Crypto coins or cryptocurrencies are digital money you can earn, spend and invest in. Bitcoin, Ethereum, Dogecoin or Shiba Inu have gotten quite popular in the last couple of years. News about young crypto investors becoming overnight millionaires has made the headlines of the big wide web.
Cryptocurrencies are digital assets that can bring you a lot of profit and you don’t have to be a tech wizard to know how to invest in them. However, there are some dark truths about these coins that I believe everyone willing to bet their money on them should know.
-Power shortages, climate change
In 2021, Iran suffered a power shortage and, according to Iran’s president, Hassan Rouhani, it was caused by bitcoin mining. Rouhani placed a ban on bitcoin mining that lasted a couple of weeks. The problem with Iran’s cryptocurrency trading is that 85% of miners are illegal. Unfortunately, Iran has only 50 licensed mining farms which use a total of 209 megawatts of power.
Thus, when you decide to invest in cryptocurrency, be aware of the fact that for you to earn from your crypto investment, a bunch of computers need to perform a complex mathematical equation.
The reward for solving this complex problem is in the form of cryptocurrencies like Bitcoin, Ethereum or Dogecoin. These computers need a lot of power to perform crypto transactions. Thus, the more cryptos in the game, the more power the computers need for their transaction. This may be a negative side of crypto investment if you care about the environment.
According to Earth Justice, cryptocurrency trading leads to intense energy consumption that produces 27.5 million tons of carbon dioxide. In 2021, Bitcoin mining in the USA consumed 36 billion kilowatt-hours of electricity. This is as much as Maine, Vermont, New Hampshire and Rhode Island consumed together in the same period.
As far as carbon dioxide emission is concerned, we all know that the more is produced the worse off our environment is. Carbon dioxide emissions warm up our planet and lead to climate changes in the future.
-Cryptocurrencies are volatile
If you decide to invest in Bitcoin or Ethereum, or any other popular cryptocurrency, you should know that your investment could take a big hit at any time. You could lose thousands or even millions depending on how much you’ve put into it. That’s what happened to Sergey Sergenko, a cryptocurrency investor who lost a whopping $600 million in 2021.
Sergey is a long-term bitcoin investor who woke up one day to see Bitcoin’s value drop significantly. When bitcoins or cryptocurrencies drop in value, investors usually talk about a ‘bitcoin crash or ‘crypto collapse’.
This crypto collapse took place in May 2021 and saw many long-term investors lose their hard-earned cryptocurrency income. However, the coins that were hit the most during the meltdown were not Bitcoin or Ethereum. Luna and Terra USD went from having a lot of value to no value in a short amount of time.
If you decide to become a Bitcoin investor, start getting comfortable with the idea that you will lose some money at one point in time.
The cryptocurrency bubble attracts many scammers. There are some businessmen out there who promise young investors that they’ll become overnight millionaires if only they’d follow their advice.
A crypto company called ‘AusCoin’ based in Sydney, Australia promises their clients to grow their investment in a short time. AusCoin is crypto exchange that was created by Sam Karagiozis, a young entrepreneur who was later arrested for possession of illegal drugs via the darknet marketplace.
The founder promised to install 1200 bitcoin ATMs in Australia. However, he only got to install four of them. The rest of the ATMs was suto pposed be funded from the profit he’d gain from his AusCoin business.
Scams like this happen often in the cryptocurrency world. One thing to remember is that nothing that seems to good to be true is a wise business opportunity.
-Tax situation is a problem
Cryptocurrency is considered property in the United States. For this reason, you need to declare your crypto assets as soon as you make any profit.
However, tax reporting for cryptocurrencies is difficult and requires you to give the cost basis and fair market value across all your trades to the tax officials.
But because cryptocurrency investment is an unregulated practice, no one can supply the above information to you. On the other hand, if you are trading stocks, you will receive from your online broker a 1099-B, a paper with all your data for tax reporting.
Unfortunately, cryptocurrency exchanges cannot give you a 1099-B paper but you can ask for Form 1099-K instead. If you’d like to find out how to file your tax for your cryptocurrency asset, I suggest you read ‘How to report cryptocurrency on your taxes in 5 steps’ on Coin Ledger’s Blog.
Investing in cryptocurrencies comes with risks and negative consequences. Losing money, climate changes or having tax problems due crypto’s unregulated practice are some of the downsides of this type of investment.
However, none of these should stop you from starting your cryptocurrency portfolio. There are more positive aspects of cryptocurrencies than negative and one should know that nothing worth having comes easily.
Marlena is a freelance writer and technology enthusiast with an interest in business, health, and cryptocurrencies. She has written for Thrive Global, Life Hack and other publications. You can contact her on Twitter at @MarlenaEeva.