This chapter lists some of the most important risks of buying or holding cryptocurrency, whether tokens or tokens.

In the purchasing process:

• Liquidity risk: The Crypto market is very prone to insufficient liquidity. This means that certain coins will be very difficult to trade, especially many tokens in non-custodial DEXes (such as Uniswap/Pancakeswap). Because the trading pair pool can be created arbitrarily and there is no minimum limit on the size of the pool, it may lead to huge slippage during transactions and the desired transaction price cannot be achieved.
• Smart contract risks: There are also huge risks in interacting with smart contracts on the blockchain. The main risks include:
  • Code vulnerabilities: Smart contracts are automatically executed codes. Once uploaded to the zone Itcannot be modified in the blockchain. These vulnerabilities may trigger the execution of some unexpected tasks, resulting in huge losses for investors.
  • Hacker attack: Because smart contracts are extremely flexible and can control large amounts of data, and the code logic running on the blockchain cannot be modified, it not only prospers the DeFi ecosystem, but also provides opportunities for Hackers attackers. A 2018 study found that 1 in 20 smart contracts are at risk of being hacked. It is estimated that the total value lost or stolen due to smart contract security flaws has exceeded $1 billion. This includes many famous incidents, such as The DAO theft (3.6 million ETH was stolen, worth more than $1 billion), the Parity multi-signature wallet attack ($30 million was stolen by hackers), and the Parity frozen wallet issue (more than $300 million was stolen). USD ETH is permanently locked).
  • For example: In 2016, the most famous attack on The DAO occurred, and hackers discovered a vulnerability in its smart contract. He discovered that a "recursive call function" could request funds multiple times before the contract registered and updated the balance, allowing hackers to request large amounts of funds again and again. This resulted in the loss of hundreds of millions of dollars worth of ETH (effectively 14% of the total ETH supply) and forced the Ethereum community to hard fork the new Ethereum chain we use now. The attack typified the dangers of smart contract vulnerabilities and prompted blockchain developers to more carefully review their code to ensure its security.
• Regulatory Risk: Cryptocurrencies are still a relatively new, unregulated asset class. Governments around the world are beginning to formulate regulations, but the rules are still evolving, and it is unclear how they will affect the long-term development of the cryptocurrency market. Learn more in the 2023 Global Cryptocurrency Regulation Report from PwC.

In holding this ring:

• High volatility risk (unsystematic risk / Alpha): due to liquidity Due to scarcity (small market size), lack of supervision, no opening and closing (24x7), and no limit limit, the price volatility of crypto may be very violent, causing the holder's position to depreciate rapidly, especially for some meme currencies. Coupled with their severe lack of liquidity, their life cycle can end in a few hours (from a price surge of hundreds of times to zero).

• Market Risk (Systemic Risk/Beta): Overall market sentiment may affect cryptocurrency prices. Bitcoin and Ethereum are currently the benchmarks in the cryptocurrency market, accounting for 41% and 18% of the total market respectively. Global financial policies (such as interest rate adjustments), regulatory news, and negative publicity may lead to lower demand and thus lower cryptocurrency prices.

• Wallet Security Risks: Typically, Crypto is stored in digital wallets, These digital wallets may be vulnerable to hacking, theft, and other attacks, resulting in the possible loss of all funds. Learn more about cryptocurrency wallet incidents with Certik’s 2022 Annual Review of Cryptocurrency Wallet Security Incidents, which covers large-scale wallet security incidents such as Slope’s mishandling of private keys and Metamask’s iCloud backup. Add the risk of private key storage.

In short, before investing in crypto, TokenInsight reminds you that it is very important to carefully understand these related risks and DO YOUR OWN RESEARCH (DYOR). In addition, you should always use digital wallets with caution (look for reliable ones) and develop good habits when doing so to minimize the risk of loss due to hacking or theft.