption. But can technology alleviate the financial risks of Bitcoin? You can check platforms like Ethereum Profit for a smoother trading experience with the best trading techniques. Bitcoin and…

(FILES) In this file photo taken on January 26, 2020, a physical imitation of a Bitcoin is pictured in Dortmund, western Germany. (Photo by INA FASSBENDER / AFP)

Finance bears inherent risks. We can use technology to manage these risks. For example, we can use innovative technology to prevent illegal or unethical financial activities like corruption. But can technology alleviate the financial risks of Bitcoin? You can check platforms like Ethereum Profit for a smoother trading experience with the best trading techniques.

Bitcoin and Financial Risks

Bitcoin is still an emerging asset category. It has only existed for less than 14 years. When you compare this to the lifetime of traditional asset categories like bonds, stock, or gold, you’ll realize how young Bitcoin is. Gold, for example, has been an asset for many decades. The novelty of Bitcoin is one of the reasons it is a high-risk asset.

Bitcoin prices plummeted by over 60% since November 2021. Currently, Bitcoin is in what crypto enthusiasts refer to as a ‘crypto winter. It means that Bitcoin is at a period where its price remains low for an extended time. And this has forced many Bitcoin users to sell off their Bitcoins.

Bitcoin also operates without regulations. Although some governments have attempted to regulate Bitcoin, these efforts are still negligible. Bitcoin’s decentralized blockchain technology prevents governments or other regulatory entities from controlling it. And this has left Bitcoin to operate in a relatively unregulated environment out of government reach.

Proponents of increased regulation of Bitcoin often cite the possibility of criminals using Bitcoin to hide their criminal activities. Bitcoin provides anonymity to users, making it a potential platform for terrorists, drug traffickers, and other criminals to use to send, receive, and launder money from their criminal activities.

The Role of Technology

Technology has great potential to reduce and manage financial risks in general. In the conventional financial system, for example, technology can help law enforcement agencies to track down and halt illegal activities and those behind them. But that is only as far as technology can go.

Technology can have the unexpected effect of increasing financial risk. With more banks, businesses, and individuals adopting technologies such as mobile banking apps, the threat level has increased. For example, hackers can now attack mobile banking systems siphoning money and causing unnecessary disruptions. 

With Bitcoin, the role of technology is even more awkward. Bitcoin uses blockchain technology that is new and difficult to crack. It isn’t easy to integrate other technologies into blockchain technology. You can use technologies to support your trading with crypto. 

Blockchain technology is so unique that other technologies will have to be developed in the future to ensure compatibility if that can be possible. But at the moment, the role of technology in removing the financial risk of Bitcoin is minimal. Moreover, the Bitcoin blockchain is complex, which adds to the problem. Not everyone understands how blockchain works or operates.

So What Next?

Technology changes consistently, and new trends emerge almost daily. And this gives us some hope for realizing the role of technology in eradicating Bitcoin’s financial risk in the unforeseeable future.

While embracing technology in managing the risk, however small, it is essential to consider additional regulation strategies. The financial risk of Bitcoin primarily emanates from the unregulated environment. Governments can introduce specific rules targeting these financial risks while using technology in tandem.

For a start, governments can introduce regulations on using Bitcoin trading platforms and systems. It is essential to realize that most of the financial risks of Bitcoin are outside the blockchain. Perhaps, using technology more on the outside than inside will be more effective.