The world of technology is evolving at a fast pace and over the last decade many new technologies have emerged and strengthened their position in the cryptocurrency market. However, along with new and innovative technologies, the industries are also encountering new challenges before they can reap the benefits which these technologies promise. One of the best examples of this is cryptocurrency which promises to bring innovation to diverse fields. Cryptocurrencies such as Ethereum and Bitcoin have, in a short span of time, gained much popularity and people are trying to explore the technologies more. The influx of people into this market is so high that the cryptocurrency exchanges periodically disable the account creation feature. The average trading volume of the market, on daily basis, has been estimated to be trillions of dollars.
Let’s have a look at the top challenges in the cryptocurrency market:
Initial coin offerings (ICO) form a crucial part of the cryptocurrency market. ICOs help in introducing a number of tokens in the market where investors buy these tokens and provide fiat money in exchange. However, owing to the lack of regulations, pump and dump ICO schemes create much difficulty in the market. Many entrepreneurs introducing token via ICOs speculate highly on the coin. This drives the prices up and attracts the investors. Subsequently, the entrepreneurs cash out and the investors are left with coins having little or no value.
Asset Price Manipulation
Cryptocurrency market is highly volatile. On exchange platforms, the cryptocurrency prices rise and fall dramatically over short periods of time. For instance a tradable asset can fall by about 49 percent in less than 24 hours. This excessive volatility of the market owes to a number of factors among which the activities of ‘whales’ is the most prominent. Individuals with large cryptocurrency holding are known as whales. They can manipulate the cryptocurrency price and swing the market. This type of asset price manipulation becomes possible because of the lack of position price limits/fees on a number of cryptocurrency trading platforms.
For any asset or commodity trading, price charting is must. Developing price charts is essential for investment analysis as well as developing trading strategies. However, the cryptocurrency prices vary with different exchange platforms leading to extreme price differences for the same cryptocurrency. This makes price charting a difficult task. This combines with the market volatility and creates a bigger challenge for the cryptocurrency market.
Right from the beginning, cryptocurrencies have been the target of cyber criminals and hackers. Instances of high profile cryptocurrency hacks have also been reported which resulted in loss of millions of dollars. Investors and traders have lost funds and many platforms have stopped operating. Consequently, prices of certain cryptocurrencies have dropped. Platform operators and traders take many precautionary measures, some of which hamper the trading process. This forces them to choose between efficiency and security. Cryptocurrency trading platforms are constantly making improvements in their security framework to safeguard their systems. And, these upgrades also often cause glitches in the trading process.
Transaction delay is another major problem of the cryptocurrency market. The whole procedure of opening an account, verifying identity and making deposits and withdrawals runs quite slow. Experts have identified issues with scalability which causes transaction delays. As the blockchains becoming longer, more transactions get caught up in the queue awaiting approval. Such delays are often costly as the market is highly volatile.
Although these challenges plague the current cryptocurrency market, experts are working to bring more advancement in technology to overcome them. And a few years down the line we can expect smoother and easier operations in the cryptocurrency market.