One of the biggest concerns with cryptocurrency investing is how safe cryptocurrency is, as well as how the evolving world of regulations may impact different platforms and opportunities worldwide.

In this section: How safe is crypto? Cryptocurrency rules and regulations

How safe is crypto?

When investors ask about security and crypto, there are a few angles to this question. The first is that while crypto is secure in that it’s built on the principles of cryptography and peer-to-peer consensus, many cryptocurrencies — especially in the early days — have been beset by hacks, theft, and other forms of cyber attacks. These aren’t common, but they are a potential risk to consider.

Then there’s the issue of how to secure the crypto you buy. To store crypto securely, an investor needs to use a cryptocurrency wallet: either a digital wallet or a physical means of storage like a thumb drive. When using a crypto wallet, you will be relied on to store, remember, and secure a password that only you know. This is frequently an issue with crypto, as people who forget their passwords essentially have had their assets stranded. Crypto wallets may also be vulnerable to hacks.

Last, investors have to consider the overall risks of trading an investment as volatile as most cryptocurrencies can be. Crypto values can fluctuate by the day, the hour, the minute. And while that’s also true of some traditional investments, particularly equities, cryptocurrencies are so new that the sector as a whole doesn’t have much of a track record that investors can consider when making investment choices.

Cryptocurrency Rules and Regulations

While cryptocurrency has become much easier to buy and sell thanks to widespread interest in it from the general public, the cryptocurrency rules and regulations are less well established than they are for other types of assets or currencies like stocks or dollars. This is true in the U.S. and in countries around the world, many of which are still determining whether to sanction the use of cryptocurrencies at all, and if they do, how to regulate them. The Securities and Exchange Commission (SEC), which regulates the trading of many financial assets, has basically split the cryptocurrency world into two, ruling that bitcoin is a “payment mechanism and store of value,” i.e. not a security like a stock or bond, which come under much more strict scrutiny from the SEC.

Many “tokens,” cryptocurrencies issued by companies to fund or pre-fund a business project, do fall under the SEC’s definition of “security” and thus face much tighter regulation. It’s wise to keep an eye on how regulatory issues are evolving in this space, as changes to existing rules can have a substantial impact on investments.