Entrepreneurs in the Bitcoin (BTC) sector are usually quick to praise the digital currency for its decentralized nature, the fact that its transactions costs are low or nil in some cases among other things. What they fail to mention however is the fact that the industry has various risks. But first what are the Bitcoin businesses that are being discussed here? These include bitcoin mining, hardware or digital wallet services and payment processors.
With regards to mining bitcoin what is required to set up such as a business includes mining rigs that consist of specialized hardware (ASIC) and powerful computers. Location of such a business matters as mining bitcoins is energy intensive and thus the best places to set up such a business are places with low power prices. As the competition heats up these businesses usually need to replace their old equipment for new faster ones. Bitcoin mining can also be done by pooling together with other miners.
Since all bitcoins have to be held in a safe and secure place offering hardware or digital wallets is another bitcoin business that is popular. With digital wallets the biggest risk is hackers who break in and take off with the coins which are impossible to get back. Hardware wallets or cold wallets can thus serve as a safe option since they are cut off from the internet.
Bitcoin payment processors are another bitcoin business that is popular. These payment processors are also referred to as virtual currency exchanges. Some of the most popular ones in the world include Coinbase and Binance. Cryptocurrency exchanges can either be centralized or decentralized.
Risk of collapse
One of the risks that face Bitcoin businesses is the fact that they could collapse just like regular businesses. On average 75% of startups fail after they are launched and bitcoin businesses are no exception. In the recent past some of the famous bitcoin businesses that have gone belly-up include World Bitcoin Association, Coin Terra, Aquifer, and Mt. Gox.
So far bitcoin has failed with regards to mass adoption and this is a risk for businesses in this sector since it means it has remained a niche product and are thus unable to enjoy the economies of scale. Despite massive amounts of venture capital being poured into the sector with various reports indicating that the figure will soon cross the $1 billion mark, the average everyday person seems not to care about this digital currency.
Part of the reason why bitcoin has not been massively adopted is the fact that about 75% of Americans have never heard of the virtual currency. This is according to a survey that was done by The Street, an online publication, and GfK, a research firm. The survey also found out that close to four-fifths of those who acted as respondents showed no interest in using the digital coin.
For bitcoin businesses there is also the risk that the price of the cryptocurrency could drop to zero since it is usually so volatile. While it hasn?t happened yet, the risk is always there.
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